Nursery Management: Funding - Don’t hold back

In January, the National Day Nurseries Association revealed that huge numbers of providers are not receiving funding that is rightfully theirs.

According to the NDNA’s Freedom of Information findings, more than three-quarters of local authorities underspent their childcare funding pot in 2018/19, totalling £63 million.

Most of this money was not passed back to childcare providers, with four in five failing to pass it through – figures which provider and campaigner Ian Morgan describes as ‘shocking’.

Mr Morgan, who brought the issue to the NDNA’s attention, believes the Government system provides a cover for exploitation by councils, with some robbing Peter to pay Paul by using the money to balance the books elsewhere. ‘If there’s a loophole, people will find it,’ he says.

Croydon Schools Forum early years representative Theresa Staunton is less cynical, describing the ‘complex financial maze’, leading some councils to lose track of the money so that it may never make its way to providers.

Whichever is true, given the backdrop of rising costs and stagnant funding rates, the sector is united in its calls for councils to improve transparency around early years budgets, particularly the rationale for contingency levels, and for closer compliance checks by the Government.

The NDNA is calling for funding to go directly to parents through a Childcare Passport, but in the short term it cites arguments for councils to cut the amount of contingency they hold and for unspent funds to be passed on as soon as possible after being identified.

Fighting back

The NDNA’s investigation found that 72 local authorities reported planned contingencies for 2018/19 totalling £32 million. However, the figure could be higher – some councils did not report contingency separately, providing these figures only as part of the underspend (which is normally caused by overestimated child numbers).

But some providers have already won windfalls from their councils, such as in Croydon, Staffordshire and Wokingham Borough, which paid £429,000 to providers, or £0.22p per hour, resulting in Mr Morgan’s setting, Little Ducklings, getting a payment of £7,500 in July last year.

Local groups are beginning to organise challenges. Champagne Nurseries, Lemonade Funding has started a new closed Facebook group for early years representatives on local authority Schools Forums to share information and support each other to challenge funding decisions. They are also putting together list of councils which don’t have an early years representative.

Mr Morgan is helping providers within the Norfolk County Council catchment to mount a challenge, where the base provider hourly rate for three- and four-year-olds is just £3.65.

Norfolk, with a £2.2 million underspend in 2018/19, is among the 15 local authorities with underspends of more than £1 million. It is one of ten councils which used a total of £8 million to offset overspends in their high-needs block.

Norfolk’s planned contingency was £7,200 in 2018/19, rising to £1.3 million in 2019/20.

Cllr John Fisher, cabinet member for children’s services, told Nursery World this was ‘a well-considered decision to ensure we have the necessary funding’ and had been agreed with the schools forum. ‘This took account of the wider position of Norfolk’s Dedicated Schools Grant as the early years is just one part of it. This is in line with Government regulations and the same approach is planned this year, if there is an [early years funding] surplus,’ he said.

How to get contingency money passed through

Mr Morgan, who is the early years representative on his local schools forum in Wokingham, recommends starting by getting to know your local rep.

‘Bear in mind that some may not have the skills to analyse complex financial arguments, or they may be struggling to get themselves heard amid the dominant voice of schools reps’ he says.

Mr Morgan suggests making sure the early years representative is asking the right questions in order to understand the early years budget before they provide sign-off.

Citing his own efforts, he has asked for more detail at times when he thinks insufficient information has been provided for him to follow the rationale for the rate setting.

During his recent discussions with Wokingham’s early years team over the budget for the 2020/21 financial year, the council agreed a relatively small £215,000 contingency out of an £11.5m budget. This is lower than in 2019/20, and is based on a notional rise of 40 children. The base rate will increase by 7p.

According to Mr Morgan, once Croydon identified an impending underspend for 2018/19, the council promptly passed this on to providers, and actually recorded a zero underspend. ‘The contingency hasn’t been used in Wokingham for the last two years, since the new EYNFF [early years national funding formula],’ says Mr Morgan, adding, ‘We could argue to lower it further, but we know the council is honest – I know that next year that money will come back to us.’

Ms Staunton, who runs three settings in Croydon, reports a similar picture.

In October 2019, a £700,000 underspend was distributed to providers, and for 2020/21 there will be zero contingency.

Another success story comes via Philip Siddell, director of Humpty Dumpty Day Nurseries, who is Staffordshire NDNA network chair and the county’s schools forum rep. He recently negotiated the pass through of an unused £600,000 contingency from 2018/19.

Mr Siddell, who had built a relationship with the county council’s childcare and sufficiency manager long before his forum role, said a stagnating hourly provider rate, which has broadly ranged between £3.46 and £3.97 over the last decade, made him realise ‘we can’t go on like this’.

The process of getting the rebate began when he asked for more detail on the coming year’s finances because there had been recent confirmation of a £1.43 million underspend.

In addition, in supporting documents for the October 2019 schools forum, he says ‘there was just a couple of paragraphs which basically said that the centrally reserved fund for the next year would be £1.8 million, which represents only 4.2 per cent.

‘It looked as though the local authority was saying: “We’ve got more than a 95 per cent pass through, is that ok?”

‘It looked far too simple. We just wanted to know, what does that mean exactly – it’s great that it’s under the 5 per cent, but is that withholding too much?’

In response, the council held a presentation event for providers at which the calculations, including the contingency, were justified.

While some councils may take maximising the amount they keep as a starting point, he feels confident that Staffordshire ‘work out what they need’.

The starting approach he recommends to other providers is to ‘understand what is making the local authority tick – what are they trying to do with the money they’re given? Are they trying to maximise the base rate? And be respectful.’

As a result, an hourly rate windfall of 5p per hour for three- and four-year-olds and 20p for two-year-olds is on its way to providers this spring.

Understanding contingency money

Contingency money is a pot of cash which councils retain at the start of the financial year due to uncertainty about the levels of take-up of funded hours in their area. It is included in the 95 per cent of government funding that the Department for Education requires that local authorities pass to providers, which also includes the base rate and supplements.

The remaining 5 per cent is for council operating costs such as employing the early years team.

Any underspend is then transferred from the early years block funding to elsewhere, such as for schools or special needs children. It must be included in the 5 per cent running costs when the council records the outturn for the previous year, each July.

According to Government guidance, contingency money should only be a ‘small amount’. This is clearly open to interpretation, but with good sector scrutiny can be argued down or at least passed on promptly.

DfE guidance confirms that while the planned budgets are monitored for compliance at the start of the financial year, the Government does not currently check whether the 95 per cent/5 per cent rules have been complied with in the reconciled spend. However, it adds it ‘may consider the future use of s251 outturn data to monitor compliance with the pass-through’.

Ultimately this means unused contingencies and other underspends are being used to plug gaps in council budgets or are rolling over to the following year.

NDNA chief executive Purnima Tanuku says: ‘Three years into the policy we would expect councils to have a better understanding of demand, and contingency amounts should not be as high as they have been.

‘About half of local authorities do not have a contingency budget, so some are clearly managing without them.

‘We are supportive of some level of contingency due to the uncertainties around funding, so some local authorities feel they need to plan ahead for fluctuations. It’s better they do that than overspend and then go back to providers to reduce their rates.

‘We would have concerns about contingencies that roll on year after year as this money is considered by the DfE as part of the 95 per cent pass-through rate, so they believe it has reached providers.’

Further information

https://bit.ly/32Bvm6c