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Government finalises reforms to early years funding

The Government has published its response to its consultation on the Early Years National Funding Formula (EYNFF), which will change from next year the way that funding for early years education and childcare for 3- and 4-year-olds is allocated from central government to local authorities, and for local authorities to early years providers in England.

The most significant change in the Government’s plans is that additional funding has been allocated to ensure that no local authority will receive less than £4.30 per child from central Government, of which 95% (around £4.09) must be passed on to providers. Previously, providers in 20 local authorities were set to receive less than £4.00 per hour, including £3.60 in Dorset, something that PACEY argued was unsustainable.

The Government has published new indicative rates for providers under the revised formula. They have also confirmed that these rates do not include food or other consumables, e.g. wipes, nappies etc, or additional activities, outings or experiences. Providers should charge parents who are accessing the government funded childcare hours for these items. The government has made this clear in new guidance, here.

The three fundamental elements that make up the formula remain unchanged:

  1. Universal base rate (89.5% of the entire amount)
  2. Additional needs factor (based on the number of children in the authority receiving free school meals and who speak English as an additional language)
  3. Area cost adjustment (based on average staff costs and business rates)

Local authorities will also still be required to pass on 95% of funding to providers by 2018-19.

They will be able to top-up provider’s hourly rates with five supplements, which will be capped at 10% of allocated budget to providers:

  • Deprivation (the only mandatory supplement, and it will be for authorities to decide the measures they use);
  • Rurality/sparsity (to help rural childcare settings remain sustainable);
  • Flexibility (to promote different types of flexibility, including growing the childminder segment of their local childcare market);
  • Quality (to support workforce qualifications and system leadership);
  • English as an additional language.

The government will not include supplements for efficiency or for the delivery of additional 15 hours as originally proposed. PACEY argued strongly for the efficiency supplement to be scrapped in favour of a quality supplement.

In addition, there will be more support for children with special needs and disabilities. 3- and 4-year-olds in receipt of Disability Living Allowance (DLA) will receive £615 per year through a new Disability Access Fund, which will be delivered in a similar way to Early Years Pupil Premium (EYPP), which will also continue. However, in response to concerns raised by PACEY and others, the delivery mechanism of both will be reviewed.

Every local authority will be required by law to set up a local inclusion fund for children with special educational needs to support providers in driving outcomes for these children. This will be included in their Local Offer.

Maintained nurseries will receive additional funding of £55 million per year for three years instead of the initially proposed two years.

The new formula will take effect from April 2017 for all government-funded hours for 3- and 4-year-olds. When 30 hours is introduced in September, providers will be paid the same rate by their local authority for all funded hours, whether they be the first tranche of 15 hours or the second.

The Government’s wish is that all local authorities should be ‘on formula’ by 2019-20.

Responding to the Government’s proposals, Liz Bayram, Chief Executive of PACEY, said:

"Today’s announcement concerning the Early Year National Funding Formula (EYNFF) has demonstrated real progress. The Government has clearly listened to some of the sector’s key concerns, and the challenge now lies with local authorities to ensure that the funding reaches early years providers on the front line.

"For PACEY members, in particular, there are two big wins. Firstly, the Government has announced additional investment to guarantee that no local authority will receive less than £4.30 per hour, per setting. As authorities will be duty bound to pass on 95% of the rate this equates to a minimum of £4.09 per hour for ALL providers across England. Previously, the proposed levels meant that settings in 20 authorities were expected to deliver childcare for under £4 per hour, including only £3.60 in Dorset, something PACEY deemed unsustainable.

"Secondly, we are delighted to see that the quality supplement has been reinstated while the efficiency supplement has been removed – which we also called for. All the evidence shows that the key to providing high quality childcare and early education is well-trained and qualified professionals, and settings should be incentivised to do this.

"But we are also really pleased to see additional funding for children with special needs and disabilities through the Disability Access Fund and welcome the review of the Early Years Pupil Premium (EYPP) delivery model.”

PACEY will continue to speak up on behalf of members to raise concerns about the early years funding formula and 30 hours policy. We want to ensure that we support our members as much as possible to build sustainable businesses and to make delivering the funding entitlement work for them. Keep an eye on our website and social media for more details.

If you have any comments or queries, please contact the policy team.