Two-year-old funding rate could leave providers out of pocket

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Early years organisations have welcomed the call from the education and childcare minister Elizabeth Truss that local authorities must ensure Government money for free early education places for two-year-olds reaches the frontline.



However, they remain concerned about whether funding levels will be adequate to cover the cost to nurseries of offering the places.

The Pre-School Learning Alliance said that the hourly figure quoted by the minister of £5.09, as the average rate that local authorities will receive for each two-year-old place, was not high enough to cover many providers’ costs.

They also questioned the reference to the Daycare Trust’s survey figure of £4.13 an hour for a two-year-old and said it was misleading because many providers' fees for two-year-olds do not reflect the true cost.

Chief executive Neil Leitch said, ‘We have concerns about the Government’s hourly flat rate of £5.09 as many providers have already told us that the final indicative funding rate of £5.13 in 2014 is far from adequate. A number of providers delivering pilot schemes have argued that the current level does not reflect the true cost incurred in caring for these children, particularly when you consider that many will require specialist care.

‘We are also concerned with the reference to the Daycare Trust's charge rates and the implication that the new funding provides for a 20 per cent profit margin. Having spoken with many providers, including some of the largest in the country, we believe this is a disingenuous reference.’

Mr Leitch said that the vast majority of providers confirm that the charge rates for two-year-olds do not reflect the direct costs associated with delivery, as in many instances this would make the cost to parents almost prohibitive. For example, settings often absorb the additional costs associated with higher staff to child ratios across their entire portfolio.

A recent survey of Pre-School Alliance member settings found that more than eight of ten nurseries believe that they will be underfunded and that the additional needs of the two-year-old children will cost them more than the funding they will receive.

Mr Leitch said that the Alliance’s research showed that when compared to funding for three-and four-year-olds the minimum hourly rate required was significantly higher than £5.09 per hour indicated, particularly when taking into account the smaller staff to child ratio of 1:4 for working with two-year-olds, which is half the 1:8 staff to child ratio required for children aged three and over.

‘In other words, providers halve the ratios and double the costs. Indeed, one setting taking part in the pilot project said that the funding it was receiving of £6 per hour per two-year-old was "grossly inadequate" as many of the children needed one-to-one care.’


The National Day Nurseries Association said that in order to make the most of the £100m available for capital investment local authorities must work with private and voluntary providers to build on existing high-quality provision.

The NDNA’s recent business performance survey showed that just under a third of providers were considering expansion, demonstrating the potential in the sector to increase the number of two-year-old places.

Claire Schofield, National Day Nurseries Association (NDNA) director of membership, policy and communications, said, ‘We’re pleased that the minister understands the need for capital and revenue investment to reach the frontline so it is viable for nurseries and other providers to take part in the two- year-old offer and provide high-quality early education and childcare places. To ensure the offer for two-year-olds works, local authorities must make sure that the Government money allocated for the offer reaches providers.

‘Capital funding, however, is only part of the story and national and local government must also ensure that the hourly rate for two year olds is sufficient to cover providers' costs, otherwise it will not be sustainable for providers to be involved long term.’

In their survey, nurseries said they received on average £4.77 an hour for two-year-olds but half of nurseries said the funding did not cover their costs.

Ms Schofield added, ‘We are pleased that the minister has responded to the sector’s concerns and has urged local authorities to pass on all funding that has been allocated. Providers will also welcome the move to greater transparency with regard to funding rates.  

‘We hope that local authorities will work with their local providers to ensure the funding they offer covers costs. We will be urging nurseries to look at the funding allocation information provided by DfE and discuss this with their local authorities. It is vital that providers are able to get involved in this initiative so that Government can meet its commitments and disadvantaged two year olds benefit from this important new investment.’

4Children also welcomed the move to greater transparency in funding.

Chief Executive Anne Longfield said, ‘Today’s announcement is an important staging post in the delivery of this important programme.

‘4Children particularly welcomes the minister’s emphasis on transparency in the funding of this programme. We echo Elizabeth Truss MP’s call in ensuring that this funding reaches those on the frontline. It is also important that those disadvantaged families who will benefit most know about the funding and get access to this important resource.

‘The two-year-old offer will be a vital tool in early intervention alongside other key services such as children’s centres, and it is important these continue to receive adequate resources in order to work with families from pregnancy to age five.’

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