Early learning and childcare: sustainable rates review

Appendix A - Synopsis of Evidence from Local Authorities

A1: Evidence Gathering

1. The Scottish Government (SG) wrote to local authorities on 29 September 2022 to request an update on the hourly rates that are currently paid to providers for the delivery of funded early learning and childcare and the rates local authorities have set for 2022-23. All local authorities provided a survey response on sustainable rates, and the results of this survey were published on 22 December 2022.

2. The results of this have been considered by the review, and included (for 2022-23): hourly rates for 3 - 5 year olds, and eligible 2 year olds, for the delivery of the funded ELC entitlement; payments for the delivery of free meals by providers; a summary of approaches adopted by local authorities to setting sustainable rates; and a summary of the additional support package offered to funded providers by local authorities. This evidence, which is already published, is not included in this summary.

3. As part of this exercise, local authorities were also given the opportunity to provide any general feedback they wished on the current rate-setting process. This information was not part of the published results. The specific question asked was:

‘The Scottish Government is interested in feedback from local authorities regarding the process for setting sustainable rates for 2022-23 ahead of the forthcoming review. Please use the box below to provide any general feedback you have on the rate-setting process within your area.’

4. 28 local authorities chose to provide general feedback in response to this question; with four electing not to provide general feedback on sustainable rates. A summary of Feedback obtained from responses to this question is summarised at A2 below.

5. Local authorities were then invited to meet with COSLA and SG officials on an individual basis during February and March 2023 to discuss sustainable rates and issues surrounding the policy in more detail. Meetings were held with all 21 local authorities who requested a meeting before the invitation deadline of 2nd February 2023.

6. The agenda for these meetings was agreed by COSLA and SG, and informed by the aforementioned general feedback obtained from local authorities during the rates survey; and also by responses to a survey of funded private, third and childminding sector providers completed during January and February 2023 (which is summarised separately within Appendix B).

7. Feedback obtained during engagement meetings with local authorities is summarised at A3 – A5 below, and has been broken into 4 broad categories: Rate setting data and methodology (including the Ipsos Mori 2022 cost collection exercise); Rate value and sustainability; Provider engagement and Funding.

A2: Written Feedback from Survey of Sustainable Rates (December 2022)

8. The most common feedback, mentioned by twelve local authorities, related to the affordability of paying sustainable rates from current ELC funding allocations to local authorities. This feedback included comments on both the overall funding available; as well as setting rates whilst the level of future funding remained uncertain. Three local authorities noted the upward pressure on the sustainable rate from inflationary pressures and the Real Living Wage increase. Two local authorities noted wider pressures on the ELC budget from other commitments, for example deferral and eligible 2 year olds. Two local authorities noted the difficulty of setting rates when the settlement for the next financial year was unknown.

9. The second most common issue raised within feedback related to the Ipsos Mori cost collection data. Nine Local Authorities reported concerns with either participation rates, or the credibility and usefulness of outputs to this exercise. One local authority noted the presence of misinformation circulating between providers on the survey, impacting providers’ trust in the process, while another two noted that more engagement was required if providers were to have confidence in the process. Low response rates were reported by several local authorities, with some smaller LAs not having access to data specific to their area. Conversely, Regional Improvement Collaboratives (RICs) were mentioned as having been beneficial to the rate-setting process by four authorities. The need to share Ipsos-Mori data at RIC level appears to have promoted collaboration between authorities when setting rates.

10. Five local authorities noted that they had found the timeframe available to set a rate was challenging. One local authority found that publishing new guidance in May meant that setting sustainable rates for the new term was time pressured; while another noted the same issue, also stating that Ipsos Mori data not being available until July had also contributed to the pressure. One local authority noted a challenge had arisen given the pressure to set rates for the start of term when funding for 2023-24 is unknown, while another asked for a realistic timeline to set a rate.

11. Four local authorities commented on comparisons between private and public funding; and/or increasing expectation on parity of funding and wages between the sectors. One of these authorities noted that the costs of provision between the sectors should not be regarded as comparable. Another noted the gap in pay between the sectors, and that this could only be bridged by both additional funding for funded places, as well as providers increasing prices for private places. One authority noted the growing expectations around funding parity, and that the complexity and costs involved in removing the disparity are poorly understood. The last authority expressed concern that monetary benefits that derive from being a partner are not always included in the sustainable rate, for example, training provision.

12. Two local authorities wanted rate-setting simplified. One of these suggested a simplified approach under Funding Follows the Child, with worked examples; while the other suggested a national approach to setting rates, with the calculation methodology standardised across all local authorities.

13. Two local authorities had concerns that having a single rate for their area did not properly account for the differences in costs between providers. Both noted the differences in costs for smaller rural settings. One also noted that a rate appropriate for private settings may not be appropriate for the third sector. The other authority had conducted some investigation into cost differences however had continued to set a single rate for the time being.

14. Two local authorities noted that comparisons between local authority rates could be unhelpful and problematic. Both cited concerns over rates based on different local context and demographics being compared out of context.

15. Other notable points included one authority highlighting the importance of an efficient and flexible staffing model when setting rates. Two authorities both highlighted unhelpful communications or lobbying having an adverse impact. One noted a lack of data around childminders.

A3: Feedback from Engagement with Local Authorities - Rate Setting Data and Methodology

16. A widespread concern, across a majority of local authorities interviewed, related to the task of obtaining robust cost data, and challenges around the Ipsos Mori cost collection exercise carried out in early 2022. At least 12 authorities interviewed noted that participation had been lower, in some cases much lower, than expected, while only 4 reported a good response rate. This had resulted in many local authorities not having sufficient data for their local area and relying on RIC level results.

17. 14 local authorities noted that partner providers had lacked trust in the process. There were several reasons for this, which align with information received from the provider survey. Firstly, many partner providers had noted to local authorities that the survey was flawed as it asked for ‘historical’ data, rather than projections. Some local authorities asked for better communication around future exercises to build trust in the process, and explain why asking for projections would not be beneficial, and how data provided could be uplifted in line with the guidance. More than one local authority noted that some vocal providers had operated nationally to undermine participation in the survey, and that communication around this exercise and driving participation was a key challenge.

18. 6 local authorities noted that some of their providers had difficulty completing the exercise and found the task onerous, one local authority noting that childminders found it particularly difficult. A few local authorities mentioned that there was reluctance from some providers to release commercially sensitive information to them as they were regarded as a competitor, or were worried that other providers might be able to access this information.

19. 6 local authorities questioned the accuracy of the outputs from the Ipsos Mori exercise. This was in part due to the low participation rates already highlighted. One local authority had concern that the data was probably influenced by the higher likelihood of third sector organisations to participate; and another had examined this in detail and noted that the split between private and third sector data had moved considerably since a previous survey. One local authority noted the presence of significant outliers in the data which had needed filtering before it could be deemed usable. Given the differing response rates within a RIC area, there is a possibility that RIC level data is being heavily influenced by particular local authority areas.

20. 9 local authorities found the lpsos Mori data difficult to interpret with one noting that even their accountant had taken some time to understand the data. Many of these authorities sought more central support during the rate-setting process, with 3 noting that previous support by the Improvement Service in this area had been highly valued. Conversely, 5 local authorities found the Ipsos Mori data useful and appeared to be more confident interpreting the data.

21. 2 local authorities noted the limited availability of evidence on investment returns, asking that the any future survey should capture information on this; and 1 authority noted that the survey should cover meal costs (the previously used Ipsos Mori methodology has a line for 'external catering', but not food costs, in the setting). 4 local authorities had opted to use their own cost survey – 2 of these had the same participation challenges as the Ipsos Mori exercise, while 2 rural authorities had seen better take-up through concerted local engagement.

22. At least 8 local authorities reported that price data for use as part of the rate-setting process was very difficult to obtain. Many providers do not publish prices and would not be comfortable sharing with the local authority, with intel on prices usually due to anecdotal knowledge of prices by Council staff. There were only two areas where price data was more readily available, and it may be concluded that a majority of authorities do not have access to robust information on pricing to utilise as part of the rate setting process. In the two areas where price data was more readily available, survey results had shown that average prices for private provision was lower than the rate being paid by the local authority for funded provision.

23. 5 local authorities had moved to setting rates for the financial year, rather than the start of the academic year. This was seen to have had a beneficial impact on the process, as it brought decision making more in line with budget setting, and real living wage increases. In addition, one local authority noted it provided certainty to funded providers of the rate they would be paid for the first two terms prior to the academic year starting, which their partners had preferred to uncertainty over the rate for the full year, even when the first term was already underway.

24. 10 local authorities mentioned the need for a more standardised approach to setting rates, including the methodology used and the assumptions being applied to cost data. Different approaches to setting rates between authorities had led to unhelpful comparisons between authorities, and a greater degree of prescription in the guidance, and support with cost data, might make the process of setting rates easier and less time consuming. 3 authorities went as far as noting that a national rate (or rates) would be worth considering, but noted practical challenges. Conversely, 4 authorities noted that local decision making on rates, and the flexibility this allows, including the ability to set rates for their particular demographic, was highly valued. A key challenge may be determining how to improve the approach to rate-setting through greater consistency and simplification, whilst maintaining local authority discretion and ownership of determining the final rate(s) to reflect local circumstances.

25. 6 local authorities noted that benchmarking against neighbouring authorities, and local authorities within their RIC, was an important aspect of the rate-setting process; and some noted the importance of the Scottish Government’s annual data collection exercise to this process.

26. 5 local authorities noted they had difficulty setting a single rate across all their providers given the diversity in business models, locations and demographics using these services. 2 local authorities discussed their enhanced rate(s) for ASN provision, 1 authority suggested negotiating rates with individual providers.

A4: Feedback from Engagement with Local Authorities - Rate Value and Sustainability

27. There was widespread reporting that almost all providers had accepted the final rate offered by their local authority in 2022. 7 local authorities stated that a majority of their providers were either happy with the rate, or had not directly criticised the rate after it had been agreed; and a further 10 other local authorities noted that they currently didn’t have any instances of partners refusing to enter into partnership because the rate was too low. Only 1 council reported significant numbers who had rejected the rate, which was a number of childcare settings attached to the independent schools sector. 4 local authorities who had access to at least some local pricing data reported that the rate paid by them for funded provision was higher than the average price for private provision charged by providers locally.

28. 1 local authority commented on the upward pressure on rate values from neighbouring authorities who may have chosen to pay a higher rate. 2 noted that providers had asked for rates to reflect costs for caring for children with additional support needs, while another noted the same with respect to meal costs.

29. A majority of participants had confidence that the rates they were paying were, in the main, adequate to support the sustainability of their partners. 10 local authorities reported that they had seen no evidence of serious financial challenges, such as closures, amongst their own partners. 5 local authorities went on to state they were currently seeing evidence of sector growth in their area. 9 local authorities stated they had seen isolated examples of settings encountering financial challenge, usually these were not specifically due to the value of the sustainable rate – 4 of these related to voluntary, charitable or third sector organisations; and 3 were related to rural settings with low attendance.

30. 9 local authorities noted that a major challenge amongst their partners was workforce recruitment, retention and pay; while only 1 local authority reported an absence of workforce pressures. 5 local authorities had concerns over the training available to new staff in the private and third sectors, and/or the quality of care that could therefore be delivered by new recruits. 5 local authorities reported that a setting had closed locally due to quality issues, and 3 noted a number of their partners were on service improvement plans. 1 local authority noted that many of their partners were close to capacity, and 1 local authority had concerns over the ability of partners to cover the costs for caring for children under 3 and reports of some providers scaling back provision for this age group.

31. Most local authorities interviewed were not actively monitoring payment of the real living wage by their partner providers, though when asked, local authorities noted that they had covered it within their contracts where they were legally able to do so. At least 4 local authorities were considering how to address monitoring, and stated they faced challenges acquiring data. One local authority was actively monitoring payment of the real living wage as part of their system to monitor compliance with the National Standard. 7 local authorities reported that they were aware that the real living wage was not being paid to all staff in all partner settings, with providers sometime opting not to pay the real living wage to trainees, younger workers or those not actively delivering funded childcare.

A5: Feedback from Engagement with Local Authorities - Provider Communications and Engagement

32. A large number of local authorities were positive around their relationships with the majority of funded providers. 10 local authorities mentioned strong local relationships, and 8 noted that their engagement process had been regular and robust. 3 local authorities reported that relationships with many of their providers were challenging.

33. Even where the majority of relationships were considered good, many local authorities reported a great deal of challenge centred around a minority of vocal providers. 10 local authorities reported that a small number of vocal providers were dominating engagement, with some going as far as noting that these providers were sending unacceptable communications to Council staff, exerting influence over less vocal providers, or undermining the national cost collection exercise. 6 noted the challenge arising from groups co-ordinating campaigns nationally, including via social media.

34. 8 local authorities mentioned increased expectation of funding ‘parity’, a growing feeling that the total funding available should be allocated on a per child, or per hour, basis. 5 local authorities noted that there was a general misapprehension of the funding aims stemming from the ‘Funding Follows the Child’ policy and moniker, 2 of whom noted that even some Councillors were unsure of the aims of the policy.

35. 3 authorities noted the differing expectations some providers had of engagement, with a feeling from some providers that rates were expected to be the subject of negotiation. 5 local authorities wanted better national communication around the aims of the sustainable rates policy, with the aim of building trust in the process and managing provider expectations.

36. There was a wide range of other opinions on this topic. 2 local authorities noted that funded providers did not understand other partners’ business models, and that the highly diverse nature of their partner settings made engagement more challenging. 3 local authorities noted that engagement was made easier due to long serving and experienced members of their ELC team. 2 local authorities had recently engaged directly with parents and had a positive response around 1140 provision. 2 local authorities wanted provider representative bodies to be challenged on how to improve the rates process, while 1 noted that the sector had a high degree of ‘survey fatigue’ from engagement on Scottish Government policies over the last few years. 1 authority wanted a more detailed communication strategy for new entrants to the sector, while another wanted more guidance around quality assurance and the real living wage commitment.

A6: Feedback from Engagement with Local Authorities - Funding

37. 17 local authorities, when questioned on funding, responded that this was a key consideration and/or challenge when setting rates, which are required to be sustainable as well as affordable within the budget available. A number of local authorities noted the impact of budget pressures on sustainable rate-setting. Within this amount, 5 local authorities noted specific concerns arising from a reduction in their ELC budget or allocation; and a separate 5 other local authorities mentioned that uncertainty over future budgets was making rate-setting more difficult.

38. 3 local authorities indicated that they were spending more on ELC than they were receiving, with two indicating they had utilised reserves. 2 other local authorities noted the availability of budget being carried forward from previous years.

39. 3 local authorities raised concern over the long-term cost of an increasing number of children deferring entry into school, while 1 had concern over the cost of any expansion of 2 year old places. 2 authorities were concerned over the funding of their own staff contracts. 4 local authorities were currently examining their own service delivery models, to ensure that they can continue to maximise the efficiency of their spending on ELC in the context of budget pressures.

40. 7 local authorities noted their concern over the cost of anticipated future annual increases, with one mentioning they were ‘maxed out’ and another noting they could not envision affording an increase in 2023-24. 1 local authority noted that spending in ELC was increasing much more rapidly than other services.

41. As discussed under rate-setting, 5 local authorities had moved to setting rates for the financial year, with a further 1 investigating this. Those who had done so, reported benefits in terms of lining up with budgetary decisions and real living wage increases. Conversely 3 local authorities preferred to set by the academic year, with one noting this lined up with their procurement.

42. 4 local authorities wanted central communication on rates to be more reflective of local authorities’ position (including the realities of council budget setting), and the requirement for rates to be affordable. 3 local authorities drew comparisons between rate increases, and the social care sector, with one noting that funding for the real living wage was handled separately to core funding (as a separate specific grant). 1 local authority was currently investigating whether a higher rate could be paid only when the real living wage is delivered (a strategy already in use within 1 local authority for 2022-23). 1 local authority wanted more information on how best to fund ASN, while another had particular challenges funding small rural settings.