Funding follows the child and the national standard for early learning and childcare providers: guidance for setting sustainable rates from August 2020

Introduction

1. The Scottish Government and local authorities have committed to the near doubling of the funded Early Learning and Childcare (ELC) entitlement from 600 to 1140 hours per year from August 2020 for all 3 and 4 year olds, and eligible 2 year olds.

2. In order to ensure that the funded entitlement is delivered in high quality ELC settings, Funding Follows the Child will be introduced in August 2020 alongside the statutory roll-out of the expanded entitlement.

3. This approach is 'provider neutral' and is underpinned by a National Standard that all settings who wish to deliver the funded entitlement will have to meet.

4. The Scottish Government and COSLA published national guidance on Funding Follows the Child in December 2018. This included supporting Operating Guidance and a Frequently Asked Questions document.

5. Funding Follows the Child was developed through the Scottish Government, COSLA and local authorities working in partnership, through the Service Models Working Group and through wider engagement with the ELC sector, including with providers. This included a consultation on Funding Follows the Child and the underpinning National Standard, which was supported by a programme of engagement events^[1].

6. Scotland Excel has been commissioned by the Scottish Government, on behalf of the Service Models Working Group, to develop a suite of supporting technical guidance and information that supports local authorities and providers to implement Funding Follows the Child. The technical guidance documents cover:

• establishing sustainable rates for funded providers;
• meeting the business sustainability criteria in the National Standard; and,
• transition options on contracting.

Sustainable Rates

7. Under Funding Follows the Child, local authorities will set a rate locally that is paid to funded providers in the private and third sectors, including childminders, to deliver the funded entitlement. This rate should be sustainable and reflect national policy priorities, including funding to enable payment of the real Living Wage to all childcare workers delivering the funded entitlement.

8. The Operating Guidance published in December 2018 states that:

"under a 'provider neutral' approach, it is essential that provision is financially sustainable in order to ensure that providers across all sectors are willing and able to deliver the funded entitlement."

9. A sustainable rate is imperative to ensure a high-quality ELC experience for children and their families.

Aim of this Guidance Note

10. This document provides guidance to enable the setting of a sustainable local rate for funded hours from the full national roll-out of 1140 hours of funded ELC entitlement from August 2020. It is the responsibility of the local authority to set a sustainable rate for the delivery of the funded hours in their area. It is for private and third sector providers, including childminders, to determine whether the rate set is suitable for their business and whether they wish to enter into a contract on this basis.

11. A small number of local authorities have already confirmed their rates for August 2020. Where this is the case, it is expected that local authorities will be able to clearly and transparently set out the methodology that they have used to determine these rates, which should align with the approaches and principles set out in this guidance.

12. It is vital that the process for establishing sustainable rates in a local authority area is transparent and reflective of evidence on the costs of delivery.

13. This guidance reflects both current underlying cost factors and the delivery of national policy priorities from 2020. The principles and processes also provide a framework to monitor the costs of ELC for future contract management.

Background

14. In 2016, the Scottish Government commissioned Ipsos MORI to produce Costs of Early Learning and Childcare Provision in Partner Provider Settings. This outlined the key cost drivers for providers in the private and third sectors based on responses to an online survey of funded providers to which there were 191 respondents who covered 222 providers in total.

15. The detailed cost information collected from providers by Ipsos MORI included: staffing; rent / mortgage; utilities; tax; consumables; buildings and maintenance; equipment; catering; ICT; and staff training.

16. Feedback from provider bodies and local authorities gathered at Scotland Excel focus groups (held in September, October and December 2018) suggested that the methodology used for the Ipsos MORI report was appropriate and that the research provided an accurate reflection of the costs of ELC provision, at the time of the survey.

17. Based on the feedback, this guidance builds on the research conducted by Ipsos MORI, by providing information on how local authorities and private and third sector providers can ensure sustainable funding rates, based on cost, for and beyond 2020.