However, the average rate above includes the Early Years Pupil Premium funding.
Two-year-olds will receive an increase to the funding per place from a flat rate of £5.09 to £5.39 an hour.
The funding rates, applicable from September 2017, are revealed in an analytical report into the review of childcare costs published by the Department for Education today, and are based on the findings of the Government’s review into the cost of delivering the early education entitlement.
The rates were announced in Parliament during the second reading of the Childcare Bill, following the Chancellor’s spending review and autumn statement, which included changes to the eligibility criteria for the 30 hours of free childcare from 2017.
Childcare minister Sam Gyimah said, ‘The findings of the review – the first of its kind by Government – have formed the evidence base for our decisions at the Autumn Spending Review.
‘On the basis of this review, I am pleased to be able to confirm that the Government is allocating funding for a substantial uplift to the funding rate.
‘We will be investing over a £1 billion more per year by 2019-20, including £300m for a significant uplift to the rate paid for the two-, three-, and four-year-old entitlements. The new rates will be £4.88 for three- and four-year-olds, including the EYPP, and £5.39 for two-year-olds.’
Key findings on the costs of delivering the free entitlement from a separate research report, which is based on in-depth interviews with representatives from private, voluntary and independent settings and data from 57 separate settings from 22 different local authority settings:
- the cost of delivering an hour of childcare for two-year-olds was £5.39, and for three- and four-year-olds was £3.51;
- costs for delivering childcare for both age groups was higher among voluntary sector settings that for privately-run settings;
- the analysis highlighted an average surplus in funding of £0.22 when settings’ unit costs for providing three- and four-year-olds childcare were compared with local authority funding rates;
- for childcare for three- and four-year-olds 34 per cent experienced a shortfall in funding, while 66 per cent had a surplus.
Early years organisations raised concerns about how the new funding rates would work in practice and keep pace with other financial pressures on the sector.
Neil Leitch, chief executive of the Pre-school Learning Alliance, said, ‘We are concerned by the news that the increased rate for three- and four-year-olds includes the Early Years Pupil Premium. Given that this is currently additional funding available only to children from disadvantaged backgrounds who meet very specific criteria, we are unclear as to why this money has been factored into the general three-and four-year-old rate.
‘Given that early years funding rates vary from local authority to local authority, it's difficult to understand how the additional funding announced today will translate in practice. How will it be distributed across different local authorities? Will rates increase evenly across all provider types?’
‘What’s more, ensuring the sustainability of the sector means more than just a one-off increase; it means a mechanism that ensures that funding continues to cover costs in the long-term, in the face of rising business costs such as rent increases, pensions contributions and, of course, the 'national living wage'. As such, we will be speaking to the Department for Education imminently to gain more detail on today's announcement, and look forward to working with the childcare minister and his team going forward to ensure that today's announcement does indeed benefit providers on the front line in the long term.’
Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA), said, ‘We need to know that this uplift will not stay still. It must continue to increase to keep pace with the financial pressures of the sector, including the introduction of the National Living Wage in April and pensions auto enrolment. It cannot be a one-off.’
‘We welcome the promise of new national funding formula for early years and schools but this must be carefully managed to protect money for early years. This means ring-fencing of funds for under fives is more important than ever.’
Beatrice Merrick, chief executive of Early Education, said, 'The statement that the proposed rate "includes EYPP" has not yet been explained to clarify whether EYPP will continue as a separate payment, and if so what the rates with and without it will be. While the current system of EYPP payments has much room for improvement, if the sector is to commit to making best use of EYPP, it needs to know in what form that funding will be distributed in future, and at what rate. We hope ministers will clarify this swiftly.
'Government has yet to explain how a "fair funding formula" will take account of the difference in costs between providers (the economic assessment, for example, makes only glancing reference to the additional costs of providing maintained nursery schools, and no reference to the additional quality and expertise which ithey provide), and between different areas of the country.
'Like the Single Funding Formula, which was introduced to "level the playing field" (or perhaps to introduce a common pricing mechanism for apples and pears), there is a risk of unintended consequences if variable costs are not recognised.'
The documents in full: