Milk and Healthy Snack Scheme (Scotland) Regulations 2021: business and regulatory impact assessment

Funding

The Scottish Government's expenditure for Scottish claims under the existing UK NMS was £3.1m for the financial year 2018-19. As set out above, the new Scheme is different in scope and delivery and costs are therefore not directly comparable.

The Scottish Government has agreed to meet the costs of the new burden on local government of the delivery and administration of the new Scheme. This will include: the cost of the provision of milk and the healthy snack item (a portion of fresh fruit or vegetables) and the estimated cost to local authorities of administering the Scheme.

It is estimated that up to 190,000 children in registered pre-school settings may be eligible for the Scheme when it is introduced. It is however, very difficult to estimate the initial level of uptake and clearly the policy intention (aligned to the roll out of 1140) is for uptake to be maximised as soon as possible to ensure that as many as possible of the eligible children will be receiving milk and the healthy snack item (a portion of fresh fruit or vegetables). The Scottish Government will work with local government, ELC and day care network associations and suppliers to raise awareness of the new Scheme and promote uptake.

The overall quantum of funding will therefore be dependent on uptake with local authorities receiving an adequate level of funding each year in line with the overall agreement reached between Scottish Government and COSLA, and the number of registrations achieved.

It is estimated that the Scottish Government's expenditure on milk and healthy snack for Financial Year 2021/22 will be of the order of £9-10m across the two Schemes (UK Nursery Milk and Scottish Healthy Milk and Snack Scheme). This takes account of the factors outlined above and that the new Scheme will not be introduced until 1 August 2021. Milk supplied in the first months of the new financial year (until 31 July 2021) will be reclaimed from the NMRU (within a period of six months from the date of purchase) which will recover this cost from the Scottish Government in line with existing procedures; the cost of the healthy snack will only accrue from 1 August 2021.

The overall quantum will be based on costing assumptions to be agreed with COSLA. These are derived from the averages of current claims and characteristics of Scottish settings to the UK NMS and cost projections based on the Scotland Excel framework. The cost estimates incorporate adjustments to account for the addition of a healthy snack; and an additional uplift to account for a range of variables including an increase in the number of children potentially claiming as a result of the new delivery mechanism and the expansion to 1140 hours of funded provision, fluctuation in market prices and the extension of the provision to include 5-year-olds in pre-school childcare within an eligible setting. NMRU data shows that the following costs have been reclaimed from Scottish settings for 189 mls (1/3 pint) portions of cow's milk:

Milk Agents;

• Kidzmilk Ltd £0.29
• McQueens Dairies Ltd £0.28
• Dairylink UK Ltd £0.19
• Cool Milk Ltd £0.26
• The Nationwide Milk Service Ltd £0.28
• L. Ballantyne £0.15
• Thomson Dairies Ltd £0.23

Local Authority Agent Claims;

• The average cost per 189mls portion reimbursed to local authority settings £0.17
• The average cost per 189mls portion reimbursed to local self-claimers £0.15

Funding Mechanism

To reduce the number of funding streams and align with current practices in Scotland the policy proposes that the initially agreed funding will be ring-fenced for 2 years up to and including 2022-2023 and that thereafter it would be merged as part of the ELC settlement as agreed by COSLA Leaders. There will be an annual review of the costing assumptions including the future population projections to ensure the quantum is adequate and reflects funding required.

Funding Delivery

Local authorities will receive an agreed payment from the Scottish Government based on the number of registrations achieved, the anticipated annual consumption of milk, fruit and vegetables and the weighting to be agreed by the COSLA Settlement and Distribution Group. Early feedback suggested that they would wish to take account of rurality in their considerations. Local authorities will be responsible for delivering upfront a calculated sum directly to the childcare setting based on registration information.

Over 80% of childcare settings have an existing financial relationship with their local authority so it was concluded that the logical approach to reducing administration as much as possible was to use these existing connections. Processing information for these settings should be relatively straightforward, and COSLA has indicated that they do not envisage any major issues with payments.

All pre-school day care providers and childminders who wish to participate in the Scheme are required to register their interest to be part of the Scheme by getting in touch with their local authority via a registration process. They would be required to provide information such as the name of the care setting and the number of pre-school children enrolled in that setting, information relating to attendance and bank account details for payment. This information will be used by the local authority to calculate an accurate sum to be allocated to that childcare setting and register them for payments from the 1 August 2021. Local authorities may already have information for day care providers and some childminders in their area but not all so there is opportunity to streamline processes with existing systems as much as possible. Each local authority may have a different approach on how to obtain this information, and SEEMiS Early Years could be utilised for this process in the future. SEEMiS Early Years is a Management Information System (MIS) being developed by SEEMiS Group (the single Education MIS provider in Scotland) to support Early Learning and Childcare, and help local authorities manage the introduction of 1140 hours.

Costs of the new Scheme

The Scottish Government has estimated the maximum cost of the new Scheme based on the following:

• A milk unit cost per child, per annum derived from claims data informed by the NMRU and cost projections based on the Scotland Excel costings. An uplift is applied to this figure to take account of uncertainties such as the impact of the expansion to 1140 hours of funded provision and inclusion of appropriate alternatives to dairy where required.
• A snack unit cost per child, per annum derived from data from the Scottish Household Survey on the use of childcare and a snack price per portion to be agreed with stakeholders. This will be derived from data on wholesale prices and other sources informed by data provided by ASSIST.
• A number of day care providers and childminders based on claims data provided by the NMRU together with data from the Care Inspectorate on the average age profile of settings. This is adjusted to take account of the extension of provision to five year olds, and an uplift is then applied to this figure to take account of uncertainties, particularly over an increased number of childminders utilising the Scheme.
• Anticipated cost to local government of administration calculated as a proportion of the sum of milk and healthy snack costs.

The variables that factor in this cost estimate may be adjusted further following discussion with key stakeholders such as COSLA, though feedback sought from COSLA and the ELC Finance Working Group in 2020 suggest that the in-principle assumptions above are reasonable.

Local authorities will receive an agreed payment from the Scottish Government based on the number of registrations achieved, the anticipated annual consumption of milk, fruit and vegetables and the weighting to be agreed by the COSLA Settlement and Distribution Group. Early feedback suggested that they would wish to take account of rurality in their considerations. Local authorities will be responsible for delivering upfront a calculated sum directly to the childcare setting based on the number of pre-school children registered to attend.

In the future, Scottish Government expect that this will be distributed as part of a new ELC formula. This is in line with the recommendation to the Floor Report not to add additional lines to the settlement where possible, and also fits in with the move to rationalise the eight current ELC lines into one. This will however go through the usual process.

The new burden of the new Scheme will be fully funded by the Scottish Government, including the cost to local authorities of administration. While some stakeholders have raised concern about the additional administrative burden that transition to the Scheme may place on settings in the short term, the Scottish Government is not aware of any additional costs to the sector at this time, and will keep this under review. Local authorities will be funded for administration required to deliver the Scheme; this will be based on an agreed distribution formula, as noted above.