Local authority cuts hourly rate for two-year-old places

Letters have just gone out to providers in the London borough of Bexley confirming the funding they will receive from April, revealing that Bexley will be reducing the rate it pays settings to provide the free places from the current rate of £6 an hour to £5.09.

Neil Leitch, the chief executive of the Pre-School Learning Alliance, has written to Elizabeth Truss, the education and childcare minister, as a matter of urgency to express his concerns.

Mr Leitch said that Bexley’s figures confirmed his fears about insufficient funding for the two-year-old places and that the Alliance is very concerned that the situation in Bexley could be replicated across the country, leading to a nationwide funding shortfall for two-year-old places.

Earlier this month, the Department for Education published details of revenue and capital funding allocations for local authorities based on estimates of the eligible number of two-year-olds in each area and confirmed that councils would receive a flat rate of funding, with an average hourly rate of £5.09.

Bexley’s use of the £5.09 figure raises concerns that councils may use the average flat rate given by the DfE as a benchmark figure for the two-year-old funding, wherever the local authority is based in the country.

This is despite the fact that Government funding allocations are calculated using a formula that takes into account local area costs.

In its letter, Bexley makes a direct reference to £4.13 an hour as an average cost for a two-year-old place, based on the Daycare Trust’s 2012 childcare costs survey.

This £4.13 figure was used by Ms Truss as a comparison to show that the average hourly rate of £5.09 awarded to local authorities was significantly higher than the market rate that providers charged for two-year-olds.

However both the Daycare Trust and the Alliance criticised the minister at the time for using this figure, which they said was misleading.

The letter, which Nursery World has seen, says that in order for Bexley to meet its statutory requirement for 524 places during the next financial year, the current hourly rate per child will be reduced from £6 an hour to £5.09 an hour from April 2013.

It adds, ‘This compares favourably to the Daycare Trust Cost survey 2012, which shows average hourly childcare fees in England are £4.13 per hour for under-twos and £3.95 per hour for children aged two and over.’

The Daycare Trust has pointed out that the hourly rate required to provide 15 hours of early education over 38 weeks for a disadvantaged two-year-old is significantly higher than a full daycare model, where providers can ‘cross-subsidise’ between different groups of children over 50 weeks a year.

The £5.09 figure may not therefore be sufficient for providers to break even on offering the two-year-old places, it argues.

An analysis of the figures published by the Department for Education earlier this month also suggests that Bexley is not passing the full rate on to providers.

Ms Truss has urged councils to make sure that the funding reaches the frontline, saying that she wanted ‘parents and providers alike to hold local authorities to account.’

Bexley will receive £5.28 an hour per child, based on the free entitlement of 15 hours a week for 38 weeks a year, but is only paying providers £5.09 an hour.

This means that 19p an hour per child is not being passed on to early years settings as part of the hourly rate.

This is equivalent to £108.30 a year per child and a total of £56,749 a year based on the number of eligible two-year-olds, which for 2013-14 is 524 children.

In a statement, Bexley Council, said, ‘All of the statutory place funding from the DfE will go to providers as required, primarily to create the 524 childcare places, but also to provide additional resources or specialist equipment where needed. None of this money will be held by the local authority.

‘The average £5.09 figure was provided to us by the DfE.

‘There are currently 288 children taking part in the pilot project in Bexley who are attending over a range of hours. Bexley received £478,000 from the Government for the pilot places for 2012-13.’

Elizabeth Truss, education and childcare minister, said, 'We are giving outer London councils at least £5.28 per child per hour next year, while inner London councils are getting at least £6 – both of which are higher than the Daycare Trust's own figure of the average price of £5.07. This will allow London councils to fund providers to offer good and outstanding early education to two year olds. These funding allocations reflect that local labour market costs vary between councils’ areas.

'We have strongly encouraged councils to pass all the available funding to front-line providers, so that it directly benefits young children. We are being transparent about the funding, so providers and parents can hold their councils to account – if the hourly rate to providers is lower than the rate Government funding councils, they can ask why.'