The Government has updated its guidance to local authorities on how to design and implement the Early Years Single Funding Formula (EYSFF), which from April next year will be used to calculate funding for the Free Entitlement across all sectors.
It is hoped the new formula will improve fairness and transparency in the way funding is allocated to providers, and so support the extension of the Free Entitlement to 15 hours, to be delivered more flexibly from September 2010.
The guidance draws on the experiences of the 11 pilot LAs, nine of which implemented their EYFSS in April this year, and acknowledges the 'anxiety among some providers about affordability and whether the rates paid will be sufficient to support the sustainability of settings'.
Here are the main points contained in the document:
Affordability: 'Proper consideration of the funding supporting the Free Entitlement is essential when implementing the EYSFF to ensure that the entitlement is sustainable ... But this must be in conjunction with an overview of the strategic funding pressures on the Schools Budget.'
Restrictions: Two important restrictions that must be respected are:
- Providers are not allowed to charge top-up fees
- The Minimum Funding Guarantee (MFG) for schools still applies, though its future is being considered. The MFG provides maintained schools with a minimum increase per pupil year on year, currently 2.1 per cent each year in 2008-11.
Schools Budget: 'LAs should consider the new EYSFF budget and the revised 5-16 budget in the context of the whole Schools Budget. LAs should not (start with the assumption) that everything is correctly balanced at present, but similarly should not assume that it is incorrectly balanced.'
Some pilot LAs have identified additional funding from their Schools Budget to help implement the changes, and in particular to fund incremental increases in levels of funding to the PVI sector. 'In other words, the pilot authorities have not necessarily assumed that the early years funding is a "zero sum game", in which increases to one sector inevitably means decreases to another.'
Working in partnership: Partnership working is 'critical to getting the EYSFF right'. Early engagement of the whole sector 'has been a challenge' for pilot authorities, but perseverance and regular feedback have paid off. Authorities that have excluded a sector from their consultation and formula building process found they were not ready to implement the formula in time.
Therefore, LAs must:
- manage the expectations of their providers effectively and ensure all providers from PVI and maintained sectors are engaged throughout the process of developing the EYSFF;
- build strong internal partnerships from the outset; and
- make changes 'with' providers, not 'to' providers.
LAs should:
- set up a smaller working group, representative of all providers;
- make every effort to use the knowledge, skills and understanding of representative groups such as the NDNA and PLA; and
- keep all involved up to date.
LAs must not:
- allow the individual needs of one type of setting to dominate discussions within their locally established working groups; or
- leave any sector out of the process of building a formula - maintained and PVI providers of all types must be included.
Schools Forum has a key role to play in the development of the EYSFF. The forum is the 'guardian' of the local Schools Budget, and its distribution among schools and other bodies, and therefore must be closely involved throughout the development process.
Understanding provider costs
LAs must:
- gain an understanding of typical costs faced by different types of providers in their area, including a reasonable rate of return for PVI providers to ensure they are sustainable; and
- be able to explain and justify any differences in the funding allocated to different categories of provider under the new formula.
LAs should:
- have completed a cost survey involving all maintained and PVI sectors and have validated the findings in consultation with the Early Years Working Group by now (July);
- develop a Typical Cost Model, involve providers in this process and validate this through checking findings with a cross-section of providers. If a cost survey was not fully completed by July 2009, LAs should do it immediately and validate the model with knowledge of real provider costs within six months of implementation to enable any changes that need to be made to the formula to take place before the next financial year; and
- update their understanding of provider costs regularly through conversations with providers across the sector.
LAs must not:
- develop a formula which is not based on a rigorous analysis of provider costs.
Design and Implementation
LAs will be required in regulation to:
- distribute funding for the free entitlement on participation, not places, and count pupils to support this, across all providers, on a termly basis as a minimum; and
- incorporate a deprivation supplement, or 'factor', into the EYSFF.
LAs must:
- determine basic hourly rates for providers, based on an evidence-based approach that is reflective of the cost of delivery. This can be one single rate or multiple rates differentiated by type of providers according to variations in unavoidable costs;
- ensure measures used to determine supplements are robust, transparent, and easily understandable, that supplements do not create unnecessary bureaucracy and that there are no overlaps with the base rate;
- ensure quality is sufficiently supported and incentivised in the funding system in general;
- adjust budgets within the financial year to reflect participation adequately across all sectors and must take account of the cash-flow needs of providers; payments must be at least half termly, if not monthly for PVI providers; and
- give all providers an indicative budget at the start of the year which reflects anticipated participation.
LAs should:
- decide which supplements are needed to meet local policy objectives;
- ensure all supplements have maximum effect;
- strongly consider building in a quality supplement and a flexibility supplement;
- treat the affordability assessment as an iterative process;
- ensure that funding through the schools formula does not double-fund allocations through the EYSFF (or vice versa). LAs will need to identify which elements of funding within the current schools funding formula will be replaced by the EYSFF, and which elements will be retained;
- pay special regard to the funding of nursery schools and childminders, who are distinctive in different ways. The basic approach however should be the same as for other providers - based on evidence of cost. 'LAs must remain aware of the presumption against closure of nursery schools', but 'avoid large lump-sum supplements, where they are not cost-reflective';
- take account of the legitimate need for PVI providers to generate some profit; and
- consider the size of the EYSFF budget and the revised 5-16 budget in the context of the whole Schools Budget.
LAs must not:
- lock unjustifiable sector differences into the funding system permanently, e.g. a dual base rate that offers one rate for maintained settings and another for PVIs;
- use lump sums frequently without clear justification or as a device to continue existing levels of funding to particular sectors permanently; or
- make additional sustainability payments frequently or where size or location do not make sustainability a genuine concern.
Alternative funding Funding must be based on participation levels. However, there may be a very few circumstances in which an alternative approach to funding is appropriate. One might be in rural areas where the sustainability of particular settings would suffer if all funding was participation-based.
Additional funding In recognition of the fact that LAs also have a sufficiency duty, the regulations will permit a factor to be included for additional funding to support sufficiency and sustainability. However, this factor must not be used widely, and must have clear criteria as to the reasons for its use.
Impact, Transition and Review
'The introduction of the EYSFF may create winners and losers in terms of funding levels.' Therefore:
LAs must:
- undertake an impact assessment of the effect of the new formula for every setting; and
- ensure settings fully understand how they will be funded, including the basic rate and any supplements.
LAs should:
- look for possible unintended consequences of the new formula for every setting such as changes of provider behaviour in response to the new funding regime;
- consider the interaction between the formula and other policy changes - including to school admissions and in relation to other early years initiatives;
- identify where exceptional circumstances mean there is a clear argument for additional funding to support sufficiency and sustainability - and be able to show there are clear reasons for its use;
- allow time to test out any changes to administrative and data collection processes as part of the EYSFF; and
- not see the introduction of the EYSFF as the end of the process but review it periodically as a matter of good practice.
LAs must not:
- use the Minimum Funding Guarantee to allow funding for maintained settings to continue at current levels irrespective of actual participation in the long term; or
- implement transitional arrangements which require more than three years for settings to reach the level of funding determined by the EYSFF.
FURTHER INFORMATION
'Implementing the Early Years Single Funding Formula - Practice guidance July 2009'
