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PACEY responds to early years funding consultation

PACEY has submitted a response to the Government’s consultation on early years funding. The Government is proposing to introduce a new early years national funding formula (EYNFF) from April 2017 which will significantly change the way that early years funding is allocated to both local authorities and providers.

PACEY has pulled together a range of frequently asked questions to help you make sense of the proposals. You can see the proposed funding levels in various local authorities in this spreadsheet, and get a quick look at the average funding for your area in this condensed sheet. 

While PACEY strongly supports the principle of an early years national funding formula to allocate funding to both local authorities and early years providers in a more fair and transparent way, we have made a number of recommendations to improve the Government’s proposals:

  • The universal base rate will only be viable if it is set high enough to cover the costs of all different types of providers, or if their costs can be met in other ways, for example through targeted funding supplements. Under the proposed EYNFF, 22 local authorities are projected to pay providers under £4.00 under the new formula. In PACEY’s view, these rates are not high enough to provide a high quality place.

  • The operating costs of early years providers do vary across the country, and we agree that the EYNFF requires an area cost adjustment to reflect this. This should be based primarily on staff costs – not on business rates for nursery premises, which only apply to private nurseries and do not affect childminders, maintained or voluntary settings.

  • There is also a need for a new ratio measure in the formula to reflect the cost of providing childcare in view of the setting’s statutory ratio requirements, which can have a significant impact on cost. The Government’s own funding review found that childminder’s costs on average were higher than all other types of providers,. The key reason for this is that childminders are restricted to a 1:3 ratio for all children under 5 (and even less if they have young children of their own), while group settings operate at a 1:8 or 1:13 ratio for 3- and 4-year-olds, depending on staff qualifications.

  • There is still a need for greater clarity about what charges are permitted under the free entitlement. We welcome the distinction between ‘consumables’ and ‘discretionary items’, but these need to be set out in more detail in statutory guidance so that all local authorities and providers adopt the same approach.

  • We strongly disagree with the proposal of a funding floor so that no local authority faces a reduction in its hourly funding rate of greater than 10%. This is contradictory to the overriding aim of distributing funding more equitably throughout the country based on actual needs and costs – not historical precedent.  The variation in funding rates between authorities under the proposed EYNFF is still too wide, from £3.60 in Dorset to £8.24 in Camden.

  • We welcome proposals to require local authorities to pass on 95% of all early years funding to providers.

  • The proposal for an efficiency supplement should be scrapped. In our view, providers will already have to be extremely efficient to deliver the entitlement – particularly the full 30 hours. It could also have perverse incentives, forcing settings to prioritise efficiency over quality.

  • We strongly disagree with the decision not to retain a quality supplement. The key to providing high quality childcare and early education is well-trained and qualified professionals, which requires substantial investment on the part of providers. Quality supplements are a crucial means of helping settings invest in training and qualifications for their staff. The sector also needs a workforce strategy which sets out a concrete plan to improve the skills, qualifications and progression routes of everyone working in early years, as well as attract talented new entrants.

  • The proposals for a Disability Access Fund and local authority SEN inclusion fund are a big step forward towards helping more children with disabilities and special needs access the entitlement. It is crucial that they are properly funded, well administered and reach the children and providers who most need support.

  • The transition proposals are overly cautious. Increased funding needs to reach providers as soon as possible or they will not be in a position to deliver the entitlement.

  • PACEY is also concerned that there is no review mechanism built into the EYNFF to ensure that funding rates keep pace with inflation and the cost of living. This is essential in order to provide a high quality and sustainable early education and childcare entitlement in the long term.

Responding to the consultation, Liz Bayram, Chief Executive of PACEY, said:

“Without greater clarity for all settings about what they can additionally charge, the numbers don’t add up. According to the government’s own review, a childminder working to maximum ratios costs £3.76 yet the proposals indicate that six local authorities will be paying less than that, and twenty will be paying less than £4.00.

“In our experience few childminders work to maximum ratios, especially as many care for related children, who they cannot claim free entitlement for. The formula for two years old funding works well for most childminders but there is little incentive for them to carry on caring for funded children who turn three, because they are penalised with a decrease in rate, unlike group settings. Basing the proposed area cost adjustment on staff costs and statutory ratio requirements for different settings (rather than business rates) would be one way to help incentivise settings with more restrictive ratios.

“The formula makes clear that settings delivering the 30 hours will be able to make additional charges for “consumable” items but not for “discretionary” items. This important provision is likely to make the difference between some settings delivering the free entitlement or not. PACEY would urge government to ensure guidance on this is clear to local authorities and registered providers. Early implementers are already utilising this provision and it will be key to ensuring providers can sustain their businesses and deliver the entitlement.

“That said – this will ultimately mean that ‘free childcare’ will not truly be free. Given the pressure on public finances, targeting funding at those disadvantaged children who would benefit the most – should be the priority."   

PACEY will continue to speak up on behalf of members to raise concerns about the 30 hours policy. We will also update members as soon as we know more on the detail of the 30 hours, and what this means for you. 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.