Analysis: The fallout from the Alliance investigation stokes calls for funding review

• Early Years Alliance wins two-year battle over FOI request
• Government stands accused of ‘shamelessly’ and ‘knowingly underfunding’ the early years sector
• MPs call for ‘meaningful’ funding review

The longstanding battle for more funding between the early years sector and the Government has ramped up in the wake of revelations from an Early Years Alliance investigation.

Private official documents obtained by the alliance, after a two-year Freedom of Information dispute, reveal that ministers at the Department for Education were aware in 2015 that it was severely underfunding providers of funded childcare places for three- and four-year-olds.

Documents obtained by the alliance show that early years funding rates for 2020/21 were less than two-thirds of what officials estimated to be the true cost of ‘fully funding’ the scheme.

On the same day (15 June), data published by Ofsted showed that more than 2,500 childcare providers have closed this year.

The standoff between the alliance and ministers continued, with children and families minister Vicky Ford telling the All-Party Parliamentary Group for Early Education and Childcare on 22 June that the FOI ‘predates the significant investments that were made in 2019 and 2020 in uplifts to the early funding rates for the free childcare offers’.

However, in response at the same meeting, the alliance’s chief executive, Neil Leitch, stated to the APPG, ‘Minister Ford implied the FOI did not take into account recent funding. To be clear, [the] DfE anticipated the funding required in 20/21 to be £7.49 per hour. Regardless of recent investments, the current average rate paid is £4.89, so where is the justification in defending the position? This was not on the current [secretary of state] and minister’s watch, so they have the choice to continue to be complicit or switch on their moral compass and do something about it!’

Meanwhile, the cross-party group of MPs is calling for ‘a meaningful review’ of childcare funding, and has called on the Government to provide almost £3,000 per child to tackle underfunding.

The group is chaired by the Conservative MP Steve Brine, who told the APPG, ‘This is about more than money but also the certainty that our early years sector needs to put the needs of every child at every setting at the heart of their work without having to worry about the future sustainability of those settings or their job in those settings. That’s what we are really about. Despite their status as the fourth emergency service, too many early years settings have actually closed or shed staff in the last 12 months.’

The MPs have written to the Chancellor Rishi Sunak and Education Secretary Gavin Williamson pressing on them to work in partnership in order to address flaws in the funding of early years provision.

The APPG is calling on the Government to use the upcoming Spending Review to address funding shortages in the early years sector, including those highlighted by the alliance’s FOI investigation.

The group wants a catch-up premium of £2,964 per child per year under the 30-hours entitlement to ensure the early years sector can meet the needs of children and support parents returning to work in order to help drive a post-Covid economic recovery.

Petition

The findings come as a petition calling for an independent review of childcare funding and affordability has received more than 110,000 signatures.

The Government responded to the petition on 23 June, stating, ‘We are not currently planning a review of early years funding, but we continue to evaluate the support on offer and endeavour to provide support to both parents and providers to ensure the sustainability of the sector.’

However, the Petitions Committee has said it will be looking into the issue further and has commissioned a survey of parents and providers.

Meanwhile, on 21 June in the House of Commons, in response to a question from shadow children and early years minister Tulip Siddiq about the FOI investigation and the closure figures, Ms Ford accused her opposite number of ‘scaremongering’.

Ms Siddiq said, ‘Bearing in mind that in this year alone there’s been a net loss of 2,500 childcare facilities in England, will the minister apologise for covering this up, and will she explain to the House how she plans to rectify the very serious problem in underfunding in early education?’

In response, Ms Ford said, ‘We have put an unprecedented investment in childcare in the past decade, over £3.5 billion in each of the last three years. There are always reasons why providers come and go from the register, including mergers and acquisitions. The key thing is whether there are sufficient places for children, and we monitor the market very closely and we are continuing to see that there isn’t a significant number of parents unable to secure a childcare place.’

What do the FOI documents show?

Published in 2015, the DfE estimated that the cost of providing a Government-funded early years place for a three- or four-year old would reach £7.49 per child per hour by 2020-21, a shortfall of £2.60 per hour based on current average funding rates of £4.89.

The documents also reveal that ministers knew the inadequate level of investment proposed would result in higher costs for parents of younger children, and that nurseries, pre-schools and childminders would be forced to use maximum statutory adult-to-child ratios – despite the impact this could have on the quality of provision.

The same document suggests providers should ‘become more efficient’ to reduce costs.

It also suggests that the 30-hour offer for working parents of three- and four-year-olds would lead to greater price increases in childcare for younger children.

According to independent analyst Ceeda, the average early years funding rate given to local authorities in 2020-21 was just £4.89 – a shortfall of £2.60 per child per hour, or £2,964 per child over the course of a year for children receiving 30-hour funding.

The DfE rejected a second FOI request filed by the alliance in April that asked for proof that the 1.2 per cent increase in early years funding for 2021/22 would cover the cost to the sector of increases in the national minimum and living wages, as ministers have claimed.

During his keynote speech at the alliance’s conference on 16 June, Mr Leitch said, ‘What these documents confirm is that this Government, for all its rhetoric about levelling up, improving life chances and giving all children the best possible start in life, has been shamelessly, knowingly underfunding our sector for years.

‘They knew that the level of funding they gave to us would impact on quality. They knew it would put prices up for parents. And they did it anyway.’

‘Official sensitive’

The ‘Early Years Spending Review Scenarios’ document, marked as ‘official sensitive’, states, ‘There are a number of factors that could risk the sustainability of the [three- and four-year-old] entitlement – from NLW pressures to supporting children with SEND. Fully funding them all is not affordable – by 2020-21 it would be a 3-4yo rate of £7.49, and potentially cost for the uplift alone of over £2bn. We will make reforms and expect providers to become more efficient in order to reduce this cost.’

The same document also acknowledges that the introduction of the 30-hours policy was likely to result in price increases for parents.

‘Provider costs vary substantially between age groups – primarily because of statutory ratios. Providers generally adopt a more-or-less flat pricing structure across the age phases. Currently this is possible because the free entitlement is only 15 hours. When Gvt purchases the majority of “cheaper” three- and four-year-old places, it will become harder for providers to price in this way. Providers may, therefore, increase prices for younger children – potentially by as much as 30 per cent. This could stop parents returning to work while their children are younger.’

This acceptance of inevitable price increases comes despite the fact that the document goes on to state that ‘a 10 per cent reduction in the cost of childcare might lead to a 1.4 per cent increase in the employment rate for married mothers with pre-school age children’.

A separate briefing note to the then early years minister Sam Gyimah, obtained as part of the FOI request and marked as ‘RE: Early Years Funding Rate Negotiations’, which has been heavily redacted, states that the total annual cost for increasing early years funding rates could be, ‘… reduced to c. £500m if Ministers are content that we do not fund providers to cross-subside the privately-paid rate for children younger than 3, and instead accept that prices will rise for these children’.

Following the 2015 Spending Review, the Government ultimately implemented an annual increase in funding of £300 million per year, which came into effect in 2017.

The ‘Early Years Spending Review Scenarios’ document also exposes a deliberate strategy of passing costs on to parents, said the alliance. It states that, ‘We will strip out funding for consumables (food, nappies) – and set an expectation that providers charge parents for these.’

The Government also expected ‘providers to move, over time, to full use of statutory staff ratios’, despite lower child-adult ratios being associated with higher-quality early years provision.

FOI requests – the investigation

The alliance originally submitted its FOI request – which asked for proof that the early years funding rates announced in 2015 and implemented in 2017 had been calculated to be enough to cover the rising cost of delivering places over subsequent years – in December 2018. The DfE rejected this request, even after a ruling by the Information Commissioner’s Office (ICO) that the information should be released, instead appealing to the First Tier Tribunal against the ICO’s decision.

While awaiting a tribunal hearing date, the department claimed that it would be publishing the requested information as part of wider Government transparency documents, before eventually withdrawing its appeal and providing the documents to the alliance.

Second FOI request

The alliance additionally filed a second FOI request in April 2021 asking for the calculations behind Government claims that the 1.2 per cent increase in funding for the early years, which came into effect in April, would cover this year’s uplift in the national minimum and living wages, as well as the extension of the latter to 23- and 24-year-olds.

However, the alliance said the DfE has rejected this request, stating that it is already planning to release this information itself and that it is in the public interest to wait for it to do so.

It said the children and families minister had stated in January at a meeting of the APPG for Early Education and Childcare that the Government would be releasing this information to the sector.

Response

In response, the Government said the alliance data predates the significant uplifts to rates paid by Government for the childcare offers – with new and increased investment announced in 2019 and 2020.

A Department for Education spokesperson said, ‘We’ve made an unprecedented investment in childcare over the past decade, spending more than £3.5 billion in each of the past three years on our free childcare offers and increasing the hourly rate paid to councils above inflation for the past two years.

‘Through our early years funding formula, which we introduced after consultation with the sector, councils must pass on the vast majority of the funding they receive for the three- and four-year-old entitlements. The number of childcare places available for parents in England has remained broadly stable since 2015, and we are not aware of any significant issues for parents in accessing free places – we work closely with councils to ensure this remains the case.’

Additional reporting by Annette Rawstrone