Government reveals plans for new free places funding system

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Ministers are planning to introduce a new national funding formula for all early education places.


The proposal is included in a Department for Education consultation that sets out changes to how local authorities will be expected to work with early years providers, alongside draft statutory guidance, which will come into force in September.

The Government wants to take a new approach to funding early education places for three- and four-year-olds, based on the model used to devise funding allocations for disadvantaged two-year-olds places, published last November.

This calculated an average hourly rate for the two-year-old places for 2013-14 of £5.09, and the Department strongly recommended that local authorities use a flat base rate for all providers with no supplements, as the offer is focused on deprived children.

The DfE intends to make this a requirement from 2014-15, but will maintain the option to find on place basis, rather than solely on participation, while provision is increasing to meet the new statutory entitlement to provide places for 40 per cent of two-year-olds.

The consultation proposes simplifying the funding system for providers by removing supplements and banding rates from the Early Years Single Funding Formula, which are ‘unnecessarily complex’, and moving towards introducing a national funding formula. Supplements used by local authorities include those for quality, flexibility and sustainability.

For three-and four-year-olds the Government proposes:

  • to restrict LAs to three base rates;
  • to restrict banding within base rates and supplements to two
  • that lump sums should be more focuse.

The DfE also asks for views on whether all supplements and formula factors other than for deprivation should also be removed.


Ministers also intend to cut back on local authority duties, as part of a drive to ensure that more of the funding allocated by central Government to local authorities reaches providers.

From September, local authorities will also no longer be legally required to provide information, advice and training for nurseries and childminders.

The DfE says that currently local authorities hold back £160m of funding from the Dedicated Schools Grant, (from a total early years DSG spend of £2.1bn), some of which is spent on duplicating work carried out by Ofsted.

To this end, ministers want Ofsted to be the ‘sole arbiter of quality’ for early years settings, as stated in More Great Childcare.

Councils will instead focus on identifying and supporting disadvantaged families to take up early education places for two-year-olds.

Early years settings will be able to 'buy in' training from their local authority or access it from other organisations in the sector, such as nursery chains, early years membership organisations and schools. The Government also wants to encourage new training providers into the market.

The consultation says,‘Early years providers are the best judges of their training and development requirements. At a time when local budgets are tight, it also makes no sense for the Government to compel local authorities to deliver support services to providers that do not need it or do not want it, perhaps because they have other effective arrangements in place. We want to give early education providers greater choice and flexibility over how they access training. In particular, providers should not be required to accept training or support from their local authority in return for early education funding if they believe they can obtain better services elsewhere.’

The Government therefore intends to change the regulations so that they are clear on how local authorities are able to spend their early years Dedicated Schools Grant. LAs will not be able to use centrally retained DSG funding on quality assessment and provider training, but will be able to use it to spend on ‘activities to support the important local authority role of improving access and support for disadvantaged children and those with special educational needs and other additional needs.

Ministers are also proposing to stipulate a limit to how much funding from the DSG can be retained. The consultation asks whether a 10 per cent limit would be appropriate and also asks for comments on the impact this would have in comparison to a 15 per cent or 20 per cent limit.

To put this into context, last year 113 LAs retained less than 10 per cent, 22 retained zero, and nine kept back mor ethan 20 per cent of tehir early years budget.

Other key points

Local authorities will only make decisions on whether to fund providers based on Ofsted inspection grades. The guidance will make clear that LAs should not carry out their own separate assessment on the quality of early years provision.

The law will be changed so that LAs cannot refuse to fund an early education place if a provider has been judged of a certain quality. The DfE plans to set out in regulations the level of quality that early education providers will need to reach to be eligible to offer funded places.

The consultation asks for views on what the earliest point should be after September 2014,(when the full two-year-old offer is in force), that providers should be required to be good or outstanding in order to offer two-year-old places.

Currently satisfactory providers will be able to offer places for disadvantaged two-year-olds if there is not sufficient childcare in the area that has been rated good or outstanding.

The guidance will be amended so that LAs will not be able to impose quality conditions that providers need to meet to qualify for early education place funding.

However, they will continue to set conditions in respect of the proper use of public funds – i.e. fraud, misappropriation, securing flexible delivery of funded places and preventing providers from charging top-up fees.

The Government intends to change the law at the earliest opportunity and bring in the revised guidance on local authorities’ duties relating to early education and childcare from 1 September. This will supersede existing guidance published last year, which was introduced in September 2012.

  • The consultation on proposed changes to the role of the local authority in early education and childcare closes on 6 May.

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