The DfE’s funding rates report 2015 – summarised

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In May, the government pledged to double the current free entitlement provision to 30 hours for eligible working parents. This is due to be brought into effect as of September 2017, although some providers have already volunteered to trial the 30-hours ahead of their peers.

The announcement ignited a wider debate about the sufficiency of local authority funding rates for the current 15-hours free entitlement, and particularly the extent to which the current funding rates meet the costs that childcare providers incur in delivering this.

In anticipation of these changes, the Department for Education undertook research to explore the true costs to providers of delivering free early education entitlement for 2, 3 and 4 year olds.

Here is an overview of the report, which was published on 25th November 2015.

Aim

The report, entitled “Cost of delivering the early education entitlement”, sought to uncover the unit costs for providers of delivering the free early education. The project gathered evidence from private providers of early education (PVI providers) to find out more about their experiences.

Split into 6 different sections, the report explored:

  • Settings’ finances
  • Costs of delivering the free entitlement
  • Subsidisation and cross-subsidisation
  • The ability to expand provision
  • Barriers to effective delivery of the free entitlement
  • The expansion to 30 hours

As part of the project, the Department for Education wanted to understand what the challenges were to deliver the free entitlement, and specifically what barriers existed for settings to expand their provision to deliver more free childcare places.

Participants

There were 57 providers who took part in the study, from 22 different local authority areas.

The data which formed the report came from face-to-face interviews, telephone interviews and forms filled in by the participants about their experiences.

Problems

The DfE came across an issue when trying to find out the unit costs for providing the free entitlement, namely, that some providers weren’t able to give them with the figures they needed to do the analysis.

In the report, numerical data from a number of settings was excluded from the analysis because “these settings were either unable to provide the full range of data required, or were unable to provide accurate data for costs, income or the number of childcare hours delivered.”

Key findings

Key findings from this study include:

Settings’ finances

  • The largest single factor contributing to settings’ total costs was ‘staffing costs’, which accounted for 73% of total costs.

Costs of delivering the free entitlement

  • Unit costs of delivering childcare for both age groups were significantly greater for Voluntary and Community and Sector (VCS) settings than for privately-run settings.
  • Analysis highlighted an average shortfall in local authority funding rates for two-year-olds of £0.43.

Subsidisation and cross subsidisation

  • The ability to sell additional childcare hours above the free entitlement was important to many settings, who felt that any reduction in their ability to cross subsidise in this way would be detrimental to their setting’s viability.
  • A number of settings stated that they were subsidising the free entitlement through other services that they delivered as an organisation.

The ability to expand provision

  • Approximately one-third of settings stated that they would be both interested in, and able to, expand the amount of childcare that they offered either by expanding on-site or by taking on additional venues, settings or spaces.
  • A key barrier to expansion highlighted by settings was the difficulty that they had found in recruiting suitably qualified or experienced staff.

Barriers to effective delivery of the free entitlement

  • By far, the most frequently cited barrier to effective delivery of the free entitlement was settings’ abilities to effectively support children with additional support needs within their settings.
  • This study highlighted the risk that some settings may limit the amount of two year-old funded early education they provide because of additional costs incurred through providing unfunded additional support for children and families.

The expansion to 30 hours

  • A key concern for settings regarding the expansion to 30 hours was the effect that it would have on their ability to generate revenue by selling additional hours of childcare.
  • Many settings were concerned that an increase in the free entitlement to 30 hours would mean they would be able to offer childcare to fewer three- and four-year-olds, and fewer children overall.

Overall conclusion

The report revealed that approximately 75% of settings felt that they were making a loss on the local authority free entitlement funding rate for three and four-year-olds and 60% felt they were making a loss on the local authority free entitlement funding rate for two-year-olds.

The report concluded that, after analysis, the average unit costs of delivering an hour of childcare for two-year-olds was £5.39 and for three-and four-year-olds £3.51.

Concerns have been raised, however, about the Early Years Pupil Premium cost being included in the analysis for the average unit costs for two year olds (as the EYPP is only given to children who meet specific criteria).

There are also concerns that a flat funding rate should not be applied to the free entitlement, as the cost of delivering the provision varies for childcare providers in different areas of the country.

What is your view on the funding rates for 30 hours? Share it with us!


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2 thoughts on “The DfE’s funding rates report 2015 – summarised

  • November 30, 2015 at 12:09 pm
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    It is astounding that this government has carried out research with only 57 providers. It is also astounding that, on the basis of these 57 replies (with only 2 of these providers being in the high cost South East, but around 11 being on Humberside) the DfE will embark on a strategy that will cost the tax payer hundreds of millions of pounds annually.
    It is clear to me that the DfE has finally woken up to the huge cost that their “free childcare” is costing and want to pass the cost on to the providers. It is a case of “if in doubt, get someone else to pay”!
    As a provider, I can’t take any further costs. We have the new minimum wage, the pensions enrolment and other cost increases to deal with, without subsidising government manifesto pledges. I urge the government to review their methodology and allow providers in high cost areas to charge “top up” fees. This is the only way the industry can ever hope to survive in the years to come.

    Reply
    • November 30, 2015 at 7:59 pm
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      It is totally ridiculous if the pupil premium has been added into the equation for a new funding formula. The 3.51 for three year olds is woefully inadequate and is not financially sustainable.

      Reply

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