Early learning and childcare providers - local authority funding and support: overview 2022 to 2023

Introduction

1. Funding Follows the Child provides the underpinning policy framework to support delivery of funded Early Learning and Childcare (ELC). A key aspect of Funding Follows the Child is the payment of sustainable rates to providers in the private, third and childminding sectors for the delivery of funded ELC.

2. In April 2019, guidance was published to support local authorities to set sustainable rates. The guidance was produced based on feedback gathered from across the sector, and sets out the principles that should underpin any approach to setting sustainable rates; and options for taking forward the process.

3. The guidance highlights that the rates paid to providers in the private, third and childminding sectors for the delivery of funded ELC by local authorities should be sustainable and should meet the following:

• the rate will support delivery of a high quality ELC experience for all children
• it will be a rate that reflects the cost of delivery, including the delivery of national policy objectives
• the rate will allow for investment in the setting – staff, resources and physical environment
• it will enable payment of the real Living Wage for those childcare workers delivering the funded entitlement.

4. The Financial Sustainability Health Check, published in August 2021, set out a programme of actions for strengthening the process for setting sustainable rates ahead of August 2022. Significant work has been undertaken including:

• COSLA and local authorities, through the Improvement Service, commissioned Ipsos Mori to undertake an independent cost collection exercise to improve the evidence on costs of delivery that local authorities could draw on. The Scottish Government provided the funding for this exercise.
• The Scottish Government provided grant funding to the Improvement Service to enable them to provide local authorities with dedicated support. This has included a series of workshops for authorities on the rate setting process.

5. Updated joint Scottish Government and COSLA guidance on setting sustainable rates for 2022-23 was published on 26 May 2022.

6. The joint guidance is clear that local authorities need to reflect the most up-to-date cost information in setting rates, and that is particularly important for providers during the current costs crisis.

7. The guidance also emphasises the importance of ongoing consultation and dialogue between local authorities and their local ELC providers.

Data Collection

8. The Scottish Government is committed to collecting and publishing data on sustainable rates annually. The previous report was published on 31 August 2021. The report for 2022-23 is being published in December this year as decision making was later in the majority of local authorities due to local elections being held in May 2022 and the formation of new Councils and committees.

9. The Scottish Government 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.

10. As part of this exercise the following information was also requested:

• local authorities' approach to setting sustainable rates, and how this meets the requirements of the sustainable rates guidance published in April 2019; and the updated sustainable rates guidance published in May 2022.
• follow up questions, asking how the approach included engagement with funded providers, and how they had ensured rates met up-to-date costs of funded providers.
• the payments to funded providers for delivery of the free meal commitment
• details of the additional support package local authorities are offering to their funded providers.

11. This document is only intended to set out the information provided by local authorities in response to this request.

12. This information will be used to inform the Scottish Government and COSLA review of the overall process for setting sustainable rates in 2022-23. This is with the intention of learning lessons to identify where the process can be improved further to ensure that rates reflect the costs of delivering funded ELC and the payment of the real Living Wage to staff delivering funded ELC.

13. The Scottish Government and COSLA review of sustainable rates will reflect feedback from local authorities and from funded providers. To support this the survey offered local authorities the opportunity to provide general feedback on the rate-setting process. This information is not reported here, but will be reflected in the review. More information is provided in paragraphs 55 to 59.

Ipsos-MORI Cost Survey

14. To further strengthen the evidence base and inform the process for setting sustainable rates, COSLA and local authorities commissioned, through the Improvement Service, Ipsos Mori to carry out an independent cost data collection exercise. There are a number of references to this exercise in the information provided by local authorities and which is presented in the annexes.

15. The exercise has helped ensure that local authorities had access to robust data on the costs of delivering funded ELC in private, third and childminding services. It is the first time since 2016, when the Scottish Government undertook a national survey on the costs of ELC delivery (also undertaken by Ipsos Mori), that data on costs has been collected nationally.

16. This information has informed rate-setting for August 2022, alongside analysis of local market conditions. As set out in the guidance the findings of the national cost collection exercise are only a part of the rate setting process. Local authorities should also consider the outputs alongside local ELC market conditions and ongoing consultation with their local ELC providers.