Funding follows the child and the national standard for early learning and childcare providers: operating guidance

Section 1: Funding Follows The Child

The Funding Follows the Child approach places choice in parents' and carers' hands allowing them to access their child's funded entitlement from any setting – in the public, private or third sector, including from a childminder – who meets the National Standard, has a place available and is willing to enter into a contract with their local authority.

The National Standard, which underpins the approach, will provide parents and carers with the certainty that those settings delivering funded hours are offering high quality ELC provision.

The key aspects of the Funding Follows the Child approach are:

• Getting It Right for Every Child is at the centre of our approach to improving the experience of our children in their early years;
• It is 'provider neutral' and is underpinned by a National Standard, which all providers who wish to deliver the funded entitlement will have to meet from the full statutory roll-out of 1140 hours of funded ELC entitlement;
• Families will be able to access high quality funded ELC with the provider of their choice if that provider meets the criteria set out in the National Standard, wishes to deliver the funded entitlement, has a space available, is able to offer the funded hours in-line with local ELC delivery plans (subject to the setting's overall capacity) and is willing to enter into a contract with the local authority;
• The choice of setting available to families is not restricted to their own local authority boundary;
• Information for parents and carers will be clear and accessible to make them aware of the options available to them, in particular the different types of settings that can be chosen, when accessing their funded entitlement;
• Settings must ensure that the funded hours are free at the point of access and parents and carers are not required to purchase additional hours beyond the funded entitlement in order to access their child's funded hours at a setting;
• Local authorities will retain the statutory responsibility for ensuring that the funded entitlement is available to all eligible children in their area, and will be the primary guarantors of quality and key enablers of flexibility and choice – ensuring that there is a range of options for families in their area;
• Local authorities and providers should work together meaningfully and in genuine partnership in delivering flexible ELC provision, while continuing to ensure that a high quality experience for children is maintained and accessible to all;
• Funding to deliver the funded entitlement will continue to be channelled through local authorities;
• 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, which is sustainable and reflects national policy priorities, including funding to enable payment of the real Living Wage to all childcare workers delivering the funded entitlement;
• Funded providers who agree to deliver the funded entitlement will commit to paying the real Living Wage to all childcare workers delivering the funded entitlement and commit to operating Fair Work Practices;
• Every child receiving a funded ELC session will receive a free meal; and

A commitment to simplifying the process for, and reducing the burden on, providers to deliver the funded entitlement. All providers will face the same National Standard for becoming, and continuing to be, a funded provider.

Quality at the Heart of Early Learning and Childcare Entitlement

Getting It Right For Every Child is the national approach aimed at improving outcomes for all children and young people in Scotland. It is underpinned by the recognised need for shared principles and values and a common language among practitioners who provide services for children and families. It recognises the rights of children and young people, focuses on developing and supporting wellbeing and builds on the good practice evident in services across Scotland.

The wellbeing of children and young people is at the heart of Getting It Right For Every Child. We want all our children and young people to be fully supported as they grow and develop. The Quality Action Plan made it clear that the most important driver of quality is an ELC profession that is dedicated to the care, learning and development of our youngest children. The quality of children's day-to-day experience of our ELC offer, and the potential to use that offer to improve longer term outcomes for children, depend primarily on the quality of human interaction that they have with those working in the sector.

The Getting It Right For Every Child approach is reflected throughout the Funding Follows the Child approach and underpins the National Standard. International research and evidence from our own Growing Up in Scotland Study shows that all children, but especially those from more disadvantaged backgrounds, can benefit from attending ELC. However, that evidence also tells us that if our ELC offer is to help give children the best start in life and contribute to closing the poverty-related attainment gap, it must be of high quality.

The quality of ELC in Scotland is already high. Care Inspectorate data shows that, in 2017, 91.1% of All Settings^[1] providing funded ELC achieved Care Inspectorate evaluations of good or better on all four themes: Quality of care and support; Quality of staffing; Quality of management and leadership; and Quality of environment. 42.8% of all funded providers achieved evaluations that were very good or excellent across all themes.

Whilst the National Standard sets a minimum quality threshold for providers delivering the funded hours, we want to see quality enhanced further still – and more settings continuously striving to improve the quality of ELC across the sector. The Quality Action Plan published in October 2017, which contains 15 actions to further embed and strengthen quality in early learning and childcare, builds on this.

The 2017 NHS Health Scotland evidence review on Childcare Quality and Children's Outcomeshighlighted a number of structural and process indicators of quality

including: higher qualified staff; an experienced, competent and confident workforce;

good working conditions (which include continuous development and fair pay); and

an age-appropriate curriculum. The Quality Action Plan also highlights the benefits of outdoor learning and play for young children, appropriate and stimulating care and learning environments, parental engagement and a focus on self-evaluation, quality assurance and improvement. All of these indicators are reflected in the quality criteria of the National Standard.

A key focus of the quality criteria are scrutiny evaluations, including those which are awarded through Care Inspectorate inspections^[2]. This will strengthen the use of externally assessed measures of quality in the assessment decisions made by local authorities and ensure that these evaluations are used in a consistent way.

The National Standard reflects the current scrutiny and inspection frameworks of the Care Inspectorate and Education Scotland. When changes are made to these inspection frameworks, criteria relating to quality evaluations will be updated to reflect this and ensure consistency between the scrutiny work of the Care Inspectorate and Education Scotland.

A Financially Sustainable Sector

The ELC sector in Scotland operates as a mixed economy model with a mixture of public, private and third sector providers. Most of these providers offer the funded entitlement.

However, for providers in the private and third sectors the Financial Review of Early Learning and Childcare in Scotland highlighted that the majority of their income comes from the fees that they charge to parents and carers for non-funded hours. This could cover fees for non-eligible children (for example those aged 0-2) or for additional hours that parents of eligible children require (e.g. non-funded hours or 'wrap-around' hours).

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.

Overview of Funded Providers

In December 2017, the Care Inspectorate reported that there were 1,106 childcare providers in the private sector and 868 providers in the third sector, including those who were not delivering the funded entitlement. In addition, there were 5,426 childminders.

83.2% of private nurseries and 92.8% of third sector nurseries were delivering the funded entitlement.

There were also 1,727 local authority ELC settings.

The Financial Review of Early Learning and Childcare in Scotland: The Current Landscape highlighted that in 2016 around 23% of income that funded providers received was from funded hours. This share is considerably higher for funded providers located in remote areas.

The majority of funded provider income (around 77%) in 2016 was from fees paid directly by parents.

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.

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.

The Scottish Government provides local authorities with the funding to deliver the funded entitlement. Agreement was reached in April 2018 by the Scottish Government and COSLA on a landmark multi-year funding agreement to fully fund the expansion to 1140 hours.

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, and the agreed multi-year funding package will continue in this way.

This agreement provides the funding to enable providers to receive a sustainable funding rate for delivering the funded entitlement.

It is at the discretion of providers as to how they operate the non-funded hours aspects of their business, which will reflect their business model, cost structures and local market conditions.

It is not for local authorities or the Scottish Government to seek to comment on or intervene in the aspects of a funded provider's business that are out-with the funded entitlement.

In order to determine sustainable rates , it is important to have a shared understanding of the cost of delivering the funded entitlement. This will support local authorities to establish an affordable and sustainable rate for delivery of funded hours across All Settings.

To support this, Scotland Excel have been working with providers, and local authorities to develop this shared understanding and to inform the development of guidance on sustainable funding rates.

A Commitment to Paying the Real Living Wage

Guided by the evidence, the Scottish Government believes that employers whose staff are treated fairly, who are well-rewarded, well-motivated, well-led, have access to appropriate opportunities for training and skills development, and who are a diverse workforce are likely to deliver a higher quality of service. This can be supported by the adoption of fair work practices across the sector, which includes ensuring that staff are fairly remunerated.

There is a gap between average earnings in local authorities and funded providers in the private and third sector. Public sector staff working in ELC settings already receive at least the real Living Wage. However, the Financial Review of Early Learning and Childcare in Scotland found that, in 2016, around 80% of practitioners and 50% of supervisors in private and third sector settings delivering the funded entitlement were paid an hourly rate below the real Living Wage.

Relatively low levels of pay can present a barrier to some people entering the sector, resulting in recruitment challenges, and can also result in higher levels of staff turnover. This could have potential implications for the continuity of care experienced by children and families.

The Scottish Government's aspiration is for all workers in early learning and childcare settings to be paid the real Living Wage as a minimum.

To support this funded providers will, from 2020, receive sustainable funding rates that are set at a level that enables them to pay the real Living Wage to childcare workers delivering the funded entitlement.

We acknowledge that implementing this commitment may present a number of challenges for both funded providers and for local authorities.

However, these need not be prohibitive. For example, there are already ELC providers in the private and third sector who are paying the real Living Wage.

As part of their work to develop guidance on transition options, Scotland Excel will include guidance to support providers and local authorities to implement the real Living Wage commitment.

Meaningful and Genuine Partnership Working

It is expected that local authorities and funded providers will work together meaningfully and in genuine partnership to deliver flexible ELC provision. This will be done while ensuring a high quality ELC experience is maintained and accessible to all children. There are already good examples of partnership working between local authorities and funded providers in the private and third sectors, including childminders. We would encourage everyone to build upon this work.

The National Standard sets out the requirements for all funded providers, regardless of whether they are in the public, private or third sectors, including childminders. However, whilst there is, rightly, a high expectation on providers delivering the funded entitlement, settings should also have high expectations of the support that they can expect to receive as part of their agreement with the local authority.

Under a 'provider neutral' approach, there should be a clear and consistent level of support that funded providers across All Settings can expect from local authorities. The approach is built on partnership, and by entering into agreements with providers to deliver the funded entitlement, local authorities will be accepting the expectations on them to support funded providers through – in particular, but not limited to:

• a sustainable funding rate that reflects the cost of delivery and allows for delivery of national priorities including payment of the real Living Wage to all childcare workers delivering the funded entitlement;
• additional funding to providers to ensure every child attending a funded ELC session is provided with a free meal;
• giving appropriate consideration to the potential impacts of their policy and investment decisions on the competitiveness and business sustainability of providers;
• fair and transparent payment practices for parents and carers and funded providers;
• working closely with, and supporting, funded providers to make reasonable changes to the care and learning environment in order to meet any additional support needs that a child may have (in accordance with duties under the Additional Support for Learning Act 2004 and the Equality Act 2010);
• providing clarity on the overall support available to funded providers and how this support is reflected in the rate, including support for staff;
• supporting parents and carers to make informed choices; and

• monitoring compliance of all funded providers against the National Standard.

Equally, under a 'provider neutral' approach, there should also be a clear and consistent level of service delivery that all funded providers should be expected to maintain, including continuing to meet the criteria set out in the National Standard. This will not only ensure the proper use of public funds, but will also guarantee consistency of high quality provision across all provider types.

By entering into an agreement with local authorities to deliver the funded entitlement, funded providers will be accepting the expectations on them to comply with certain requirements. The detailed requirements will be agreed with the local authority when entering into the agreement and should include:

• a guaranteed standard of high quality ELC for children, including continued compliance with the National Standard criteria;
• ensuring that all funded hours are free at the point of access;
• a commitment to pay the real Living Wage to staff delivering the funded entitlement;
• a commitment to work within the parameters of the local authority's model of delivery;
• attending local authority development and consultation sessions or equivalent;
• a commitment to ongoing and constructive communication with the local authority, including compliance with local authority quality monitoring arrangements; and
• open and regular communication with parents and carers.