Hedra Consulting, which was commissioned by the Government to look at the operation of the free entitlement in a number of local authorities, found that 'the free early years entitlement funding does not cover average hourly costs in certain parts of the country'.
While most nursery education providers receive more money in funding than their costs, the report found that in all but one of the local authorities, there were providers who had costs higher than the level of funding, and this applied to half the providers in local authorities in the south of England.
The report said that private, voluntary and independent (PVI) providers faced greater 'insecurity of revenue' than the maintained sector. It noted, 'If there was to be any imbalance in the levels of funding therefore, one might expect it to be in favour of the PVI sector in compensation for this additional level of revenue risk, but this does not appear to be generally the case.'
It added that where the free early years entitlement was less than a provider's normal hourly rate, every hour funded by it meant a loss of revenue, as these hours could otherwise have been sold at the full price.
The Hedra study pointed out that while PVI providers were funded on the basis of the number of children attending the setting, the maintained sector was financed according to the number of places, regardless of attendance. It concluded that if the maintained sector's hourly funding was calculated on the basis of attendance and not places, the funding for each child would be 'higher than it currently appears to be'.
Purnima Tanuku, chief executive of the National Day Nurseries Association, said that 'more widespread research is required in order to gather a true picture of the financial impact of the entitlement on providers'.
Further information:
The Hedra report is available at www.everychildmatters.gov.uk/news or organixfoundation.org for full details of how to apply.