SECTOR VIEWS ON EARLY

YEARS FUNDING AND THE

30-HOUR OFFER

April 2017

PRE-SCHOOL LEARNING ALLIANCE

CONTENTS

Key findings p3

Background p4

Methodology p5

Survey results p6

Conclusion p13

Full results p15

KEY FINDINGS

* While 95% of respondents currently provide 15-hour funded places for three- and four-year-olds, only 44% definitely plan to offer 30-hour places, with 36.5% still unsure and 19% planning to opt out of the scheme.

* 62% of respondents that know their three- and four-year-old ‘free entitlement’ hourly funding rate for 2017/18 say that it is both less than their hourly fees for parents, and less than the hourly cost of providing a funded place.

Of providers planning to or still considering whether to offer 30 hours:

* 57% think it will have a negative financial impact on their business (and of those, 53% plan to increase fees for additional paid for hours, 48% plan to charge for good and services that they previously provided for free, and 40% plan to restrict the days and times when funded places can be accessed – to recoup losses).

* 40% aren’t confident they will have enough capacity for the 30 hour offer.

* 41% think it will mean a decrease in the number of places offered to children of other ages.

* 25% think there’s a risk their provision could close.

* Only 38% are definitely planning to offer 30-hours places to all eligible children – 26% are planning to restrict places and 36% are undecided.

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BACKGROUND

April 2017 marks the introduction of the new Early Years National Funding Formula in England. Under this formula, the level of funding each local authority receives from central government will be based on local staff and premises costs, also taking into account the proportion of children in the area from disadvantaged backgrounds, with special educational needs and/or disabilities (SEND) and speaking English as an additional language (EAL).

Under the new formula, 20% of local authorities in England will see a decrease in funding rates compared to 2016/17. The government has also confirmed that the current level of early years funding for councils will be frozen until 2020, with no formal annual review.

The new funding rates being introduced in April 2017 will apply to both the existing universal 15-hour ‘free entitlement’ offer for three- and four-year-olds in England, and the upcoming 30-hour offer when it comes into effect in September.

The government estimates that 390,000 children will be eligible for the 30-hour offer, which is limited to working parents (those earning at least the equivalent of 16 hours a week at minimum wage and no more than £100,000 each).

The offer of ‘30-hours of free childcare’ for working families was a key Conservative manifesto pledge in the run-up to the 2015 general election. However, early years providers and representative organisations, including the Pre-school Learning Alliance, have raised concerns about the viability and sustainability of the offer given current levels of funding.

This survey aims to provide an up-to-date, comprehensive overview of provider views on early years funding and the 30-hours offer.

4

METHODOLOGY

5

This survey was conducted online between 23 March and 30 March 2017, and received 1332 responses.

Respondents comprised of nurseries and pre-schools offering sessional care (45.4%), nurseries and pre-schools offering full daycare (35.6%), childminders (14.4%), and a small number of primary school nursery classes, maintained nursery schools, nannies, reception classes and out-of-hours school clubs (less than 1% each).

The vast majority of respondents (81.1%) were aware of their 2017/18 funding rate at the time of the survey. A further 7.1% knew what rate their local authority would be receiving but not their own rate, while 11.75% were not sure of their own rate or their local authority’s rate.

SURVEY RESULTS

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Do you currently offer the 15 hour free entitlement for three- and four-year-olds?

Yes

No

There is a significant level of uncertainty of 30-hour take-up among providers

As expected given the high level of take-up for the current universal ‘free entitlement’ offer for three- and four-year-olds, the vast majority (95.2%) of respondents currently offer 15-hour funded places. In stark contrast, however, less than half (44.2%) are definitely planning to deliver the 30-hour offer: 36.5% of respondents are still uncertain whether or not they will deliver the extended entitlement, while around a fifth (19.2%) are planning to opt out.

Funding concerns clearly play a significant role in provider decisions over whether to deliver the extended entitlement – this was the most common reason given for choosing not to do so, cited by (58.3%) of those planning to opt out of the extended offer.

However, the practical ability to deliver 30-hours of childcare provision was also cited as a key hurdle for settings, with (42.6%) of those opting out pointing to the fact that they are not actually open for 30 hours of the week (this reason was cited most frequently by sessional providers, as would be expected).

Yes No Unsure

I will be losing 86p per hour per child accessing the 30-hour funding.

If I choose not accept the 30-hour funding, I risk losing custom.

Do you currently offer the 15 hour free entitlement?

Are you planning to offer the 30-hour free entitlement?

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It is notable that six in 10 (60.8%) of those not planning to deliver 30-hour places think it will have a negative impact on their businesses (and of those respondents, nearly two-thirds (64%) cited inadequacy of funding as a contributor to the decision to opt out).

This highlights just how detrimental an impact some providers think the 30-hours will have on the financial stability of their provision – even though they believe opting out will have a negative impact on their provision, they still view this to be better than the alternative (i.e. opting into the 30-hours and risking becoming completely financially unsustainable).

Inadequacy of funding is a key provider concern

The majority (62.2%) of all early years providers surveyed say that the funding rate they will be receiving in 2017/18 is both less than the hourly rate they charge parents and less than the hourly cost of delivering a funded place, highlighting the serious financial challenges that the sector is facing as a result of underfunding.

The results also suggest that providers moving from 15 hours to 30 hours will face significant challenges. Of those respondents who say that their funding rate will cover the cost of delivering places, around a third (31.3%) say that it is still less than what they currently charge parents per hour. This means that if they replace paid-for hours with additional government funded hours, they will suffer a financial loss per funded child.

Given the above, it is unsurprising – but still concerning – that 57.6% of respondents expect the 30-hour offer to have a negative impact on their businesses, with just 17% predicting a positive impact.

The hourly rate would not cover a member of staff’s rate of pay.

We would not be able to survive as a business.

With the living wage, pensions, minimum wage, cost of training, gas, electricity, rent and business rates all soaring, this year will be

the last year we will break even.

From next year we are in a financial negative position.

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Parents are likely to see additional costs as a result of the 30-hour offer

With a significant proportion of early years providers concerned about the financial impact of the 30-hours, many are understandably looking for ways through which they can make up the shortfall in funding.

Of those respondents who say they expect the 30-hours to have a negative impact on their business, more than half (53.1%) say that they plan to increase parent fees for any additional hours taken up. However, it should be noted that there may be limited scope to do so given Department for Education statistics estimate that, on average, parents of three- and four-year-olds only take up around 18 hours of funded provision per week. Given this, it is likely that providers may have to look at increasing charges for children of other ages, which 37.2% of survey respondents say they plan to do.

Just under half of providers (47.9%) plan to charge for goods and services that were previously provided for free. Under government rules, providers can charge for goods and services such as lunch and trips, which aren’t covered by free entitlement

funding, as long as these charges are optional (i.e. they aren’t made a condition of taking up a funded place). As such, this may well be an area in which parents expecting 30 ‘free’ hours are hit by unexpected charges.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Somewhat positive

What kind of financial impact do you expect the introduction of the 30-hour offer will have on your business?

Very positive Neither negative nor positive

Somewhat negative

Very negative

Flexible hours will no longer be possible, and charges for food

will have to be introduced.

We are going to have to increase all our fees and may make the

one- to three-year-old children’s parents pay more.

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It is also notable that 40% of respondents also plan to restrict the days and times when funded places can be accessed. Government statutory guidance on the delivery of both the 15- and 30-hour offers states that a parent’s entitlement to a funded place does not offer a guarantee of “a particular pattern of provision” (A2.10) and that “there is no requirement that free places must be taken on or delivered on particular days of the week or at particular times of the day” (A2.7). As such, these results suggest that parents expecting to be able to take up their entitlement on specific days and times may be left disappointed when the 30-hour scheme rolls out in September.

It is also concerning to see that around one in five providers (21%) predict they will have to reduce staff-child ratios (within the current legal limits) in order to recoup

losses endured as a result of offering the 30-hours. As staff wages account for the majority (around 70-80%) of childcare delivery costs, it is not hard to see why some providers have looked to such a change as a way of reducing expenditure. However, given that it is well-established that higher staff-child ratios

are associated with a better quality of provision and better outcomes for children, the suggestion that some providers are having to consider trading quality for viability is of significant concern.

We are most upset that we will have to reduce staff-child ratios - as this directly affects quality

of service and outcomes for children but it is essential to

sustainability.

Most commonly planned methods for recouping 30-hours losses

1. Increase fees for any additional paid-for hours

2. Charge for previously free goods and services

3. Restrict when funded places can be accessed

4. Increase fees for children of other ages

5. Reduce staff-child ratios (within legal limits)

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Parents may struggle to access places under the 30-hour offer

A significant minority (40.4%) of providers do not feel confident they will have the capacity to meet the demand for places under the 30 hours. This, in addition to the 19.2% of providers planning on opting out of the offer completely, suggests that a sizable proportion of parents may struggle to access funded places.

This is underlined by the fact that only 38.1% of providers are definitely planning to offer 30-hours places to all eligible parents (36% are unsure, while a further 26% are planning to offer 30-hours places to some but not all parents – with 29.5% of these planning to offer places to less than a quarter of parents).

It is important to note that many of those respondents that said they plan to provide places to all eligible parents also stated that they would only provide places for current families and not new families – and particularly not new families that would only want to take up the 30-hour entitlement. This suggests that parents who aren’t currently accessing formal childcare at a provider, or who are planning to change providers, may find it difficult to find a 30-hour place.

All eligible families

>75% of eligible families

50-75% of eligible families

25-49% of eligible families

<25% of eligible families

Undecided

How many families are you planning to offer 30-hour places to in September?

How many families are you planning to offer 30-hour places to in September?

All eligible families

More than 75% of eligiblefamilies

Between 50% and 75% ofeligible families

Between 25% and 49% ofeligible families

Less than 25% of eligiblefamilies

Undecided

Only offer[ing] to existing families. We will not accept new families that want the 30 hours alone.

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It is also worth noting that around half (49.3%) of providers surveyed do not know how many parents at their provision will be eligible for 30 hours. As would be expected, those that don’t are much more likely to be undecided as to how many 30-hours places they will offer than those who are already aware of how many eligible families they will have in September (47.1%% versus 25.3%). This uncertainty has been exacerbated by the fact that, at the time of this report, the online eligibility checking system for parents (which will be used to check eligibility for both the 30-hour offer

and tax-free childcare) was not yet in existence, despite the imminent roll-out of both schemes.

However, capacity issues will not only impact parents of three- and four-year-olds. More than four in

10 (41.1%) providers say that they expect that the availability of places for children of other age groups will decrease under the 30-hour offer (compared to 49.7% who expect the number of places to stay the same and 9.1% who expect them to rise). Qualitative responses to the survey suggest that this would have the greatest impact on the number of places available for two-year-olds – a potential consequence of the 30-hour offer highlighted by the National Audit Office in its ‘Entitlement to free early education and childcare’ report published in March 2016.

A small number of qualitative responses to this question also suggested that some providers may look to limit the number of 15-hour-only places for three-and four-year-olds in order to make room for children taking up 30-hour places.

What kind of impact do you expect the introduction of the 30-hour offer to have on the availability of places for children of other age groups?

The number of places we offer will decrease

The number of places we offer will increase

The number of places we offer will stay the same

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

It will be on a first come first served basis - whoever gets the eligibility code to me first. [I will be] limiting

30 hour places if I offer it at all.

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A significant minority of early years providers fear closure

A quarter of providers (25.3%) fear the introduction of the 30-hour offer is “likely” to result in their closure. This undermines the government assertion that current funding levels are sufficient for the roll-out of the offer not only today, but until 2020 – despite inevitable increases in business costs such as wages, rents, mortgages,

utilities and business rates during that time. This would mark a sharp increase in closures – Ofsted statistics show that between December 2015 and December 2016 (the most recent figures available), 11% of group providers and 14% of childminders left the Early Years Register.

Do you think there is a risk that your provision could close as a result of the introduction of the 30-hours offer?

No, definitely not No, it is unlikely Yes, it is likely Yes, we are planning on closing

The hourly rate is very disappointing and is not enough

to sustain our business in the future. We really do foresee that

we will need to close in the future after 30 years – very sad.

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CONCLUSION

The offer of ‘30 hours of free childcare’ for working families was one of the Conservative Party’s flagship manifesto pledges and yet these results show that, without urgent action, the government is at risk of breaking this promise to parents. Early years providers remain deeply concerned about the adequacy of funding, and the impact this will have on the sustainability of their businesses. With only a minority currently committed to delivering the 30-hour offer, and many still considering limiting the number of places available, many parents across the country are likely to find it difficult to find a funded place – and particularly, as highlighted in the main report, one that matches the days and times they want to use it.

Those that are able to access a ‘free’ place may find that many of the additional goods and services that used to come as part of their entitlement – with providers having previously absorbed the cost of these themselves – now come with additional charges, albeit optional ones. Parents of younger children too, the majority of whom will not be benefiting from funded provision, could face fee increases as providers look to plug an ever-widening funding gap.

These concerns are all the more pressing in light of the fact that the funding that local authorities receive from central government is set to be frozen until 2020. This means that some of those providers who are able to offer the 30-hours this year may find doing so more of a financial struggle in the subsequent years, as cost drivers such as the national minimum and living wage, business rates, rents and mortgages continue to rise.

Among the qualitative comments submitted by respondents, there was a common call for the government to promote the 30-hour offer as ‘funded’ rather than ‘free’. This would mean the government paying a contribution or subsidy towards each funded place, allowing providers to charge for the shortfall, rather than claiming that it has fully covered costs and that the places are ‘free’ for both parents and providers. Providers argue that such an approach would still give parents a significant discount on places, but would also allow providers to stay sustainable.

The uncertainty caused by a rushed and poorly planned policy

has had a detrimental effect on my business.

However, all current indications suggest that government is committed to promoting the offer to parents as ‘free childcare’ – for example, the most recent version of the early year statutory guidance for local authorities has replaced all previous mentions of ‘early education places’ with references to ‘free places’. In light of the

recent criticism of the government when it was judged to have broken a manifesto pledge not to increase National Insurance contributions, the political risks associated with adjusting the terms of the manifesto pledge may seem too great.

And yet, as these results show, if the government does not address the early years sector’s concerns – most urgently with respect to the adequacy of funding – it risks

effectively breaking this promise anyway as parents will struggle to access the ‘free childcare’ they have been promised.

It is the view of the Pre-school Learning Alliance that if the government is not willing to promote this offer as anything but ‘free’, then it is obligated to ensure that funding covers the rising cost of delivery, both today and over the coming years.

We believe that the stakes are too high to simply hope or assume the early years sector will somehow ‘make it work’ without sufficient investment, and the government cannot expect providers to put the sustainability of their businesses at risk to help it fulfil a pledge that it has chosen not to fund adequately.

The fact that such a significant proportion of providers remain – just five months before the roll-out of the 30-hour offer – uncertain as to whether or not they will offer funded places and if they do, how many places they will offer, should be viewed as an opportunity by government. If it can address the very valid concerns that providers have raised around funding, it may be able to convince those that are on the fence about the 30-hour offer to opt in to delivering it.

We are starting the roll-out of 30 hours and tax free childcare on 1st April with very little information –

[it’s a] bit of a leap of faith.

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Either government must pay what it costs to deliver

the “free” entitlement or it should be rebranded

as a funding subsidy and providers should be free to charge parents to make up

the difference.

How would you describe your provision type?

Nursery or pre-school providing full daycare: 35.6%

Nursery or pre-school providing sessional daycare: 45.4%

Childminder: 14.4%

Primary school nursery class: 0.8%

Maintained nursery school: 0.8%

Nanny: 0.1%

Reception class: 0.1%

Breakfast and/ or after school club: 0.3%

Other: 2.6%

How many children do you currently have on roll?

0-20: 19.8%

21-40: 27.5%

41-60: 25.7%

61-80: 11.2%

81-100: 6.6%

101+: 9.1%

Do you know what funding rate for three- and four-year-olds you will be receiving from April 2017?

Yes, I know what rate my provision will be getting: 81.1%

No, but I know what rate my local authority will be getting: 7.1%

No, and I don’t know what rate my local authority will be getting: 11.8%

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FULL RESULTS

Is your 2017/18 three- and four-year-old funding rate:

More than your hourly parental fee rate: 21.1%

The same as your hourly parental fee rate, but more than the hourly cost of delivering a place: 4.8%

Less than your hourly parental fee rate, but more than the hourly cost of delivering a place: 4.8%

Less than your hourly parental fee rate, and the same as the hourly cost of delivering a place: 7.0%

Less than your hourly parental fee rate, and less than the hourly cost of delivering a place: 62.2%

Do you currently offer the 15 hour free entitlement for three- and four-year-olds?

Yes: 95.2%

No: 4.8%

Are you planning to offer the 30-hour free entitlement for eligible three- and four-year-olds?

Yes: 44.2%

Unsure: 36.5%

No: 19.3%

The below questions were put to respondents who confirmed they are not planning to offer the 30-hours:

Why are you not planning to offer the 30-hour free entitlement?

The funding rate isn’t high enough: 58.3%

It would mean reducing places: 18.3%

We are not open for 30 hours a week: 42.6%

We don’t have enough physical space: 8.1%

We don’t have enough staff: 11.5%

Other: 11.1%16

What impact do you think not offering the 30-hours will have on your business?

Very positive: 1.7%

Somewhat positive: 6.0%

Somewhat negative: 35.3%

Very negative: 25.5%

No impact: 31.5%

The below questions were put to respondents who confirmed they are planning to offer the 30-hours or are still undecided

What kind of financial impact do you expect the introduction of the 30-hour offer will have on your business?

Very positive: 4.3%

Somewhat positive: 12.6%

Neither positive nor negative: 25.5%

Somewhat negative: 33.2%

Very negative: 24.3%

How do you plan to recoup any losses you make delivering the 30-hour free entitlement? (put to those who stated that they expected the 30-hour offer to have a ‘somewhat’ or ‘very’ negative impact on their businesses)

Increase fees for any additional paid-for hours: 53.1%

Increase fees for children of other ages: 37.2%

Charge for good and services that were previously provided for free: 47.9%

Increase existing charges for goods and services that you already charge for: 18.6%

Restrict the days and times when funded places can be accessed: 40.0%

Reduce staff-child ratios (within legal limits): 21.0%

Other: 13.0%

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Do you feel confident that your provision will have the capacity to meet the demand for places under the 30-hour offer?

Yes, very confident: 14.9%

Yes, fairly confident: 44.8%

No, fairly unconfident: 27.6%

No, very unconfident: 12.8%

What kind of impact do you expect the introduction of the 30-hour offer to have on the availability of places for children of other age groups?

The number of places we offer will increase: 9.1%

The number of places we offer will decrease: 41.1%

The number of places we offer will stay the same: 49.7%

Do you think there is a risk that your provision could close as a result of the introduction of the 30-hour offer?

No, definitely not: 13.4%

No, it is unlikely: 61.0%

Yes, it is likely: 25.3%

Yes, we are planning on closing: 0.3%

Do you know how many families at your provision will be eligible for the 30-hour offer when it is introduced in 2017?

Yes: 50.7%

No: 49.3%

How many families are you planning to offer 30-hour places to in September?

All eligible families: 38.1%

More than 75% of eligible families: 3.7%

Between 50% and 75% of eligible families: 6.5%

Between 25% and 49% of eligible families: 8.1%

Less than 25% of eligible families: 7.7%

Undecided: 36.0% 18