Early learning and childcare providers: delivery support plan

Supporting the Financial Sustainability of Providers

The ELC sector in Scotland operates as a mixed economy model including public, private and third sector providers, and childminders. This variety is important as we want parents and carers to be able to choose the type of provision that best meets their child's needs.

The majority of providers in the private and third sector are small, often independent businesses. Delivery of the funded entitlement is an important aspect of their business. We appreciate that the level of transformative change underway and ahead is particularly challenging for these providers, and that there are concerns about financial sustainability as the balance of funded and bought provision shifts over time.

The Financial Review of Early Learning and Childcare in Scotland highlighted that, in 2016, funded providers in the private and third sector received around 23% of their income from delivering the funded hours. The remainder of their income (around 77%) was from fees paid directly by parents and carers.

The share of income accounted for by the funded entitlement in these providers is expected to increase with the roll-out of 1140 hours as settings allocate more of their capacity towards delivering the funded hours.

Analysis produced using data from the Financial Review highlighted that in 2016 the funding rate paid by local authorities to around 40% of funded providers in the private and third sectors did not cover their costs for delivering the funded hours.

With regards to the funded entitlement there are two key aspects that impact on financial sustainability: (1) the funding rate that providers receive for delivering the funded hours; and (2) a setting's ability to meet the new National Standard for all providers from 2020.

How will we support the Financial Sustainability of Providers?

• We are already providing support through the 100% business rate relief for premises wholly or mainly used as day nurseries that we introduced in April 2018. It is estimated that the relief will remove the burden of rates for over 600 businesses, with an average saving of £13,000 per year.More information on the relief can be found at: https://www.mygov.scot/business-rates-relief/day-nursery-relief/.

• We are encouraging local authorities to provide immediate support to funded providers by utilising the final £6 million revenue to be allocated in 2018-19 to support funded providers. We wrote to local authorities on 2 November 2018 to highlight that authorities may wish to use this funding to provide training or business support, or to offer grants to providers and that they should consider consulting with providers on the use of the funding. As set out in the letter we will request an update from local authorities at the end of the Financial Year on the actions that they have taken to support providers, including information on the hourly rates being offered.

• As part of the multi-year funding agreement to deliver the expansion we are substantially increasing the level of investment in the sector, including supporting the payment of sustainable rates to funded providers. Many local authorities are already using the additional resource available in 2018-19 to increase rates being paid to funded providers, with further increases expected in 2019-20 as they transition towards the sustainable rates for full roll-out of 1140 hours from August 2020.

• To support local authorities to establish an affordable and sustainable rate for delivery of funded hours across all settings, Scotland Excel have been working with providers, and local authorities to develop guidance on setting sustainable funding rates. Scotland Excel have set out their initial analysis and will continue to work closely with providers and local authorities as they work towards finalising the guidance by March 2019.

• We understand that sustainability extends beyond just the funding rate that providers receive. The competitiveness and business sustainability of funded providers may be impacted by policy and investment decisions taken by local authorities. The recruitment activity of local authorities can also impact on the sustainability of funded providers. As part of our new Funding Follows the Child approach local authorities will give appropriate consideration to these potential impacts in exercising their statutory duties, undertaking recruitment activity, and in applying ELC expansion planning principles.

• There is already a range of business support available to providers – through for example, Business Gateway; Just Enterprise; Social Investment Scotland, and some local authorities provide their own tailored support. We are exploring how to raise awareness of this support within the ELC sector, and are continuing to work with COSLA and other delivery partners to help providers more easily access business support. By March 2019, we will also bring together all the information on the current support that is available in a clear format that allows ELC providers to access the information.

• We have asked local authorities to share examples of support schemes that they are offering to providers through the ELC Expansion Knowledge Hub and other networks. Local authorities are permitted to use the additional capital funding that they have received to support the expansion to 1140 hours to provide support to funded providers in the private and third sectors where a need to create additional capacity has been identified in local expansion plans. This support is subject to any legal and financial restrictions on local authorities' ability to use capital funding to create assets owned outside the public sector. We know that a number of authorities, including Angus, Dumfries and Galloway and Moray, have developed their own support schemes for local providers, whilst others are developing schemes.

• It is vital that funded providers are paid promptly and efficiently by local authorities for the delivery of the funded hours, in order to ensure that their cash flows are healthy. Prompt and efficient payment to providers is an important aspect of the Funding Follows the Child approach. There are already examples across local authorities of prompt payment practices, and we will continue to encourage local authorities to share these examples of good practice with others to ensure that funded providers in the private and third sectors, including childminders, receive payments for the funded hours in a prompt and efficient manner.

• Delivering the funded entitlement makes an important contribution to the business, and sustainability, of ELC providers in the private and third sectors. This contribution will increase with the introduction of 1140 hours. However, we appreciate that for some settings the requirements to become a funded provider under the National Standard will be higher than those they currently face. To support providers to meet the quality aspects of the National Standard we will provide additional resource to both the Care Inspectorate and Education Scotland. Further details on this support is set out in Box 1.

Box 1: Supporting Providers to Meet the Quality Aspects of the National Standard

At the heart of the National Standard is a focus on quality. Elements of the quality criteria draw on Care Inspectorate evaluations, with settings required to be evaluated at 'Good' or above. Settings are also required to have a clear plan to continuously improve the quality of provision and outcomes for children and families. In developing these plans settings are expected to draw on the evidence from both Education Scotland and Care Inspectorate scrutiny activities.

The latest Care Inspectorate statistics highlight that, at December 2017, around 83% of private nurseries and 93% of third sector nurseries were delivering the funded entitlement. Of these providers, 85% of those in the private sector, and 89% in the third sector, currently had evaluations of 'good' or better across all Care Inspectorate evaluation themes.

In order to support providers, in particular existing funded providers, to meet the Care Inspectorate evaluation elements of the Quality criteria in the National Standard we will provide additional funding to the Care Inspectorate to enable them to recruit additional Improvement Advisors. These Advisors will work closely with providers, in particular those who do not yet meet the relevant National Standard criteria, to improve the quality of ELC provision.

Under the Care Inspectorate's general duty to furthering improvement, settings achieving an evaluation of 'Adequate' or below will already be offered a level of support from the Care Inspectorate to improve. This additional resourcing for providers already offering funded hours will increase the level of support they receive promoting high quality ELC which is at the heart of the funded entitlement.

These additional Improvement Advisors will be in place for an initial 2 year period to cover the transition to August 2020 and the first months following the introduction of the National Standard. We will work closely with the Care Inspectorate to review and evaluate the progress of this support throughout this period.

We will also provide additional funding to Education Scotland to provide follow-up support to those settings where inspectors evaluate the quality of learning and education provision to be less than 'good' ( i.e. to include "satisfactory" evaluations). This will provide an expert check on the local authority's assessment of whether the setting's improvement plan was adequately addressing feedback from Education Scotland inspections, and also support settings to implement change to help improve children's learning and progress.