Early learning and childcare expansion: BRIA

3. Options

3.1 Two options are considered:

• Option 1: Expand funded ELC entitlement to 1140 hours and modify the minimum framework for the delivery of funded ELC.
• Option 2: Do Nothing

Sectors and groups affected

3.2 The following sectors and groups will be affected under Option 1 (Expand funded ELC entitlement to 1140 hours and modify the minimum framework for the delivery of funded ELC):

• Children and their Families – under Option 1 from August 2020 all 3 and 4 year olds, and eligible 2 year olds, will be entitled to 1140 hours of funded ELC. Families will benefit from the increase in the number of hours that are free at the point of delivery from August 2020 which could influence household budgets and decisions regarding work and/or study. Children will also benefit from the increase in funded entitlement. This option will maximise the positive impacts high quality ELC has on children’s wellbeing, educational and developmental outcomes, particularly for those children from disadvantaged backgrounds. Parents will also benefit from the changes to the maximum session length for funded ELC as this provides further flexibility for parents wishing to access their child’s funded entitlement over full day sessions more closely tied to the working day.
• Private and Third Sector childcare providers, including childminders – expectation that, under Option 1, these providers will continue to play an important role in the delivery of the funded hours. Introduction of the expanded funded entitlement will, in general, require providers to consider how to evolve their business models. The sustainable rate will include funding to enable payment of the real Living Wage to childcare workers delivering the funded entitlement. However, funded providers will face a business decision as to whether they provide the additional resource to uplift salaries for all workers in their settings, including those not engaged in delivery of the funded entitlement, to the real Living Wage from August 2020 (the funding provided by the Scottish Government and local authorities is only for the funded hours, as if funding were provided for non-funded hours then this could be interpreted as a subsidy and therefore could be in breach of State Aid Rules)^[5].
• Public sector ELC settings – continued development of delivery models to provide flexibility and to offer provision over longer days and the full year in some settings.
• Local authorities – Development of expansion plans to set out how the expanded entitlement will be delivered. Exploring new delivery models to meet local demands, and to offer choice and flexibility to families. Oversight of local workforce expansion and capital investment programmes.
• Construction Sector – Option 1 is supported by £476 million of capital investment which will see capacity across the sector expand through refurbishments and expansions of existing settings and the construction of new builds where there are identified gaps in local sectoral capacity.

Benefits

Option 1 (Expand funded ELC entitlement to 1140 hours and modify the minimum framework for the delivery of funded ELC)

3.3 There are a number of potential benefits associated with Option 1:

Benefits to Children

• Evidence from both the UK, including the Growing Up in Scotland Study, and international evaluations and studies of early learning and childcare programmes support the fact that all children, and especially those from disadvantaged backgrounds, can benefit in terms of social, emotional and educational outcomes from attending early learning and childcare.
• Contributing to the closing the poverty-related attainment gap between the most and least advantaged children.
• By helping to close the attainment gap and contributing to our preventative actions to reduce child poverty, the expansion of ELC entitlement has the potential to generate long-term benefits to the public finances and to economic and labour market outcomes.

Benefits to Parents and Carers

• Expanding the funded ELC entitlement and introducing Funding Follows the Child offers parents and families an increased choice of settings where they can access their child’s funded ELC entitlement.
• Parents and carers would benefit from a high quality, flexible system as it helps to support people into work, training or further study which may not have previously been accessible due to prohibitive childcare costs.
• Increasing the maximum session length for funded ELC to 10 hours would mean parents and carers would benefit from added flexibility when using their child’s funded ELC, allowing them to access full day sessions which are more closely tied to the working day.
• The benefits of increasing the funded entitlement of ELC to 1140 hours will also be felt in household budgets. Providing 1140 hours of early learning and childcare entitlement is estimated to save a family, on average, around £4,500 per child per annum (when compared to the current funded entitlement of 600 hours the additional saving would be around £2,000 per child per annum).

Benefits to Providers

• Enables a system that is provider neutral with the focus on the settings best placed to deliver quality outcomes for children. Funding Follows the Child will ensure the expanded entitlement is delivered on a ‘provider neutral’ basis allowing providers in the private and third sectors to become a funded provider, so long as they meet the National Standard and are willing to enter into a contract with their local authority.
• There is a commitment to simplifying the process for, and reducing the burden on, providers who wish to deliver the funded entitlement. This is expected to make it easier for ELC providers in the private and third sectors (including childminders) to become a supplier of funded ELC (as long as they meet the criteria in the National Standard).
• The multi-year funding agreement between the Scottish Government and COSLA provides the funding to enable the payment of a sustainable rate to providers from August 2020. The sustainable rate will reflect the cost of delivery (and addresses previously unsustainable rates discussed in section 1.21).
• Provide the opportunity for an enhanced role for childminders in delivering the funded entitlement through the introduction of Funding Follows the Child.

Economic Benefits

• Funding will be provided to local authorities to ensure that hourly funding rates paid to providers are sufficient to enable payment of the real Living Wage and the promotion of Fair Work practices.
• Local authorities estimate that up to 11,000 additional workers (up to 9,000 full time equivalents) are required to deliver the expanded entitlement across Scotland. These employment opportunities will be spread across all local authority areas, and within many of our most disadvantaged communities, with a range of roles across different qualification levels - presenting a considerable opportunity to support inclusive growth.
• The expansion could increase the supply of labour, either by allowing more parents and carers to increase their hours of work or by more parents and carers entering the labour market. Increases in the supply of labour can contribute to long-term economic growth performance.
• The expansion will also be underpinned by a substantial programme of infrastructure development, which will help to support employment across the construction sector.

Option 2: Do Nothing

3.4 Under option 2 no additional benefits have been identified.

Costs

Option 1 (Expand funded ELC entitlement to 1140 hours and modify the minimum framework for the delivery of funded ELC)

3.5 The Scottish Government has worked with COSLA and local authorities to identify the costs of delivering the expansion to 1140 hours (and all the associated policy elements that part of the wider supporting policy framework). A funding agreement has been reached to meet the full revenue and capital costs of the expansion.

3.6 Table 2 sets out the additional revenue funding requirements for local authorities from 2019-20 to 2021-22, which formed the basis of the multi-year funding agreement between the Scottish Government and COSLA to fully fund the expansion of ELC. The funding agreement will see the Scottish Government provide local authorities with total recurring revenue funding of £567 million per year by 2021-22, relative to funding provided for ELC in 2016-17.

Table 2 – Revenue allocations to local authorities for early learning and childcare 2019-20 to 2021-22

	2019-20	2020-21	2021-22
Scotland	£307,000,000	£508,000,000	£566,656,000

3.7 This revenue funding will cover both the increase in workforce capacity required for the expansion and also the policy commitments that are part of Funding Follows the Child and will underpin the expansion. This includes:

• provision for local authorities to set sustainable funding rates for private and third sector providers, including childminders, which reflect the cost of delivery;
• funding to enable delivery of the real living wage commitment, which will be reflected in the sustainable rate and will enable funded providers to pay the real living wage to their staff delivering the funded entitlement; and
• funding for the delivery of the commitment that every child receiving a funded ELC session will receive a free meal.

3.8 Local authorities will also be provided with £476 million of capital funding to support the expansion, over four financial years from 2017-18 to 2020-21 inclusive. This is to cover the costs of any refurbishments, expansions or new builds where gaps in local capacity have been identified by local authorities.

3.9 To identify the costs of delivering the expansion local authorities produced expansion plans and supporting finance templates. The funding agreement was informed by finance templates submitted by local authorities in March 2018.

3.10 All the additional funding provided since 2017-18 for the expansion to 1140 hours has been allocated as a specific grant to local authorities. This is to ensure that it is protected for investment in ELC.

3.11 There are also some additional costs which are, mainly, associated with funding the additional training places in universities that are required to support the workforce expansion. Since 2017-18 the Scottish Government has provided additional funding via the Scottish Funding Council to meet these costs.

3.12 There are no additional headline costs to the Scottish Government or other agencies as a result of the changes to the minimum framework (i.e. changes to session lengths) as the total number of funded ELC hours is not impacted by this change.

Costs - Option 2 (Do Nothing)

3.13 There are no direct financial costs to the Scottish Government associated with this option as funding has already been provided to local authorities for implementation of the ELC provisions in the Children and Young People (Scotland) Act 2014.

3.14 However, some local authorities have developed their expansion plans on the assumption that the maximum length of a funded ELC session would be increased to 10 hours as part of the national roll-out of 1140 hours from August 2020. If local authorities were to revise their plans in the event that the session length were not extended, then this may have some financial implications.