The report by the Children, Schools and Families Committee is calling for the Government to examine a unified funding system because the distinction between early years and primary education is becoming 'blurred', with some four-year-olds starting school and therefore funded through the schools formula, while others are in early years settings and funded by the EYSFF.
The committee looked at the potential impact of the Early Years Single Funding Formula, amid concerns that it would force maintained nursery schools to close.
The report concludes that it would be disastrous if the excellent provision in nursery schools was lost as a result of implementing the new funding formula.
It said, 'The year's delay in full implementation must be used to settle nerves and restore some stability to the sector, and to rework funding formulae where necessary.'
However, the concept of the formula was not flawed, the committee said.
'While the Early Years Single Funding Formula may have its faults, it can, if the underlying principles are applied carefully and consistently, be sufficiently versatile to fund all settings sustainably and in a way which respects and rewards the varying provision offered,' said the report.
It recommends that the Government review all early years single finding formulae - whether proposed or implemented - by autumn 2010.
The report also highlights the difficulties local authorities faced in finding out from PVI providers the real cost of providing the free entitlement. It recommends that they consider using a third party or consultancy to obtain the data.
In future, PVI settings should be required to provide cost information as a condition of receiving funding for the free entitlement, it said, suggesting that a third party should be used to obtain data which settings deem as commercially sensitive.
Sheffield City Council told the committee that only around a third of providers took part in the cost analysis survey, and Cambridgeshire County Council reported a 25 per cent response rate.
'Early years single funding formulae which are based upon inaccurate information on the costs of providing early years education and care will not command the confidence of providers in either the maintained or the private, voluntary and independent sector,' the report said.
Criticisms of local authorities for basing their funding formulae on incomplete cost data were not necessarily justified, because many PVI settings 'failed to share key information,' said the report. 'The reluctance of some PVI providers to offer cost information to local authorities - perhaps because of a perception that they were in competition for children to fill places - is understandable but ultimately shortsighted.'
