Understanding free entitlement concerns

Free entitlement is a certain number of hours offered to parents to care for their children. To fund their education, the government sets a funding rate through the national funding formula. The money is given to local authorities and then passed onto early years settings. The types of settings discussed in this piece are pre-schools and nurseries.

The system has been criticised and despite a petition that received over 100,000 signatures, a spending review was rejected by the government. The Early Years Alliance (EYA) also won a Freedom of Information (FOI) dispute with the Department for Education. Their findings revealed the early years sector is underfunded.

Despite the FOI findings and public support for a review, the current funding rates will continue. Children and early years providers could be missing out on thousands of pounds. The monetary shortfall can be calculated through the funding system and using research from the Education Policy Institute.

The pass-through rate

Settings need to receive a sufficient sum of funding to pay their staff. As well, to achieve high-quality outcomes for children and be sustainable. To ensure providers stay financially viable, the government introduced a 95% pass-through rate. Councils must give providers an equivalent of 95% of the free entitlement funding.

The introduction of the pass-through rate was to stop councils underspending. Occasionally, some councils might justify being below the threshold because they support providers in other ways. For example, helping to fund extra training or provide guidance on safeguarding issues. But, this is not the case across all areas.

Another reason a council might not pass through 95% is that they project higher costs in the future. The Early Years Alliance said that these kinds of contingencies could be problematic.

"Local authorities are permitted to keep money back if they think they will have higher future costs. The rate this is happening at is not counted and it is unclear what happens to the money if the council then later decides costs have not gone up for whatever reason and the money is 'not needed', whether it stays in the sector budget and how it is spent."

Dr Sara Bonetti, Director of Early Years at the Education Policy institute, says that not all authorities can justify keeping the 5% if they are not supporting early years providers enough.

She said: "In the past, local authorities used to do a lot for the early years so the skimming was justified. There was a lot of exchanges and help. Some local authorities still do lots now. But, you can see a massive difference in quality and how things work when there is somebody in an area who is an expert."

By not making it compulsory to give settings 100% of the entitlement funding, providers are potentially missing out on hundreds of pounds every year. This is money that could go towards the education and development of children.

Childhood providers already receive a yearly amount. But, a difference of 0.20p per hour could lead to better outcomes for children. For each region in England, the upcoming charts show how much money settings miss out if the funding is equal to the pass-through threshold.

The figures were calculated using the average funding rate given to authorities and what the 95% pass-through requirement would be. The difference was then calculated across a 38 week year with a six-hour working day from 9am to 3pm. The yearly amount is not representative of all local authorities because some are above or below the pass-through rate.

By not giving providers 100% of the money through the national funding formula, providers potentially miss out on hundreds of pounds.

The difference is only around 20p a child, but over a year, the money is significant. The chart shows the total amount of funding that a provider could receive in regions in England per year for one child if 100% of funding was passed-through.

For one child across a 38-week year in the Inner London region, on average, they would be entitled to a further £334 to go towards their education.

Nationally, the average yearly amount a setting could receive if the 95% pass-through was scrapped is £285 for a 38-week year.

Dr Verity Campbell-Barr, Associate Early Years professor at the University of Plymouth, believes the pass-through scheme could create a perception that settings are not trusted with the funding they receive.

She said: “Nothing is going straight to the provider. Why do they not get the money directly? It does seem like a strange process. There are issues with how the funding is allocated and, I do not think we have done a proper economic assessment to see what the costs are.”

The Early Years Alliance also raised concerns regarding transparency. They said:

"The way money is paid through Local authorities (LAs) adds a barrier for anyone trying to understand whether local authorities are paying a fair rate to providers. But it also masks the fact that fundamentally, the pot given to local authorities by the central government to fund early years provision is well short of the cost of delivery. Which LA you are in can have a significant effect but unless LAs have a larger funding pot to begin with, they do not have the money to pay for the full cost of providing places, or associated costs like SEND."

Explaining the pass-through rate, the Department for Education said:

"Councils are responsible for setting the local funding rates for providers, following consultation with childcare providers in their area, and are required to pass on at least 95% of the funding they receive for the free entitlements directly to providers. Any council that had concerns around meeting these requirements apply to the department for increased flexibility. Councils are able to hold back up to 5% of the funding as central spend, which some have used towards a range of costs including staffing or admin costs, or SEND support services."

The funding required to cover early education

The Education Policy Institute (EPI) produced an hourly rate that would cover a three to four-year-olds education. The director of early years, Dr Sara Bonetti, conveyed her organisation's findings at the most recent All Party Parliamentary Group for Childcare and Education. This group brings together leading members in the sector and parliamentarians to discuss policy issues.

The EPI, through a pilot of 200 settings, devised a figure of £7.17 per hour. Every region in England was below this rate for funding three and four-year-old children.

Providers in London regions are receiving a higher average hourly rate compared to the rest of the country. The figures for Inner London show that settings in this region are almost fully funded using the EPI pilot study. Per hour, the average rate given was £7.11. Early years settings in Outer London were also closer to the EPI hourly rate.

The region that receives the lowest average hourly rate is Yorkshire and the Humber. This was calculated using the latest national funding formula rates set by the government. Some local authorities in the region might provide a higher rate, but overall, funding levels are not covering the cost of early childhood education.

On average, the rate given to local authorities is £4.52 — £2.65 per hour less than the EPI pilot study rate. A child will not attend a setting every day of the week. However, over a year based on the current funding rates, a child in twice a week is potentially losing out thousands.

Using the £2.65 difference the funding shortfall can be calculated. Excluding holiday club and bank holidays, a year is 38 weeks. The hours in a day is for a child attending a setting from 9-3 (six hours).

Over a year, a child that attends a setting one day a week could miss out on an extra £500 towards their education.

If a child attends more days during the week, the figure rises. Two days a week increases the amount to over £1,000 a year.

The figure for a child in a setting three days a week is £1,525.

The amount of money providers could be investing in early education continues to rise. Children attending four days a week in Yorkshire and the Humber are potentially missing out on just over £2,000 a year.

Finally, if a child was to go to their provider five days a week, the shortfall reaches £2,500. This is just the yearly amount for one child.

The EPI pilot study was limited to 200 settings. But, it could indicate the current funding levels are not covering the cost of providing children with early education.

Kirklees Council is one of the many local authorities in the region currently receiving the lowest rate of free entitlement for three and four-year-old children. They get £4.44 per hour which is below the average rate given across all other authorities in Yorkshire and the Humber.

Councillor Carole Pattison, Cabinet member for Learning, Aspiration and Communities,, for Kirklees Council said:

"In Kirklees, we do everything possible to support our children in enjoying the best start in life. Kirklees receives the lowest base rate of funding in the country, but we work hard with provider representatives to maximise early years funding levels, so that children and families can access high standards of care and education. Early years education is absolutely vital in helping our children to be ready for school and able to fulfil their potential."

The Department for Education stand by the formula and believe it is an effective way of funding free entitlement. They said:

"We fund local authorities to deliver the free childcare entitlements through the Early Years National Funding Formula, which was introduced following consultation with the sector in 2016, and which allocates our funding fairly and transparently. Each local authority’s Early Years National Funding Formula rate would vary by their additional needs formula factors and their area cost adjustment values."

Regional variation in the national funding formula

The current system is structured so that money from the government goes through authorities and not to the early year's settings directly. How much financial support an authority can provide is dependent on the rate they receive through the national funding formula. The lowest amount an authority can receive is £4.44 per hour.

The latest figures show that regions outside of London are more likely to receive the lowest hourly rate through the national funding formula. Funding is calculated based on the attendance at the setting in the previous October school census and pupil characteristics. Every child gets a base rate and further funding is for children with additional needs. Local authorities set the rate they give to providers. Yet, this is influenced by how much they get from the government.

Lancashire is one of 10 local authorities in the North West that receives the lowest rate of funding. The authority gets £4.44 per hour for free and four-year-old children. This is just over 50p an hour less than the average across all other authorities. Yet, Lancashire has a pass-through rate of 98% which is above what is required.

County Councillor Jayne Rear, cabinet member for education and skills, said:

"The county council is committed to high-quality provision for its early year's settings to ensure that the children of Lancashire have the best start in life. However, Lancashire along with about one third of other local authorities, receives the lowest Dedicated Schools Grant (DSG) Early Years Block allocation rate nationally under the DfE's early years funding formula. We know that providers in our early years sector are facing considerable cost pressures so, we want to maximise the funding that is available to them."

The DfE said that the funding formula accounts for separate factors such as additional needs to form a rate that is fair, regardless of area.

The formula is made up of a universal base rate, which is the same hourly funding rate for every child in a local authority, with funding factors on top of that for additional needs, using measures of free school meals; disability living allowance and English as an additional language (EAL).

The formula also includes an area cost adjustment (ACA) multiplier to reflect variations in local costs. This uses the General Labour Market measure to indicate staff costs and a Nursery Rates Cost Adjustment (NRCA) to indicate operational costs.

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