Millions of pounds of unspent early years funding used to plug council deficits

An investigation by the National Day Nurseries Association (NDNA), based on responses to Freedom of Information (FOI) requests, reveals that three-quarters of local education authorities (LEAs) in England underspent their childcare funding for the last financial year.

The NDNA says that the actual figure could be higher, as 21 LEAs did not respond to the FOI and responses from an additional two LEAs were unable to be analysed.

Of the 95 LEAs that reported an underspend, just 20 per cent passed on some or all of the money to childcare providers, totalling £9.6 million, either to increase the base rate for providers, supplements or provide a one-off payment.

Examples include:

• Nottinghamshire - reported a £1.67m underspend, and said it has applied to the DfE to use £1m of it to increase the provider base rate by 10p.
• Suffolk – used its £300,000 underspend to distribute to providers as a quality supplement.
• Ealing – used its £672,000 underspend to increase the provider base rate by 20p.

NDNA says in most cases, LEAs did not use all their underspends but were not clear how much they gave to providers in total.

The LEA with the largest underspend was Surrey at £5m (see table below).

Other uses for the underspend included:

• Carrying the money forward into the Dedicated Schools Grant (DSG) or Early Years Block reserves (40 LEAs).
• Using it to offset overspends within the High Needs Block or supporting children with SEND (10 LEAs).
• Using the money to offset overspends elsewhere in the Early Years Block (15 LEAs).

A further eight LEAs said the DfE had clawed back its underspend, while four more LEAs said they were consulting with their schools forum and six had yet to make a decision.

Overspend

A total of 23 LEAs revealed to the NDNA they had overspent their early years funding for 2018/19 – totalling £10.701m. Of these, 14 LEAs were receiving a funding rate of £4.50 or less.

The NDNA says this may indicate that these funding rates were not sufficient enough for the LEAs to be able to deliver the service required.

LEAs with the biggest overspends were Redbridge, Northamptonshire, Wandsworth, Central Bedfordshire and Shropshire.

Contingency funding

The NDNA also looked into LEAs’ contingency funding, the funds they plan to retain at the start of the financial year due to uncertainty about the levels of take-up of funded hours in their area. This is designed to protect the council and providers from an overspend and having to repay any funding once the true census figures are known.

For reporting purposes, the DfE regard any contingency as part of the 95 per cent pass through requirement for providers. The NDNA says this means any unspent contingency should be used to support childcare providers to deliver funded places.

The NDNA says it is unclear whether figures from the LEAs with an underspend included contingency funding. Some LEAs roll-over their contigency funding to the following year.

Responses to the FOI revealed that 72 LEAs had contingencies for 2018/19, totalling £32m. For the 2019/20 financial year, 68 LEAs had contingencies, totalling £26.4m.

LEAs with contingency funding of more than 1 million for 2018/19 included – Islington, Dudley, Central Bedfordshire and Surrey.

Those with more than 1 million in contingencies for 2019/20 included – Leicester, Islington, Bedford, Norfolk and Wirral.

The LEA with the biggest contingency for 2019/20 at £1.85m was Leicester City Council.

Of those with a contingency for 2019/20, 24 LEAs said they were yet to decide what to do with the money, while 19 planned to roll the money forward within the Early Years Block.

Just eight LEAs said they planned to use at least some of the contingency money to increase providers’ base rate/supplements or make sure they honoured the 95 per cent pass through rate.

A total of six LEAs expected to have no money left at the end of March 2020.

Comments

NDNA’s chief executive Purnima Tanuku said, ‘Our analysis shows an alarming discrepancy in the way that early years funding for three- and four-year-olds is being used and how much is not reaching providers across the country.

‘We have unraveled the true scale of the disastrous funding system which, if not addressed urgently by the DfE, will create a further crisis within early years.

‘Contingencies have a role to play due to fluctuations in take up. But we have seen large scale contingencies that go unspent which must be challenged as they take funding away from the frontline.

‘We know that council budgets are stretched to capacity, especially around high needs and SEND support - but this robbing Peter to pay Paul approach is recklessly short-sighted. It damages the quality of care children and families receive. 

She added, ‘We call on the minister Nick Gibb and Chancellor to act ahead of the Budget - not with any more sticking plasters, but with a meaningful overhaul of the funding system which ensures nurseries are not penalised for delivering funded early education on behalf of the government.’

Ian Morgan, director of Little Ducklings Day Nursery in Berkshire and Puddleduck Nursery in Oxfordshire, said, ‘I have been lucky to have received for the last two years one-off payments from my local authorities due to contingency funds not being used and also due to rising children numbers creating an actual budget increase, which manifests in an underspend. This year I received £7,500 from Wokingham Borough Council.

‘In my role with Champagne Nurseries, Lemonade Funding I have been highlighting the issue of contingency funds and underspends and how money is not getting to the providers. This piece of work by the NDNA is brilliant and really highlights the issue of money not getting to providers and alarmingly shows the problem is worse than I thought.

‘The DfE need to act on this and make sure that the early years budgets are ringfenced and that the money gets to providers.’

A Department for Education spokesperson said, 'The Government recently announced an increase in our hourly funding rates for councils so that they can continue to deliver high-quality and free childcare places. In total, this Government is now planning to spend more than £3.6 billion in 2020-21 to support these offers.

'The setting of local provider funding rates is a decision for local authorities in consultation with their Schools Forum. The free childcare offers for two, three and four-year-olds are demand-led and local authorities will see an underspend in their funding if take-up of any of the entitlements has not been as high as the authority had forecast.'

• The NDNA's findings are published in a new report, 'Underspends and Contigency Budgets 2020', which is available here