The findings of the Government’s funding review and a research report on the cost of delivering the early education entitlement were published on the same day as the Chancellor’s Spending Review and Autumn Statement. They contain an analysis of costs for providers of delivering the free entitlement and the rationale for the new funding rates when the 30 hours comes in.
The new rates, applicable from September 2017, are based on the findings of the Government’s review into the cost of delivering the early education entitlement.
The rates were given in Parliament during the second reading of the Childcare Bill, following the Spending Review announcements, which included changes to the eligibility criteria for the 30 hours of free childcare from 2017.
In changes to the original proposals, parents will now need to work 16 hours a week to be eligible for 30 hours of free childcare. There will also be an upper income limit per parent of £100,000 a year, which will also apply to tax-free childcare. It will also reduce the number of eligible familes to 390,000. The Government claims this will mean savings of £215m by 2020-21.
There will also be at least £50m in capital investment for early years settings to provide the places. This will be alongside the ‘first ever’ national funding formula for schools, high needs and early years ‘to ensure funding is fairly allocated’ and linked to children’s needs.
The aim is to end the ‘unfair system’ where a child from a disadvantaged home in one school attracts half as much funding in another school, because of where they live.
In the foreword to Review of Childcare Costs: the analytical report, childcare minister Sam Gyimah said, ‘The findings of the review 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 £1bn 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 Early Years Pupil Premium (EYPP), and £5.39 for two-year-olds.’
He added, ‘We are confident, on the basis of this review, this new rate will underpin sustainable delivery of the entitlements.’
At first glance there appear as many unknowns as knowns, and we are in the process of clarifying some of the figures with the Department for Education (DfE) and the Treasury.
The statement about the inclusion of the EYPP rate has led to some confusion, but we have received clarification from the DfE that might help to explain the figures. The EYPP rate of 53p per hour cannot be deducted to get the average hourly rate.
The national average rate cited is paid to local authorities for all children, not just those who receive the EYPP. If the EYPP rate is included, the national average funding rate will rise from £4.56 to £4.88. The DfE is including the EYPP to accurately reflect the total Government spending on the free entitlement.
Currently, the national average rate without the EYPP is £4.51, but we do not have the new revised figure for what that will be under new arrangements.
According to the Treasury, the spend for the 15 hours for 2015-16 is £2.8bn, rising to £3.9bn by the end of the Parliament, 2019-20.
However, it is not clear what the total amount of spending on the free hours will be in the intervening years, so we do not know what the total spending will be in 2017, when the 30-hour entitlement comes in.
The DfE has said that there will be a consultation in the New Year on how the rates will apply to different local authority areas.
The analytical report also suggests some ‘efficiencies for staff deployment’ with an analysis showing how ‘hourly costs can be reduced where providers deploy staff efficiently within statutory limits.’
The table above highlights how early years settings can use statutory minimum ratios to bring down their hourly costs.
The report states, ‘Those providers that staff at a higher ratio of staff to children... are incurring significantly higher costs. They are also foregoing significant revenue. Assuming a price of £5 per hour per child (of any age), the revenue per staff member generated for two-year-old provision in a private setting is £16 with the higher staff-to-child ratio compared to £20 per hour for the lower one. For three- and four-year-old provision, the revenue per staff member varies from £30 an hour to £40 an hour for the higher and lower assumed staff to child ratios respectively. We believe the estimates provided here at the statutory ratios provide a good set of unit cost benchmarks.’
However, this may well raise concerns among some providers.
Liz Bayram, chief executive of PACEY, said, ‘Rigid adherence to ratios is in reality challenging and we highlighted this throughout the funding review consultation. The review fails to understand that there are good reasons for the "slack" it refers to. Settings have to ensure they have the correct number of qualified staff to cover, for instance, if staff go off sick, for annual leave or for staff’s professional development.’
Or as Sue Cowley, early years expert and owner of a pre-school writes in her blog, ‘Gosh, why didn’t I think of that when I look at our cashflow forecasts each month? How did it not occur to me that higher ratios would mean higher costs? (Spoiler: I did.) The problem with looking at childcare in this way is it ignores the realities of the sector and, even worse, it ignores the human beings who work within it.’
The Pre-school Learning Alliance also said that it was disappointed that, despite now recognising the need for extra early years funding, the Government was still looking to ratios as a cost-saving measure.
Chief executive Neil Leitch said, 'There is a good reason why, despite immense financial pressures, most providers choose not to work to the absolute minimum staff-child ratios and that's because it is not in the best interests of the children in their care.
'The Department for Education's own Review of Childcare Costs reports acknowledges that providers works to higher than minimum ratios as a "quality measure", while its own research shows that the majority of parents disagree with the current 1:13 minimum ratio for teacher-led settings. Given this, it's unclear why Government is continuing to push on this point.'
WHAT YOU SAID
On Nursery World online
‘Here’s the problem... £300m will just about pay for 100,000 kids to do the additional 15 hours for a year. According to the ONS there are over two million three- to five-year-olds, so if they all went to nursery (and many will because it’s "free"), the funding will cover about 5 per cent of the potential need. I wonder who will be picking up the shortfall?!
Mr Creosote, NW, online
‘Is the rate what providers will receive or the rate before the local authority takes off their costs? Anyone know?
Sue Cowley (@Sue_Cowley), educational author and trainer
‘York currently pays £3.38. With national average much higher hopefully new formula will even out disparity between local authorities…Looks like another smoke & mirror job by the Government, get a good headline but don’t let the detail out til later.’ Ken McArthur (@PollysNursery), owner of Polly Anna’s Nursery in York
‘How can the new rate include EYPP when the earnings cap for the premium is the starting threshold for getting 30 hours – can’t have both?!’
Andrew Clifford (@AndrewClifford), managing director of the First Class Childcare group
‘That’s not too bad. Means we won’t make a loss, but we have no room to increase our current prices.’
‘Good to know the price has gone up.’
Giselle Cory, senior research fellow, IPPR
The Chancellor has both increased childcare investment and narrowed the eligibility for childcare support. The increase in investment (£300m per year) for free childcare hours is welcome. However, this investment falls far short of the funding necessary to maintain a high-quality offer.
As IPPR analysis shows, the funding gap is significantly larger than the investment announced in the Spending Review. Moreover, the funding appears to be static (£300m per year) while costs – including salaries, which are affected by national minimum wage increases – are not. This suggests that without further investment, the funding gap will continue to grow.
Funding should reflect costs and demands as they change, rather than set the stage for more difficulties in the future. Not only the amount but the way this funding is distributed will also be key. We await further DfE announcements to know how local allocations will be determined, and therefore what this funding means for local authorities and providers.
The Chancellor also announced a narrowing of eligibility for childcare support: both Tax-Free Childcare and the additional 15 hours of free childcare will not be available to families in which either parent is earning less than the equivalent of 16 hours at the NMW.
This is likely to increase financial barriers to work for parents in low-income households, for whom high childcare costs can be prohibitive. Moreover, many of these families will also receive far less support from Universal Credit, following severe cuts to work allowances (announced in the Summer Budget).
Childcare support supports good child development, enables parents to work, addresses entrenched gender inequities – and plays a particular role in equalising life chances between poorer and richer families. We welcome an increase in investment in childcare, but cutting support to those who need it most will raise barriers to work for low-income households.
- See our 14 December issue for CEEDA’s analysis
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