LONG READ: The sector’s views on the new early years funding formula

• Ahead of the closure of the Government’s consultation on the early years funding formula on 8 September, Nursery World spoke with sector experts for their views on the plans.
• Plans to extend eligibility for the EYPP and Disability Access Fund are considered a positive move, but there are concerns the funding formula won’t be ‘fairer’.

In July, the Department for Education (DfE) launched a consultation on its new proposed ‘fair funding formula’ for the delivery of the extension of the funded hours for children from nine months old from next year.

It focuses on the way funding entitlements for children aged two and under will be distributed to local authorities from 2024-25, as well as how local authorities distribute funding to providers.

It also proposes extending eligibility for the Early Years Pupil Premium (EYPP) and the Disability Access Fund (DAF) to all children using entitlements.

Final 2024-25 hourly funding rates for local authorities for all age groups are expected to be confirmed in the autumn.

Do you believe the proposals could lead to a fairer funding formula as intended?

David Wright, ambassador of Paint Pots Nurseries and Nursery World’s Lifetime Achievement Award 2022 winner

‘Looking at the consultation, I was reminded how arcane this formula is; how difficult the challenge it sets itself in attempting to do what it intends and how impossible it really is to please all the people all the time.

‘In terms of process, I was reminded of a statistics module I studied many decades ago as part of my degree.

'For the exam, I memorised the steps required to generate and display an example of heteroscedasticity (data with unequal variability across a set of second, predictor variables).

'I could "turn the handle " to process a set of input data but I had no notion of the relationship between what went in and what came out.

‘For the early years provider, all they are interested in is whether they are given sufficient funding to cover their costs, given their unique set of needs.

'How can a single formula, using out-of-date proxy information for each local authority area, represent individual providers’ needs?

'How does an individual provider assess their published rate against that of a neighbouring setting and understand any disparity in terms of fairness and satisfying themselves that one is a higher priority in terms of doing good?

‘In simple terms, it seems to me that most providers’ costs in terms of wages (typically the highest element of operating costs) should be relatively easy to assess.

'After all, we have a national minimum wage (NMW). We also understand what amount we should be paying in terms of a national living wage (NLW), and yet not only is it disingenuous for the Government to claim that the NMW increase has been taken into account in the review of funding levels, but no account has ever been made of the need to pay NLW to those working in the sector.

'In the meantime, settings continue to go out of business and experienced individuals leave the sector.

‘The review of the funding formula looks to improve the distribution of the allotted total funding allocation by attempting to update some of the variable data, but whatever amounts are apportioned to local authorities across the country, unless the initial allocation is sufficient, there will never be enough in each resultant payment to ensure business sustainability and the stated intention of providing high-quality early years care and education for all our nation’s children.’

Is there a risk funding for the new entitlement for younger children could become stagnant like the current three- and four-year-old funding?

Jonathan Broadbery, director of policy and communications at the National Day Nurseries Association (NDNA)

‘This consultation is important as it starts to give an idea of the real funding rates providers might expect.

‘At the moment, the two-year-old hourly rates for eligible families work differently from the model for the 30 hours offer for three- and four-year-olds. The plans outlined in the consultation will change this and make the two funding pots work in the same way.

‘This means local authority (LA) activity will be funded by being able to retain up to 5 per cent of the published hourly rates. On top of the base rate providers receive, any additional supplements, like SEND, deprivation or quality, would be topsliced from the two-year-old hourly rate as they are for three- and four-year-olds.

‘The plans to look at increasing the pass-through requirement on LAs to 97 per cent are promising, and we know some are already above this, but this won’t happen until the roll-out is complete.

‘The fact the funding approach could change, from September to next April, could create a situation where providers might see real-terms reductions.

‘The average national rates for twos sound promising, but the devil is always in the detail. The DfE have published indicative rates for LAs alongside the consultation.

‘As always, the key questions are those not in the consultation. Will the new two-year-old rates keep pace with ever-increasing costs?

'We can’t have a situation as we did with 30 hours where the rates did not change for three years. We want annual reviews of rates.’

What impact do you believe the proposals and the extended entitlement generally could have on disadvantaged children and those with SEND?

Catherine Mcleod, director of Dingley’s Promise – a charity that supports under-fives with additional needs

‘Overall, the consultation certainly gives us hope that the Government is listening to the concerns of the sector when it comes to supporting children with SEND, and are asking the right questions.

‘The current funding system is not working for children with SEND in the early years. Settings are struggling to access the funding they need.

‘[The]Disability Access Fund (DAF) is underutilised and difficult to access because it relies on families having successfully applied for Disability Living Allowance.

‘Special Educational Needs Inclusion Funding (SENIF) is inadequate for the level of demand there is for it, and does not cover all entitlements or the under-two age group, and is complicated and time-consuming to apply for.

‘The funding consultation reveals that the Government has heard these concerns and it is encouraging to see them asking stakeholders for feedback around the SEND funding system that could lead to huge improvements and therefore more inclusion in the early years.

‘Regarding DAF, they have asked whether to stop using DLA as a qualifying criteria to access additional needs funding, and whether to widen eligibility for DAF.

'Both of these actions would lead to a much wider take-up of this funding, and more support for settings to enable children with SEND to access a provision.

‘On SENIF, the consultation asks whether a fund should be established for inclusion funding from ages nine months to two years, which would solve many of the issues settings report around not being able to take children with SEND early due to a lack of funding.

'This will encourage earlier intervention for children with SEND, which has widely been proven to improve outcomes, and is likely to build more inclusion.

‘It goes on to ask what can be done to support local authorities to streamline the SENIF application process while ensuring the system remains fair and financially sustainable, and whether the Department should be more prescriptive in the use of local SENIFs.

'From discussions with local authorities, we believe that a more standardised system for SENIF would be a good thing, with less of a postcode lottery for families between local areas and a clear system for providers to follow.’

Do you believe the proposals will address concerns that the extended entitlement will mean children from low-income families will be left behind?

Felicity Gillespie, director of Kindred2 – a charitable foundation that aims to improve early education and early child development

‘The Government’s new childcare policy is a step in the right direction, but it doesn’t go far enough. It still prioritises childcare for higher earners.

'That means families earning less than £15,400 are being left behind and yet we know that these attainment gaps affect the children of the least well-off the most.

‘Children from low-income families start school almost five months behind their peers. The fact that, as a society, we seem to be content to live with that statistic is what is perhaps most striking. And the gap only gets worse from there.

‘Subsidised childcare appears to be motivated by working out how best to get as many people back into work, and therefore paying tax, rather than supporting child development.

‘We need to change the way we fund early childhood education. We need to prioritise lower-income families and make sure they have access to high-quality care. That’s the only way to close the achievement gap and give all kids a fair shot at success.

‘Every pound we spend in those first years of life saves society £13 in interventions in adult life. Ignoring the importance of early years development is not just bad policy – it’s bad maths!’

Government’s extended early years entitlements timeline

• March 2023: The Chancellor announces the Government is to extend the 30 ‘free’ hours (currently available for only three- and four-year-olds) to children from the age of nine months from eligible working households, phasing in the entitlement.
• July 2023: DfE launches early years funding formula consultation.
• September 2023: Consultation closes.
• Autumn 2023: Funding rates announced.
• April 2024: 15 hours of funded childcare for working parents of two-year-olds comes in.
• September 2024: 15 hours entitlement extended to all children from the age of nine months.
• September 2025: 30 hours of funded childcare introduced for all eligible children under the age of five.