DfE study finds quality ‘does not cost substantially more’

Catherine Gaunt
Monday, February 6, 2017

Higher-quality early years education does not involve ‘substantially higher cost’, according to new research commissioned by the DfE, which also found that maintained provision has higher delivery costs than the PVI sector.

Higher-quality early years education does not involve ‘substantially higher cost’, according to new research commissioned by the DfE, which also found that maintained provision has higher delivery costs than the PVI sector.

The findings come from a report on cost and funding of early education, published as part of the DfE’s eight-year Study of Early Education and Development (SEED).

Co-author Dr Gillian Paull from Frontier Economics, which carried out the research, said, ‘This report uses newly collected data from all types of childcare and early years providers to undertake a robust analysis of the relationships between costs and a broad range of setting and local characteristics, seeking both to contribute to discussions around free entitlement funding and to provide cost data for an analysis of the value for money of the policy.

‘The study also contains a specific element on the cost and revenue for early education for children with special educational needs and disabilities (SEND).’

The research team visited 166 settings, including private, voluntary and independent settings, nursery classes, maintained nursery schools, childminders and children’s centres. They collected information on the costs of delivery of funded education, and parents’ fees, spanning babies to four-year-olds.

Factors such as geographical location, deprivation, and whether the provider was a single site or chain, were taken into account.

A range of quality measures, including the Sustained Shared Thinking and Emotional Well-being (SSTEW) scale, and whether the setting was ‘graduate-led’, were used, and the sample was not restricted by Ofsted grade. There was no value judgement – lowest, middle and highest were a relative measure of quality.

Dr Paull said, ‘We had a very high response rate which means that the evidence should be representative of the overall picture. We estimated the hourly cost of delivery for early education and childcare.

‘We have six types of providers, statistically tested for differences in costs between them.’

The research found that the maintained sector has higher costs than PVIs, mainly due to higher staff costs.

Dr Paull added, ‘We looked at funding information to find out how parental fees compared to the free entitlement rate.

‘In line with other work, the free entitlement funding rate for two-year-olds is relatively generous compared with average parental fees, but is lower than average parental fees for three- and four-year-olds.’

Funding and costs for special educational needs and disabilities vary by type of SEND.

The researchers said it should be noted that all the evidence sources were reporting sample estimates and there would be some variation in cost estimates, even when identical sampling and methodological approaches were used, particularly when sample sizes were not large.

The researchers acknowledged there were substantial differences in cost estimates between the DfE study and Ceeda’s 2015 report Counting the cost, as well as other studies for PVI settings.

Asked why the DfE report’s findings were different from previous research, Dr Paull said the more substantial differences in cost estimates appear to be related to the methodological approaches used, which could push up the cost estimates in the Ceeda report.

‘For example, the Ceeda study assumed an additional 17 per cent in staff costs in addition to gross salaries (while SEED collected these additions more directly); only collected data in June and July (which the SEED evidence suggests are months with higher hourly costs); and included salaries for owners and interest on loans (which SEED omitted as investment returns/costs rather than ongoing delivery costs).’

Secondly, she said differences in cost estimates between SEED and two other studies (by NLH Partnership and KPMG) are only for two-year-olds. This may be because these studies used average or statutory staff:child ratios to allocate costs across ages, which may have overstated the staff cost for two-year-olds (while SEED collected direct information on staff use).

In addition, NLH Partnership’s sample was selected from settings in its network, and the KPMG sample was only from Birmingham, which could explain the slightly higher cost estimates for both age groups.

Finally, the DfE’s 2015 Analytical Report on costs was a benchmarking exercise based mainly on secondary data sources, rather than direct data collection, and acknowledges that its assumption of no staff flexibility creates an upward bias in its headline figures. Relaxing this assumption substantially reduces the costs.


Early years organisations expressed surprise at the findings, which they said did not tally with other research and information from their members.

Neil Leitch, chief executive of the Pre-school Learning Alliance, said, ‘We welcome the report’s recognition that providers – and particularly PVI providers – receive significantly less from government funding than they do from parents’ fees.

‘That said, we cannot reconcile the delivery cost estimates made in this report with the data reported to us by our members, nor with our own experience as a childcare provider, and we would welcome greater clarity on how some key cost drivers, such as training, holidays and sickness, have been factored into Frontier’s cost estimates.

‘With reports of providers being forced to close becoming increasingly common, it’s clear that – in contrast to what this study suggests – there is still a significant gap between the true cost of delivery of early years care and education and the funding rates that providers receive’.

Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA), said, ‘This study is surprising in that its conclusions don’t match other research done in this field across all childcare providers, which point towards true delivery costs being much higher.

‘Our members say they have real fears about remaining viable as businesses in the face of inadequate funding and rising business costs, let alone making a profit or surplus. This is the message we have been given for the past eight years in our annual nursery survey.

‘This has also been the picture within nursery schools, childminders and maintained settings. We would agree that there is real variation across the sector, which outlines the difficulties in setting a fair rate of funding for all.’

PACEY chief executive Liz Bayram said, ‘Here is yet another piece of research showing that it costs more to deliver a childminding place than a nursery or pre-school place.

‘However, the new funding formula will require local authorities to pay all providers the same universal base rate. Frontier Economics found that the average cost of providing a childminding place is £4.77 per hour, but a majority of authorities are set to pay significantly less than that.’

She added that the study backed up PACEY’s finding that a key reason many childminders do not find it economically viable to deliver the free entitlement is the two-tier funding system, with one rate for two-year-olds and another, lower rate for three- and four-year-olds.

This system was designed with group settings in mind, she said, because they have higher staff to child ratio requirements for twos than threes and fours; for childminders the ratio is 1:3 for all under-fives.

Ms Bayram stressed, 'This isn't a call to change those ratios, rather a plea to LAs to recognise this as they finalise their rates including additional supplements.'

  • Read the reports here


By Dr Jo Verrill, managing director, Ceeda

‘The SEED study has used consistent methodology to capture costs across all parts of the sector, and its detailed analysis of variance in costs is a valuable contribution to our understanding of cost drivers. Ceeda’s analysis suggests significantly higher cost averages in PVI non-domestic settings, and the differences in approach are explored here.

‘Ceeda’s original Counting the cost study tracked staff deployment and child occupancy across a two- week period in summer 2014 using detailed room diaries. Costs were then analysed based on the mix of staff and children present, alongside supernumerary activity.

‘The cost of in-ratio labour in a room at any one time was attributed to the children present on the basis of age-specific adult:child ratios, recognising the fact that sessions often span age groups.

‘As the report authors highlight, the SEED study did not adjust for ratios in attributing costs to individual children, and this is likely to impact in particular on reported two-year-old costs.

‘The gross hourly pay rates of each member of staff in the Ceeda study were individually adjusted for employment on-costs based on the employee’s contract type, working hours and job role.

‘Apart from employer NI, these adjustments at individual employee level included factors such as time lost to sickness, training and annual leave, using Office for National Statistics estimates of sickness by occupational category, and sector participation in training, as measured by the UK Commission’s Employer Skills Survey. On-costs of employment are a significant element in delivery costs and may play a factor in explaining differences across the studies.

‘Ceeda’s analysis has found that “quality costs”. Ofsted-rated Outstanding provision costs more, on average, to deliver than Good provision, and graduate-led provision costs more than non-graduate-led care.

‘Ceeda uses a broad definition of graduate leadership as pedagogy led by staff with relevant graduate qualifications. The narrower definition of graduate leadership as a setting manager with a relevant qualification may go some way to explain why this same pattern was not identified in the SEED study.’

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