Fears that rates for new places won't meet costs

The total of £525m for 2013/14 is split into place-based and trajectory funding to build capacity for 2014.

Although Elizabeth Truss, education and childcare minister, has won praise from early years organisations for urging councils to pass on the full rate of funding to the frontline, providers remain concerned about whether the rates on offer will cover their costs.

The Department for Education has confirmed that councils will receive a flat rate of funding, which it calculates as an average hourly rate of £5.09 for each two-year-old place. Places will be targeted at good and outstanding providers. A snapshot analysis of the figures by Nursery World suggests, for example, that Darlington would receive £4.85 an hour per child, while in Kensington and Chelsea the rate would be £6.07 (based on 15 hours a week for 38 weeks.)

The formula has been calculated using an estimated number of eligible two-year-olds, based on the number of four- to six-year-olds in each area on free school meals (that is, families whose income is below £16,190 and are on specific benefits) and includes an area cost adjustment. Looked-after children are also eligible.

However, in future, local authorities will be funded on 'a use it or lose it' basis, with local authorities not deemed to have done enough to ensure that parents are taking up the places receiving less money.

In a written ministerial statement, Ms Truss said, 'We see the key role of the local authority as raising awareness of the programme with parents and it is the Government's strong intention to reward local authorities which achieve high levels of take-up by moving to participation funding. This is not possible in 2013, but we intend to do so as quickly as possible from 2015.'

However, funding for two-year-olds is not ring-fenced and is part of the Dedicated Schools Grant (DSG), which means that it must be used for education purposes for children from two to 16 years old. Local authorities are responsible for making decisions about how the DSG is used, in consultation with Schools Forums.

The £100 million allocated for capital spending is intended to support investment needed by local authorities to deliver the two-year-old offer. However, as it is not ring-fenced, in reality it can be spent on any capital purpose.

Early years organisations welcomed moves to greater accountability. As well as continuing to submit section 251 financial returns, from 2013-14 local authorities will be expected to give a detailed breakdown of their spending on the two-, three- and four-year-old entitlements by completing a new early years proforma.

Ms Truss told Nursery World that she wants 'parents and providers alike to hold local authorities to account'.

She added, 'Successful providers know they can go anywhere in the country and be confident that the local authority has sufficient funds to pay for a high-quality, two-year-old education programme. We have made it clear that any good or outstanding provider should be able to offer these places.'

But the Daycare Trust said its research for London Councils suggested providers need £8 an hour in the capital to break even and that some local authorities are struggling to meet extra administration costs, such as matching children to vacancies, and training for nursery staff and childminders to boost the quality of their provision.

Neil Leitch, chief executive of the Pre-School Learning Alliance, said the vast majority of providers believe the charge rates for two-year-olds do not reflect the delivery costs and that settings often absorbed the extra costs associated with higher staff-to-child ratios across their entire business. 'One setting taking part in the pilot project said the funding it was receiving of £6.09 was "grossly inadequate" as many of the children needed one-to-one care.'

CASE STUDY: BLACKPOOL COUNCIL

In 2012-13, Blackpool Council is trialling the two-year-old offer in three of its most deprived wards - Grange Park, Talbot and Brunswick. These areas are also among the bottom 5 per cent most deprived areas in the country. There are 125 extra places for two-year-olds. Eligibility criteria is based on parents' income and places are also offered to all looked-after two-year-olds.

Take-up is high - at Talbot and Brunswick Children's Centre, for example, 21 out of the 24 places for two-year-olds are part of the trial. The nursery does not take babies.

At Grange Park children's centre, which takes under-twos, there are 14 two-year-olds and nine of them receive the funding. Sue Dutton, manager of Grange Park, who has also just taken on the running of Talbot and Brunswick, said, 'They're quite different nurseries. We've expanded our two-year-old provision and re-deployed staff. We track the two-year-old places and outreach workers will check with families to see if they have taken up the offer of a place and encourage them to attend.'

She added, 'There's a lot of follow-on work. It might be doing referrals to other services in the children's centre, looking at what other support the family might need.'

In order to access two-year-old funding, all providers must attend a mandatory training course on working with two-year-olds, run by the council. The course includes: child development, early communication, working with children with additional needs, and social and emotional development.

Eighty-two per cent of providers taking part in the trial are good or outstanding and the others are on a high-intensity support programme with the local authority and are expected to gain a 'good' grade at their next Ofsted inspection.

Eight group providers, a mixture of children's centres and private and voluntary settings, are taking part, with around three childminders.

Around half of childminders working in Blackpool are part of a network, enabling them to offer the places.

Sarah Lambert, senior manager for early years and family support, said, 'Childminders need to be on a network to access the grant. We want our childminders to be fully involved.'

She said that she anticipated that most providers will offer the two-year-old places from next September.

She added, 'We've put a lot of training in, so that settings are fully aware of how to work with vulnerable children. All our PVI settings are linked to children's centres, so if families need extra support it's there.

'We work very closely with health visitors and primarily we get health referrals from when health visitors do the two-year-old check.' Other referrals come from the domestic abuse team, housing or children's centres directly.

When referrals are made, the local authority checks whether families are eligible by logging into a secure section of the Department for Education's website and using the Free School Meals Eligibility Checking Service. This will give them a simple 'yes' or 'no'.

However, Ms Lambert added, 'It would make it easier if we were told which families are eligible, so that we could make the initial contact. Some parents might not know they are eligible.'

The local authority is currently receiving £4.85 an hour. Ms Lambert said, 'We're still not quite sure how much money we'll have going forward. We're passing on the full amount to providers, more or less. We believe that quality matters and quality costs.'

She added, 'Looking after vulnerable two-year-olds en masse is difficult; it takes more capacity and resource.'

She said that if more funding for two-year-olds was available it would enable settings to recruit more staff and have higher staff-to-child ratios to help quality. In some areas she said settings could have 16-20 vulnerable two-year-olds and there was a risk that this could unbalance provision. She said that any move to cut staff-child ratios for two-year-olds 'horrifies' her. 'There's not a lot of understanding about what a big job it is. It's not an easy ask.

If you deregulate it and halve the number of staff, the quality won't be there.'