Early Years Single Funding Formula (EYSFF) Consultation Karen Atkins Principal Finance Officer Peoples Directorate – Schools & Learning

Introduction Background & Local Context Statutory & Regulatory Framework Early Years Funding EYSFF Overview & Distribution EYSFF – Review of Individual Factors Transitional Arrangements

Background & Local Context Sunderland has 100 providers that offer Early Years Education to 3 & 4 Year Old Children –9 Nursery Schools –61 Nursery Classes in maintained schools and academies –30 Private, Voluntary and Independent Providers The average number of children attending settings ranges form 3 to 100 children Funding is received via the Dedicated Schools Grant (DSG) Early Years Block (EYB) and was estimated at £16.2m for 2013/2014 financial year. The EYSFF distributes £10.8m related to the 3 & 4 YO Offer

Local Authority Requirements for Funding Early Education Places To fund early education places in all sectors using a locally determined EYSFF Issue providers with an indicative budget at the beginning of the financial year which broadly reflects anticipated participation Adjust budgets to reflect actual participation within the financial year across all sectors Construct a formula composed of either a single base rate for all providers or a number of base rates differentiated by type of provider according to unavoidable cost differences Provide free school meals for children who are registered pupils of a maintained school who attend early years provision both before and after lunch (3 & 4 Year Olds only)

Local Authority Requirements for Funding Early Education Places Submit funding rates to the department annually Maximise the funding passed to providers, rather than retaining it centrally Ensure the EYSFF is fair, clear, simple and transparent by: –Keeping the number of base rates to a minimum –Any supplements are understood by providers and help drive positive outcomes for children –Ensure any process to ensure the proper use of public funding does not place undue administrative burdens on providers

Allowable Supplements / Formula Factors Early Years Finance Regulations 2013 Those included in Sunderland’s Formula: –Single lump sum for each school and early years provider which may vary according to type of provider –Non-Domestic rates at estimated or actual cost –Flexibility –Sufficiency (Rural Protection Factor) Those not included: –Incidence of looked after children (lack of data) –Prior Attainment (lack of data) –Children for whom English is an additional language (lack of data) –Providers operating on split sites (not applicable) –PFI funding (not applicable)

Early Years Funding Funded via a specific Early Years Block within the Dedicated Schools Grant Based on Early Years Census Data in January Early Years Block : Distribution of 2013/2014 DSG £m % Budget Funding for the 3 & 4 Year-Olds % Funding for the 2 Year Old Offer % Commissioned Childcare % Childcare Team and Locality Based Working % Total Early Years Block %

Provisional Early Years Funding Block 2014/ /15 3 & 4 Year old Offer£10.807m 2 Year Old Offer£4.516m Commissioned Childcare£1.278m Childcare Team & Locality Based Working£0.683m Total£17.284m

Early Years Block – Next Steps Awaiting results of January census to complete indicative budgets for issue in February 2014 Funding will include where relevant estimated allocations for 2 year old based on a funding rate per pupil per hour of £4.84 Funding is responsive to in-year adjustment to reflect change in pupil numbers June 14 - Early Years Block Updated by DfE for January 2014 Early Years pupil numbers April 15 - Early Years Block Updated by DfE for January 2015 Early Years pupil numbers (7/12 adj – Sept 14 – Mar 15) EYSFF review 2014

EYSFF Overview & Distribution Rationale for Reviewing Current Formula –Currently the EYSFF is funding via the DSG, which was historically based on the January Early Years census and fixed –From 2013/2014 the arrangements for the DSG changed in that funding allocated will be adjusted to reflect changes in pupil numbers between each census date i.e. January 2013 and January 2014 –This means in effect that our overall funding available in the early years block will fluctuate with changes in numbers of children accessing their entitlement –This has implications in relation to the proportion of our funding that is currently fixed within the EYSFF formula

Financial Implications Current financial year 2013/2014 projected deficit of £0.225m and would be of a similar level in 2014/2015 assuming no changes in participation in January 2014 Likely to be impact on the overall Early Years Block as a result of changes in pupil numbers Worse case scenario is an overspend of £0.500m Options to fund potential overspend; –Use of unspent 2 year old funding –DSG carried forward 2012/2013 –DSG carried forward 2013/2014

EYSFF Overview & Distribution Mandatory Factors: –Base Rates –Deprivation Supplement Discretionary Supplements / Factors –Flexibility –Management Lump Sums –Business rates contribution –Rural Schools Protection –Support for SEN Children

EYSFF Fixed & Variable Analysis (£m)

Current EYSFF Distribution 2013/2014 (£m)

Areas for Review & Consultation Deprivation (9%) Flexibility (13%) Lump sums (12%) Number of base rates and their values arising from any changes to the existing formula

Consultation Questions Question 1: Do you think that the existing Early Years Single Funding Formula (EYSFF) is fair, transparent and simple to understand? If not please comment on the elements of the funding system that you find unclear or confusing. Question 2a: Do you think that all funding factors for the 3 & 4 year old free entitlement should be based on actual participation i.e. based on the actual number of children taking up their entitlement excluding business rates & the proposed lump sum for nursery schools set out in paragraph 6.28?

Consultation Questions Question 2b: If the answer to question 2a is no what other formula factors in the current formula should not be funded based on participation & why? Question 2c: If the current lump sums factor was removed from the formula (with the exception of the factors for business rates and the proposed nursery lump sum) on what basis should that funding be reallocated via the base rates? –Option 1 – based on an amount per child per hour set out in paragraph 6.22, which seeks to minimise turbulence and reflects the different management costs in each sector –Option 2 – based on the same amount per hour per child regardless of the type of provider

Review of Individual Factors - Deprivation Currently 9% of total EYSFF formula On average 65% of children trigger additional funding for deprivation Issues with current factor –Does not respond to changes in participation i.e. increase in take up in the summer term and decrease in the autumn term –Allocation is fixed annually and based on the cohort of pupils recorded on the January census –Therefore not responsive to need and either locks funding in for schools with a decrease in the number of eligible children or does not recognise any increase in the number of eligible children and individual setting level

Review of Individual Factors - Deprivation Implications of the proposed changes: –Would increase the percentage if funding distributed via the deprivation factor from 9% to 11% –Additional funding requirement of £0.238m –Will impact negatively on those providers with lower levels of take up in the summer and autumn terms –Funding will follow the number of children in the setting and reflect the actual cohorts of children moving through the system –Can be predicted easily at both LA & setting level

Consultation Questions Question 3: The local authority is proposing that we change the current deprivation factor so that it delivers funding to schools and providers based on participation. Do you agree with the proposal to modify the factor so that it targets funding based on participation each term based on the rates set in Appendix 1 of the consultation document?

Review of Individual Factors - Flexibility Currently 13% of total EYSFF funding Flexibility currently offered by all nursery schools, 29/61 schools and academies with nursery classes and 26/30 PVI providers. Actual take up of the free entitlement over less than 4 days is as follows; –Nursery schools 18.8% –Nursery Classes 17.6% –PVI Providers 77.3% Funding is provided initially on whether the setting offers the free entitlement more flexibly outside school hours and over more than 38 weeks, based on £0.88 per child with data taken from the January census and then applied to the average take up of the setting across a financial year.

Review of Individual Factors - Flexibility Issues with current factor: –Funding is fixed at the beginning of the year –Distribution of funding does not reflect the incidence of take up across the sectors which suggests that demand for flexibility is not as high as originally expected –Funding is targeted to the settings status and not child level eligibility –Assumes for those settings that are identified to receive funding that all children are accessing their entitlement flexibly which may not be the case –What is the justification for continuing to provide funding where little or no demand exists. The flexibility factor arose as a mechanism to continue with the local authority’s policy to provide a financial incentive to settings in order to ensure that the local market could meet the demands of working parents i.e. those parents that work part time and wish their children to access their offer over 4 days or less.

Review of Individual Factors - Flexibility Implications of the proposed changes: –Dependent on responses from providers it may still be necessary to ensure those providers with a demand from parents to access their entitlement flexibly are funded. However the formula factor needs to be responsive to demand. –Those settings currently receiving funding for flexibility will only be funded for those children that are attending over 4 days or less. Children attending over 5 days will not be deemed to be taking up the offer on a flexible basis. –The implication of retaining the flexibility factor at the higher rate proposed in 4.11 will result in all providers offering free meals to those children taking up their entitlement both sides of the lunch time period. –Can be predicted at setting level

Consultation Questions Question 4a: Should the local authority continue to promote flexibility by funding it through a specific formula factor? Question 4b: If the answer to question 4a) is yes, do you agree with the proposal to increase the hourly rate to £1.26 set out in paragraph 6.21?

Review of Individual Factors - Lump Sum Currently £1.191m (11.3%) of the EYSFF is distributed via the lump sum The amount of funding included in the nursery schools lump sum that reflected the average full cost of a Nursery Headteacher was £59,000. Each provider currently receives a lump sum which reflects a contribution towards management costs and the need for all providers to secure the SENCO role in respect of early years. The rationale originally for the lump sum was to recognise unavoidable fixed costs all providers have regardless of size. This was an approach commonly used by local authorities developing their funding formulae in order to provide a balance between stability in funding and recognising changes and movement in demand over time. Description2013/2014 Sector Lump Sums Amount Allocated 2013/2014 (£m) Average rate Per Child Nursery School£64,923£0.584£1.54 Nursery Class£6,995£0.427£0.29 PVI Provider£5,929£0.180£0.45

Review of Individual Factors - Lump Sum Issues with the existing lump sum factor: –Funding policy nationally has shifted to a system which drives funding on a demand led basis at both LA and provider level. In the main formula for funding schools the lump sum is set at a low value so that it now only provides a minimal contribution to fixed costs –Whilst the fixed costs included within the calculation for the lump sum are unavoidable they are not always fixed and will vary by size and type of provider –Any factor in the formula should not impact on the local market and give one provider or type of provider an unfair advantage above others The legal requirement for a nursery school to be led by a Headteacher has not changed, however; –It could be argued that true unavoidable cost is the difference in cost between the lead nursery teacher and the Headteacher –The total amount of the lump sum attributed to the additionally of a Headteacher is £21,800, which is the difference between the average cost of a nursery Headteacher and a teacher

Review of Individual Factors - Lump Sum Implications of the proposals; –The removal of lump sums will cause turbulence across individual providers of all types –Small providers may not recover the loss of their lump sum via the increase in funding is the base rate –The lump sums were based on the cost for individual types of provider. Therefore there is a strong argument for retaining that cost in the base rates for each sector on a rate/child/hour –To continue to provide lump sums we would need to reduce base rate funding retrospectively if participation falls – this would not be easy for individual settings to be able to anticipate/estimate –This will reduce significantly the level of the formula that is fixed and avoid future deficits arising from funding that has been allocated that cannot be recovered in-year if participation falls.

Consultation Question Question 5: There is a legal requirement to employ a Headteacher to lead a Nursery School and this would be deemed an unavoidable cost attributed to a specific sector. We are therefore recommending that we provide a specific lump sum for nursery schools to reflect the differential costs of employing a Headteacher. Do you agree with this proposal?

Review of Individual Factors – Current Base Rates DescriptionReference Original Rate Nursery Class RateNCR12.69 Nursery School RateNSR23.70 PVI Rate 3PVIR32.51 PVI Rate 4PVIR42.66 PVI Rate 5PVIR52.78 PVI Rate 6PVIR63.28 Childminder 1 – UnqualifiedCMR13.01 Childminder 2 – L2CMR23.18 Childminder 3 – L3+CMR33.55 PVI & Childminder rates based on qualification levels Currently no PVI providers on rate 3

Review of Individual Factors - Base Rate Options to consider: –To simplify the rate for childminders from 3 rates to a single rate –Ensure that base rates are simpler to understand and easier for providers to estimate funding Any residual funding from the lump sum and flexibility factors to be reallocated through the base rates either: –By adding a specifically calculated sector rate to the existing base rates which creates the least turbulence and maintains the relativity of funding between providers established in the original base rates –By allocating any residual funding equally across all providers by calculating a single rate/child/hour. This will redistribute the most funding to where the largest number of children access provision and will result in significantly more turbulence between sectors and individual providers within sectors.

Review of Individual Factors - Base Rate Indicative rates based on proposals DescriptionReference Original Rate Lump Sum Excess Funds Revised Rate Nursery Class RateNCR £0.05£3.03 Nursery School RateNSR £0.05£5.29 PVI Rate 3PVIR £0.05£3.01 PVI Rate 4PVIR £0.05£3.16 PVI Rate 5PVIR £0.05£3.28 PVI Rate 6PVIR £0.05£3.78

Consultation Questions Question 6a: Do you agree that the base rates within the EYSFF should continue to distinguish between the different types of provider? Question 6b: Do you agree with the simplification of the funding rates for childminders and the proposed standard base rate of £3.55 per hour per child?

Support for SEN Children For pupils aged 3 & 4 identified at Early Years Action Plus all settings will receive an allocation equivalent to an additional 7.5 hours per term. This equates to an additional £4.12 per hour per high need child. This funding will be under review in order to reflect changes in the SEN code of practice that will apply from September 2014 and the LA review of the SEN Offer for Early Years

Transition – Options to Consider Early implementation in September 2014 –Due to timescales would require financial protection to enable providers to respond to the financial impact of the changes –Would require funding to be top sliced from the Early Years Block or to target reductions in the funding from other factors to be used for a transition fund –May require the need to cap funding for those providers gaining out of the changes in order to fund the cost of transition –Minimises impact on 2015/2016 funding when 2 YO moves to participation

Transition – Options to Consider Implementation April 2015 (preferred option) –Allows more time for providers to consider implications and plan for funding changes –Will allow for more work to be done on forecasting future take up and the financial implications for individual settings –Supports Budget Planning –Risk is level of take up and affordability

Consultation Questions Question 7a: In respect of transitional arrangements regarding the implementation of the New EYSFF which option would you prefer? –Option 1 - Delay in implementation until April 2015 –Option 2 - Implementation in September 2014 with cash protection until April 2015 Question 7b: If your response to question 7a) is option 2 do you agree that the protection should be funded from capping the increases in funding for those providers gaining as a result of the formula changes?

Next Steps The proposals set out result in a significant change in the distribution of funding between sectors and individual providers This part of the consultation focuses on the principles around the proposals to change the funding formula and to seeks your views on those proposals The consultation period runs from 20 th January to 28 th February 2014 A further report will be taken to the schools forum in March 2014 on the outcomes of the consultation process Outcomes of consultation will be reported back to all providers in April and May 2014 Agreement of the new EYSFF for 2015/2016 will be sought at the May 2014 meeting of the Schools Forum All settings will be notified by the end October 2014 on the financial impact if the changes had been made in 2014/2015 in order to allow settings to plan for the implementation of the new EYSFF from April 2015

Questions?

Summary Understanding –Hopefully this has provided enough information for you to engage in the consultation process –Your views are important and no firm decisions have been made on any of the issues raised in the consultation paper however no change is not an option due to the financial implications –Complex area and whilst we try to simplify it will always come back to the detail and the impact on individual providers/schools/academies Confidence –Open and transparent approach allows you to have confidence in the process

Contact Details Karen Atkins: – Rachel Putz: –