Schools Forum Meeting of Wednesday 6 February 2008Agenda item 6

Reform of Early Years Funding

PVI Costing Analysis

  1. Introduction

Three years ago the Government published ‘Choice for parents: the best start for children’ which sets out the Government’s ten year strategy tocreate a sustainable framework for high qualityintegrated early years and childcare services forall children and families. Its aim is to make earlyyears and childcare provision a permanent,mainstream part of the welfare state,and includes a package of measures to extendthe free early education entitlement.There will also be reform of early years funding - the aim is to support better outcomes for children at age five and the extension of the free entitlement, by September 2010.

There are four main stages:

1)An analysis of the costs of provision of nursery education by private, voluntary and independent (PVI) settings in the county.Local Authoritiesare required by government to carry out this analysis.

2)Include representation on the council’s Schools Forum from the PVI sector.

3)From 2009-10 changes will be made as to how early years children are counted in the maintained sector (schools) so that there is a consistent approach to pupil counting across maintained and PVI settings.

4)From 2010-11 there will be a single, local formula for funding early years nursery education for 3 and 4 year olds in the maintained and PVI sectors.

The main objective of the reforms is to maximise take-up of high quality, free, early years provision, delivered through a diverse market that provides choice to parents and, critical to continuously improving quality in all settings, ensures stability and sustainability of funding.

  1. Local Authority’s duty

Most if not all children will move into school during the year within which they will become five, completing their foundation stage in a reception class. A child who is on a school roll cannot also receive a PVI funded place, except when a parent has accepted but deferred the school place. Sixty-three schools around Essex currently have nursery classes. A review undertaken in 2006-07 highlighted that take-up of this offer has generally declined since the advent of universal three year old funding; whilst some classes remain full, others have declining numbers. The review recommended broadly that schools with nursery classes should be enabled to adapt their provision to better meet the needs of their parents. This might include working closely with a local children’s centre or considering converting to full day care. At this stage the mechanisms for these options are still under consideration.

Local Authorities have a new duty to “manage the market” with regard to sufficiency, ensuring both sufficient supply and sustainability. The local authority must, through its childcare sufficiency duty, ensure that all parents who want it can access the three- and four-year old free nursery education entitlement for their children.

The outcomes for children in Essex at the end of the foundation stage (EYFS from 2008-09) are not as good as we would wish, and, in particular, the gap between the average attainment for all children and the average for the lowest 20% achieving children is wider than for our statistical neighbours and the national level. This so-called “gap” forms one of the Ofsted judgements for the Annual Performance Assessment of the County Council and the Children and Young People’s Plan. We have extremely challenging specific targets to close this gap and raise the attainment of all children at the Foundation Stage Profile (end of reception year). Most importantly the gap indicates that we are not doing well enough for our most disadvantaged children. We know from international research that high quality early years provision improves outcomes for all children, and in particular can have the most positive impact for those who start with disadvantages.

  1. The local PVI market

a)Outline

Essex depends on the PVI sector to deliver to three- and four-year oldsthe free nursery education offer, which from September 2008 will sit within the wider Early Years Foundation Stage and form part of the Early Years Outcomes Duty.

The sector consists of sessional pre-schools (mainly voluntary), full day care nurseries (mainly private) and some accredited network childminders (self employed). Additionally there is a small number of independent schools.

PVI Providers by type / Private / Voluntary / Independent / Total
Private Day Nurseries / 201 / 12 / 1 / 214
Sessional Pre-Schools / 215 / 172 / 0 / 387
Creches / 32 / 3 / 1 / 36
Childminders / 1,483 / 0 / 0 / 1,483
Childminders – Nursery Education / 113 / 0 / 0 / 113
Independent Schools / 1 / 3 / 28 / 32
Total / 2,045 / 190 / 30 / 2,265

The particular challenges and opportunities for each sector differ, but most are dependent on the nursery education grant to cover the costs of providing the free offer to parents and must not apply additional charges to this offer. Many settings of course offer additional hours or services and may make additional charges for these.

b)Sessional pre-schools

Sessional pre-schools typically operate for two and a half to three hours in a church or community hall or in separate premises on a school site. The majority therefore do not have exclusive use of their operating space; this places constraints and often involves considerable effort on a daily basis. Such premises may, whilst meeting Ofsted registration requirements, nevertheless not provide optimum environments to support high quality provision, for instance limited out-door play, being unable to have permanent displays etc. Costs of rents etc. can vary greatly.

c)Day Nurseries

Private day nurseries are usually either single owner providers, small local chains or national chains. Again, premises vary but they are most likely to have exclusive use, andin most cases they own their own buildings. Costs relating to this are often associated with mortgages, and for all private providers in this category and others, business rates. Day nurseries generally cover all age ranges from babies to five years old. The costs of the care of babies are higher than those for older children and of course are wholly borne by parents until the child becomes entitled to education at three and four yearsof age. Tax credits are available to many families and many employers provide childcare vouchers offset against salary, which provide a tax benefit. Providers generally try to spread the higher costs of caring for babies across their whole fees profile to mitigate the effects of this on parents.

Staffing for the whole sector is governed by legislation with regard to the minimum wage and other conditions such as holiday pay, parental leave etc. Essex has pursued a policy of passing the maximum funding possible to providers (currently the most generous in the Eastern Region), however, generally the real value of the funding has de-graded over the last ten years. In this light, the move to three hours will place further pressure on providers as there will be less additional hours for which they can charge parents to make up the difference from their real costs. A new factor will be the requirement, by 2015, for all settings to be graduate-led; whilst government is providing some resources for this they are unlikely to meet the whole cost of training, development and enhanced pay.

d)Childminders

Childminders are self-employed and usually charge parents per child per hour. Most will have children of various ages. If they are providing funded nursery education they are bound by the same terms and conditions as other providers, however their overheads are likely to be less since they provide the service in their own home.

  1. Role of the PVIs

We know that the market is least likely to support the full costs of providing high quality early years provision in the most disadvantaged areas, simply because much of these costs are generally borne by parents. Therefore our strategy needs to ensure viability for settings in areas where parents can afford the least.

Some of the implications for providers of moving from two and a half to three hours have been highlighted above and need to be considered as part of the determination of future levels of funding, bearing in mind that Essex is particularly dependent on the PVI sector to secure its duty to provide places for all children.

As children’s centres become established – there will be 60 designated by the end of March 2008 covering 30% of the most disadvantaged areas – they will begin to have increasing impact on this cycle of disadvantage through strategies that support parents to gain in confidence, and improve access to tax credits, training and work. The guidance indicates the need to use the nursery education funding to ensure viability of settings in the most disadvantaged areas. This will need to be balanced against the implication that less will therefore be available for other providers, when we know that the funding has already fallen substantially behind the true costs of the sector.

  1. The PVI costing survey

a)Outline

In Essex there are over 600 PVI settings delivering the free entitlement and, rather than ask all of them to take part, which would be too large a task for the timescale, a random sample has been identified. The sample size was 116 providers. The data was collected by using a questionnaire and sent to the providers either by email or post. The questionnaire was in a spreadsheet format and the questions asked were basic details about each setting:

postcode location,

provider category viz. private, voluntary, independent, day nursery, childminder, other

number of weeks open, number of days open per week, opening hours,

number of sessions available each day,

number of hours open each week,

number of places for which setting is Ofsted registered,

number of children at each age: under 2, 3, 4, 5,

number registered for nursery education grant,

number attending at each age on average,

number attending at each age who attract nursery education grant,

average hours per week attendance by 3 & 4 year olds,

free meals provided,

any additional services provided.

Costing information under the headings in the bar chart below was also requested and, with regard to staffing,settings were asked for costs per annum for each member of staff re: salary, national insurance, pension, as well as their role, hourly rate, and hours worked. Settings were also asked if they had any teaching staff.

Out of the sample size of 116, only 16 providers sent in completed questionnaires. This response is 2.5% of the total of 641 providers and, although disappointing, is statistically not an unreliable proportion to be of use in drawing conclusions, but the number of returns does compromise conclusions drawn.

b)Key costs

Unremarkably, the key costs are staffing and premises. The survey outcome showed that staffing costs accounted for 77% of total costs, and premises accounted for 9%. Of the remainder, activity & materials costs were 7%, administration (phones, postage, printing & stationery etc.) 4% and the rest spread over insurance, advertising, transport and quality assurance. The bar chart below gives an illustration:

c)Conclusions from the survey

The survey showed that the average cost per child per session was £8.69, or £3.48 per hour. This figure does not distinguish between children who are at age 3 or 4 and those who are younger or older. Currently, the funding to PVIs for 3 and 4 year olds receiving nursery education is £8.74 per session.

With such a low number of responses any conclusions would have to be guarded but the evidence does point to the 3- and 4-year old funding being sufficient to cover the costs of provision in the PVI sector.

  1. Funding mechanisms

Different funding methodologies exist for Maintained Nurseries, Designated Nursery Units, and Private Voluntary and Independent settings.

The following identifies how the current funding methodologies apply:

a)Nursery Schools

2007-08
£,000
i. / Nursery school funding is provided on a per placebasis. Currently Essex Nursery schools provide 150 places attracting £2,803.55 per place (2007-08). / 421
ii. / Per pupil funding is provided additionally at £311.51 (151 FTE on roll on January census day) / 45
iii. / Additional resources are made available to support children with SEN / 5
iv. / Site specific – rent and rates; structural repairs and maintenance / 24
v. / School specific factors – catering; lump sum; insurance; school library service / 242
vi. / Total @ £4913 per pupil (full-time equivalent) / 737

NB. The notional costs of occupying the premises in which the nurseries are located (an asset rent) are not charged to the nursery school budgets.

b)Designated Nursery Places in Mainstream Schools

The Essex formula for financing schools funds some 1,882 places in 65 Primary and Infant Schools. Places are funded at the same rate as in Nursery Schools (£2,803.55). Total funding in 2007-08: £5,276,260.

Three- and four-year olds in designated nursery classes attract further funding at £311.51 perfull-time equivalent pupil. 1,381 full-time equivalentchildren in nursery provision were counted on the January census 2007, costing £430,188.

Other costs are embedded with other age groups across the primary phase; if these costs were attributed on a per full-time equivalent pupil basistheywould be £690,equating to £953,662.

Taken together, each full-time equivalent nursery pupil attracts funding of £4,822, or £2,411 per child.

The notional costs of occupying the premises in which the nursery classes are located (an asset rent) are not charged to the nursery school budgets.

c)PVI Provision

The PVI sector is funded on the basis of termly counts and a sessional rate (2.5 hours) of £8.74.

The costs to the LA of delivering 2.5 hours for 5 days per week across 38 weeks per annum equates to £1,661 per child.

The likely costs of funding the PVI sectors in 2007-08 will be £24.4 million.

PVI settings delivered early years education to the following numbers of part-time equivalent children (ie. 5 x two and a half hour sessions each week throughout the term:

Summer 2007 / Autumn 2007 / Spring 2008 (estimate)
Age 3 / 10,369 / 10,843 / 10,294
Age 4 / 6,568 / 2,870 / 4,708
Total / 16,937 / 13,713 / 15,002

d)Conclusion

The unit costs shown above suggest that maintained settings in nursery schools and designated nursery classes are funded at similar levels whilst the PVI settings are funded at around 70% of maintained rates.

The reasons for the disparity will no doubt be the basis of the formula approach to be adopted from 2010-11.

e)Other funding

In the current year the following has been available, and the new guidance is currently being review to see what can be made available in order to fulfil Government requirements.

Inclusion Grant£220,000, average grant paid £5,000

Sustainability Grant£200,000, average grant paid £6,000

Out of Schools Club Start up grants£200,000, average grant paid £12,000

Day care expansion Grants£250,000, average grant paid £72,000

Transformation fund grants for training of staff £1m, average paid £350 per member of staff.

NB. Not all settings received any of these grants.

New capital funding is being made available for PVI settings next yearto help address the quality of premises, but currently the guidance is being reviewed to ensure that the criteria and objectives are understood, and that an application process is in place before it is rolled out. A small amount of funding is being made available for training in the foundation stage

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