The Department for Education recently published the long-awaited consultation on the future funding of free early education and childcare for three and four year olds. The Family and Childcare Trust was pleased to see the consultation published so quickly following recent political changes. It’s an indication the Government remains committed to delivering on its plans to expand free childcare, which is really positive news for families.

While we’ll be spending the coming weeks digging more deeply into the details of the proposals, here are the key points:

1.   A new method of allocating early years funding to local authorities through a national early years funding formula

The new allocations will be based on a simple formula comparable to that currently used for the free two year old offer. The new formula consists of a uniform base rate with an additional needs top up (based on eligibility for free schools meals, Disability Living Allowance, and the number of children using English as an additional language). This amount will then be adjusted by an area costs factor to take account of geographical variations in staff and property costs. 

2.   A requirement for local authorities to implement a ‘universal’ local early years funding formula

At the moment, local authorities often offer a higher funding rate for either PVI (private, voluntary and independent) providers or schools. In future, local authorities will be required to use a single rate for all providers. Local authorities will still be able to use a fixed number of supplements, or extra funding, for example for flexibility or rurality, but only up to a maximum of 10% of the base rate. Notably, the proposals rule out quality supplements, arguing that base rates should be sufficient to fund high quality care.

3.   A cap on ‘centrally retained’ spending.

Local authorities pass the vast majority of funding on to childcare providers, but can retain some funding to cover administration costs and meet their duties to support providers, promote quality to reduce inequalities in outcomes between children in their area and ensure there are sufficient places. Local authorities will in future be prevented from retaining more than 5% of funding allocated for free childcare for this purpose.

4.   New measures to promote inclusion in PVI settings through £12.5 million of ring-fenced disability access funding.

The Department proposes to allocate new funding to local authorities to support inclusion in PVI settings, which will be passed on directly to providers along the lines of the Early Years Pupil Premium. Local authorities will also be encouraged to operate a separate inclusion scheme which provides a clear route of access for top up funding for children with special educational needs and disabilities (SEND). However, the consultation seems to suggest this will not be a statutory requirement.

Here are some potential issues of concern that we’ve spotted.

5.   Some local authorities and providers will lose funding.

According to the Department’s estimates, 25% of local authorities will lose funding. In the context of clear underfunding of free childcare, this is a concern. Some providers will also lose funding as local authorities adjust funding rates with the new universal formula. The consultation proposes a transitional period of three years with no local authority losing more than 10%.

6.   The impact of the proposals on early years provision in schools, particularly standalone nursery schools.

Under the ‘universal’ local early years funding formula local authorities must use a single rate for all providers. Schools, however, must provide teacher-led care and must apply more stringent admissions and inclusion requirements meaning they tend to have higher costs than PVI settings. In fact many cross-subsidise early years provision from the wider schools budget. What effect will the universal formula have on the maintained settings in which the majority of the most disadvantaged children receive early education?

7.   ‘Centrally retained’ spending by local authorities is vital to effective strategies to improve outcomes in the early years.

Spending by local authorities drawn from the early years budget is used to improve the quality of provision, particularly for the most disadvantaged children. The recent Ofsted report Unknown children and the Family and Childcare Trust’s own recent report set out the important work local authorities are doing to improve quality. This work has to be funded somehow.

The recent National Audit Office report on free early education noted that nationally local authorities spend £233 million more on free childcare than the Department funded. The overall picture – particularly in regards to a cap on ‘centrally retained’ spending – does not appear to be one of local authority bureaucracy reducing the funding that goes to providers.

A more rational approach to allocating funding for free childcare was needed and we particularly welcome the emphasis on additional funding for children who have special educational needs and disabilities. We’re worried, however, that under-funding will continue and the overall proposals are ultimately about dividing up a set sum as well as possible. Opportunities for quality improvement – perhaps through increases to the Early Years Pupil Premium or funding for graduates – were notably absent from the consultation.