Since 2017, the Government has used the Early Years National Funding Formula (EYNFF) to calculate the amount of money that is passed to each local authority to pay for the funded hours to which three- and four-year-olds are entitled. Local authorities then decide how much specific settings in their area will receive. This formula aims to ensure local authorities with children who may need more support receive more funding, as do those areas where businesses are more expensive to run.
The EYNFF draws on a range of information to calculate funds, including local salaries and business rates, the proportion of children with special educational needs in a local authority area, the number of children eligible for free school meals, the number of children who claim Disability Living Allowance and the number of children with English as an additional language.
Until now the Government has used the same data every year, with figures dating back to 2010 in some cases. Where funding has increased, it has been because rates have been upped by the same amount across the country, not because the demographics of a particular area have changed.
From 2023-24, however, the Government intends to use the latest figures in each dataset to provide a more up-to-date view of where more funding is needed, as well as making tweaks, such as including school as well as private nursery costs.
Nursery schools
There are also changes afoot to the way maintained nursery schools (MNSs) are funded. The Government provides supplementary funding on top of the money allocated through the formula, as MNSs must have a head teacher, governing body, a SEN co-ordinator (SENCO) and at least one qualified teacher. Despite this, a fifth of the remaining 385 nursery schools in England say they expect to face closure within three years, and more than a quarter had a cumulative deficit in 2021-22, according to a survey by Early Education and education unions. Maintained nursery schools were not eligible for exceptional cost funding for Covid or some Government schemes which benefited private providers in the sector, such as the business rates holiday or business loans.
The Government intends to make an extra £10m available to maintained nursery schools, so all local authorities will receive a minimum of £3.80 an hour for the universal 15 hours delivered in maintained nursery schools, on top of their allocation from the early years funding formula. This will mean a rise for some settings but a fall for others.
A consultation on the plans ran between July and September this year, and the Government said it would publish the new rates in the autumn. However, the revolving door at the Department for Education (DfE), with a string of early years ministers since the consultation opened, has cast doubt on the proposed publication date.
Although the proposals were open to consultation, there is a feeling in the sector that they are unlikely to change. ‘My worry is this is a done deal, there are so many details in the consultation,’ says Cathy Earley, head teacher at Greenacre Community Nursery School in Bootle, Merseyside. Since the consultation closed, there have been leaks around other proposals to overhaul early years funding, including abolishing ratios and providing funding directly to parents instead of via local authorities.
Winners and losers
The sector is currently waiting for the Government to respond to its consultations on changing ratios, and the funding formula.
If the new funding formula is used to calculate rates, there will be winners and losers. All areas will receive a minimum increase of 1 per cent in 2023/24, but some will get an increase of up to 4.6 per cent. Of the 20 local authorities predicted to receive the minimum increase, 16 are located in the North-East, North-West or Yorkshire and the Humber. The 19 local authorities destined to receive the highest increase are all located in London or the South-East, due to settings in these areas being more expensive to run.
The Kidzrus group is located in the North-West, and director Nicola Fleury says access to affordable childcare is becoming a postcode lottery. ‘It should not be that where you live in the country determines your access or choice to quality childcare,’ she says. ‘There must be a more equal approach to funding as all children need access, and this could prevent many attending much-needed nursery places.’
‘I think it is ridiculous to be discussing a reduction in hourly rates for funding when the rates are so far adrift already with the cost of delivering the actual funding,’ says Clare Roberts, founder and chief executive at Kids Planet Day Nurseries. ‘Inflation is at an all-time high and the current recruitment crisis the sector faces is pushing up wages higher than even the living wage.’
Declining places
Analysis by the Early Years Alliance suggests the changes are likely to hit local authorities already struggling with declining childcare places. Thirteen of the 20 local authorities set to receive an increase of just 1 per cent have seen childcare places fall between March 2017 and March 2022. Sunderland has had a drop of 11.2 per cent, for example, while in Halton, Cheshire, places have fallen by 11.1 per cent and in Stockton-on-Tees, County Durham by 11 per cent.
However, only three of the 19 local authorities which are receiving the highest increases saw places decline, and most of the others had a rise in places – Hackney, London, for example, has 24.1 per cent more childcare places in 2022 than it did in 2017.
The Early Years Alliance is not opposed to the proposal to use more up-to-date data in general, says chief executive Neil Leitch. ‘What we’ve argued is it doesn't really go far enough,’ he says. Under the formula, some local authorities would see no increase at all, so the Government introduced the minimum 1 per cent rise, as well as setting a maximum increase, he explains.
The Alliance argues the minimum increase should be higher. ‘There are some local authorities who have got sufficiency, so don't need it,’ says Leitch. ‘They could probably afford to redistribute the funding to others, which might only be getting 1 per cent, but you can see from Ofsted data that they have a bigger problem in terms of trying to attract providers.’
A 1 per cent rise in funding is unlikely to halt the decline in areas where childcare places are already falling, leading to a lack of affordable provision where it is most needed. Analysis from the National Day Nurseries Association found 34 per cent of closures from April 2021 to March 2022 are in the top 30 per cent areas of deprivation, compared to 27 per cent of closures in the top 30 per cent most affluent areas.
‘Aside from the Government funding, the only other source of income is from parents’ fees, and as costs are rising, we will have no alternative than to increase childcare fees,’ says Fleury.
While it is important for the funding formula to use up-to-date data, the proposed tweaks will do little to solve the funding crisis facing the sector.
Fleury believes there needs to be a complete overhaul. ‘Each of the five Kidzrus nursery settings already serves socio-economically disadvantaged communities, and these are the areas which need the most support enabling greater access to nursery places,’ she says.
CASE STUDY: Greenacre Community Nursery School, Bootle
Set in extensive natural grounds in the heart of Bootle, Liverpool, Greenacre Community Nursery School is maintained by Sefton Council Children's Services. The school has been struggling with funding issues for some time.
‘There have been several things which have contributed to the rising costs of running a nursery – Covid didn't help, but there is also inflation, increased utility bills, increases in salaries,’ says head teacher Cathy Earley. ‘That has not been reflected in the funding given to the early years sector and especially to maintained nurseries.’ Most maintained nursery schools are found in areas of deprivation, and closures affect the whole community, she says.
Greenacre has a high proportion of children with SEN. ‘We are funded for 12 children with SEN but we have 24, and we have to do EHC plans for them and apply for funding, which takes time, and time is money,’ says Earley. ‘In my authority, the high needs block is overspent by millions – they have put a hold on being able to apply for funding.’ The school had to spend an extra £40,000 on SEN staffing last year to meet the children's needs.
Earley is unconvinced by the Government's proposed new methods of distributing funding. ‘The pot will be basically the same, it will just be divided up differently,’ she says. ‘It is not the answer – the amount of money needs to be bigger.’
Earley says her local authority has worked out that there would be a reduction in funding under the new proposals – ‘which is worrying as we are probably already one of the local authorities that receives a lower hourly rate’.
‘I can't continue running on what we have now,’ she says. ‘I have reduced staffing and restructured the team, I had to make the assistant head redundant and take on her workload myself.’ While the school does offer hours over and above the funded entitlement, it has very few fee-paying children so fee increases are not an option.