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

Annex C: Summary of approaches to setting sustainable rates for 2021-22 by local authorities

• Guidance, published in April 2019, sets out the principles for setting sustainable rates, and provides a range of potential approaches that local authorities may wish to use in order to gather the evidence required to allow them to set sustainable rates for their funded providers.

• Section 5 of the Guidance sets out the following potential approaches for local authorities to set sustainable rates for their funded providers:
  • Survey (Costs) – Review detailed cost information provided by private and third sector providers;
  • Working Group - Agree, for each cost, a percentage (%) figure and indicative cost through a working group;
  • Survey (Prices) - Review current rates charged by private and third sector providers in the local area; and,
  • Cost Modelling – Develop costs based on modelling of an 'average' local ELC setting.
• The Guidance highlights that a local authority may choose to use a process, aligned with their available resources, that uses the principles and the points explained in Section 4 (Developing a Local Rate) of the Guidance, but which differs from the four process set out above.
• A small number of local authorities are currently in the process of confirming their sustainable rates for 2021-22.
• Some local authorities make reference to indicative figures used by the Scottish Government on sustainable rates. This refers to initial national estimates of sustainable rates, based on the 2016 Financial Review, that were used to inform initial national estimates of the costs of delivering the expanded ELC entitlement. The process for producing these estimates was shared with local authorities to help inform initial estimates of sustainable rates for inclusion in their finance templates. These templates were completed in early 2018 and informed the funding agreement between the Scottish Government and COSLA, which was reached in May 2018.
• Table C1 summarises the approaches that local authorities have used to set sustainable rates for 2021-22.

Table C1: Summary of Approaches by Local Authorities to Setting Sustainable Rates for 2021-22

Aberdeen City

• Survey (Costs) - Aberdeen City Council undertook a survey of costs approach.
• In line with the Scotland Excel guidance, the Council issued a Provider Cost Survey to funded providers across Aberdeen in 2019/2020.
• The survey collected detailed information about costs, income, capacity and occupancy. A total of 20 settings, comprising a mixture of private, third and public sector organisations responded.
• Cost information was also collected from a small sample (n = 6) of childminders across Aberdeen.

Aberdeenshire

• A combination of approaches were used in order to ensure that the most robust evidence and the most suitable methodology could be applied. The combination of approaches included the following:
• Survey (Costs) - Ipsos MORI data.
• Working Group is in place and working to review current rate through use of Ipsos MORI and other data. 14 funded providers are part of the working group.
• Survey (Prices) - Current rate survey was also carried out by Ipsos MORI.
• Cost Modelling is taking place through working directly with funded providers. Challenge has been that there is a significant variation in the costs and models in funded providers across Aberdeenshire. Principles of setting sustainable rates are being used to guide the work with the Working Group.

Angus

• Survey (Costs) - Ipsos MORI 2016 survey data was a starting point, as the Council would not have been able to generate this quantity of data locally.
• There are approximately 35 non-local authority 'Day Care of Children' service providers in Angus.
• Cost Modelling – Angus Council took Ipsos MORI 70th decile costs data and inflated it for 2020.
• Local providers were consulted on this approach and inflation measures, and were asked to 'sense check' the resulting itemised costs.

Argyll and Bute

• In January 2020, all PVI settings were invited to take part in an internal Cost Survey exercise to test the increased hourly ELC rate of £5.31 for 3 and 4 year olds and £6.00 for eligible 2 year olds (3% uplift applied April 2021 to £5.47 for 3 and 4 year olds and £6.18 for Eligible 2's).
• Following analysis of data submitted, the data was found to not be sufficiently robust for rate setting:
  • Data variance is large and significant questions about data quality are evident
  • Sample size is small – 9 respondents
  • Rate would be set only on one or two nurseries – not representative.
• Argyll and Bute, Early Years, Finance and Commissioning Teams are working to collate Accounts data from all partners, for review. The outcome of this work will set a sustainable rate for session 21/22, the rate will be backdated to August 2021. We would anticipate this work being completed by end September 2021.

Clackmannanshire

• Survey (Prices) - Review current rates charged by private and third sector providers in the local area.
• The Council used the survey (prices) but will also benchmark their proposal with neighbouring authorities.
• The increase proposed allows for contribution to the real Living Wage.

Dumfries and Galloway

• Other approach aligned with the principles for setting sustainable rates - in 2018 the Chartered Institute of Public Finance and Accountancy (CIPFA) carried out an independent financial review which informed the setting of the sustainable rate for funded providers.
• This included an element to account for payment of the real Living Wage.
• The local rate was uplifted to account for inflation for partner providers.
• All providers and childminders are paid for the whole term in advance within 30 days of the start of that term.

Dundee City

• Survey (Prices) - Dundee City Council recently completed a procurement exercise for new providers and all accepted the contract based on the current rate.
• No funded provider has been in contact to advise they are experiencing financial difficulty.

East Ayrshire

• Other approach aligned with the principles for setting sustainable rates.
• The ELC provider base is small in East Ayrshire so a meeting was held with the 7 ELC providers to discuss the sustainable rate and information on the procurement framework was set out for childminders.

East Dunbartonshire

• Other approach aligned with the principles for setting sustainable rates – East Dunbartonshire completed an independent review by Ipsos MORI as part of the West Partnership collaboration.
• Independent review carried out in 2019 with rate coming in at £5.12 for 3- 5 year olds.
• A commitment to review the rate has been made to funded providers when the next funding allocation has been agreed.

East Lothian

• Survey (Costs) – East Lothian Council have commissioned Scotland Excel to carry out this piece of work, with a timescale of August 2021 – November 2021.

East Renfrewshire

• Survey (Costs) - the West Partnership commissioned Ipsos MORI to survey funded providers costs, analyse findings and report on an appropriate and fair sustainable funded rate.
• The Ipsos MORI report was considered by East Renfrewshire Council and a rate set and agreed by elected members.
• The Ipsos MORI work was invaluable in making sure they could budget and have the monies available to deliver the entitlement to all children and families.
• East Renfrewshire implemented 1140 hours from August 2020 in all local authority and funded provider settings.

Edinburgh

• Survey of Costs carried out by Scotland Excel in April 2021 (£5.42).
• Survey of Prices on provider websites undertaken from January to April 2021 (£5.42).
• Cost Modelling – local authority cost modelling of settings registered for over 40 children open full year (£5.10).
• Other approach aligned with the principles for setting sustainable rates - survey of other local authorities (£5.36).
• The following was taken from the Council's report to the Education, Children and Families Committee in May 2021.
• As Edinburgh is in partnership with 39 childminders and 114 providers from the private, voluntary and independent sector, it was felt that the Working Group option would not reflect the diversity of or provide an opportunity for all partners to contribute to the review of the hourly rate. The Council therefore undertook the Survey of Prices, Cost Modelling and Survey of Costs options.
• In January 2021 Edinburgh carried out a survey of the prices charged by providers using the information available to the public from partner websites and the Edinburgh and Lothians Nursery Guide website.
• The Council were able to access information on parent charges for 77 partner settings.
• Edinburgh also commissioned Scotland Excel to carry out a Survey of Costs with partners. 33 providers responded to the Scotland Excel survey.
• A cost analysis was completed to ascertain the 'average' cost for a local authority establishment to deliver funded ELC. To be comparable with the majority of partner settings open all year round, the average cost is based on 63 local authority settings registered for 40 or more children also providing funded hour placements to 3 and 4 year olds on a year round basis.
• As well as using the options outlined in the Scottish Government Guidance published in April 2019, Edinburgh surveyed the hourly rate paid to partner providers in other local authorities across Scotland. 24 local authorities responded to the request for information.

Findings from the above were as follows (Number of providers/settings; Average rate):

• Partner Provider Survey of Prices: 77; £5.42
• Partner Provider Survey of Costs: 33; £5.42
• Local Authority Cost Modelling: 63; £5.10
• Survey of Scottish Local Authorities: 24 £5.36.

Falkirk

• Survey (Costs) – Review detailed cost information provided by private and third sector providers.
• Working Group - Agree, for each cost, a percentage (%) figure and indicative cost through a working group.
• Survey (Prices) - Review current rates charged by private and third sector providers in the local area.
• Cost Modelling - Develop costs based on modelling of an 'average' local ELC setting – partly adopted by Falkirk Council.
• Other approach aligned with the principles for setting sustainable rates.

Fife

• A survey of prices was undertaken between January – March 2021.
• This work was undertaken by Scotland Excel on behalf of Fife Council. Originally this was due to take place in 2020 but was delayed as a result of the pandemic.

Glasgow City

• Other approach aligned with the principles for setting sustainable rates – Ipsos MORI were commissioned to undertake an independent assessment of operating costs across a range of funded providers which informed the sustainable rate setting. This mirrored the exercise carried out by the Scottish Government nationally in 2016.
• Glasgow set a sustainable rate for a three year period and started to commission at that level from August 2019 - a full year ahead of the original statutory commencement date for the expansion and supporting the financial viability of the sector during the transition period.
• This was well received by funded providers at the time – providing confidence of funding, establishing a longer-term platform to support their expansion planning and associated staffing and recruitment decisions.

Highland

• Survey (Prices) - included in the current review.
• Other approach aligned with the principles for setting sustainable rates – a two stage process implemented being:

a) a review of current base rate and effects of inflation

b) a detailed review of all factors using a combination of all 4 options set out in Section 5 of the Sustainable Rates guidance; and working alongside a sub-group of partners forum.

• Review is considering the range of geographic and socio-economic profiles to see effects on rates and options to establish a fair, affordable and sustainable solution.

Inverclyde

• West Partnership 2019 collaborative approach with Ipsos MORI to:
  • jointly validate each authority's rate setting approach
  • benchmark data which may inform future rates.
• Comprehensive survey of funded provider costs :
  • Establishing a co-operative approach
  • Working with funded providers
  • Accessing actual, current, market (cost) data from funded providers
  • West Partnership benchmark to understand funded providers sustainability
  • Working with an independent, impartial third party
  • vi. Feedback from survey participants on shaping and building the approach in future.

Midlothian

• Survey (Costs) - in the process of tendering for this exercise to be completed in time for a new rate from April 2022.
• Midlothian were planning to commission Scotland Excel to conduct a sustainable rates analysis in 2020 but these plans were put on hold due to the pandemic. The present rates paid are aligned with the Scottish Government's indicative rate with an additional payment for meals.
• A review will be carried out to ensure that the rates paid are sufficient to meet the requirements under Funding Follows the Child (including paying the real Living Wage to staff delivering funded ELC).

Moray

• Survey (Costs) - Ipsos MORI surveyed Moray private and third sector providers. This established the baseline for a revised rate.
• Although Moray used the results of the Ipsos MORI survey as the evidence base for setting a sustainable hourly rate for 2021/22, there was a strong focus on co-production and consultation involved in this exercise.
• The key points are:
  • One of the PVI Managers operating in Moray has significant experience in developing an hourly rate. The Council supported this colleague to review the Ipsos MORI data and propose a rate
  • This rate was then verified and refined by Moray Council's Head of Finance
  • The process of establishing an hourly rate was overseen by the Moray ELC Financial Sustainability Group. This group includes representation from the Council as well as private and third sector representatives. The proposed rate was endorsed by this group before it was consulted
  • 86% of the 31 consultation responses supported the proposed rate; and
  • The final element of the process was that the rate was agreed by the Moray Council Education, Communities and Organisational Committee on 31 March.

North Ayrshire

• Cost Modelling – North Ayrshire Council has adopted the modelling carried out by Scottish Government and the suggested sustainable rate during the compilation of the Financial Template: £5.31
• North Ayrshire have worked closely with their funded provider sector throughout the 1140 expansion programme.
• This rate was universally accepted by the funded providers group. This rate is applied across the private, voluntary and independent sectors and childminders.

North Lanarkshire

• Other approach aligned with the principles for setting sustainable rates - a combination of survey, reviewed rates of local providers and cost modelling.
• As part of the West Partnership funded providers were asked to participate in a survey developed by Ipsos MORI.
• This took into account rates charged by private and third sector providers across the West Partnership area.

Orkney Islands

• Review of sample charges (childminders).
• There are no private providers in Orkney so all of funded providers are either local authority settings or 6 childminders offering split places.

Perth and Kinross

• Survey (Costs) - currently undertaking costs survey to inform rates review.

Renfrewshire

• Survey (Costs) - in agreement with funded providers, the West Partnership undertook a local Ipso MORI survey of providers.
• The West Partnership Regional Improvement Collaborative committed to a collaborative approach to jointly validate each authority's rate setting approach - whilst providing benchmark data which may inform future rates.
• A comprehensive survey of funded provider costs was undertaken, the approach also focused on benefits including:
  • Establishing a co-operative approach, working together with funded providers helping to further develop positive relationships
  • Accessing actual, current, market data - specifically cost data from funded providers
  • Providing a West Partnership benchmark to understand funded provider sustainability
  • The value of working with an independent, impartial third party
  • Gaining feedback from survey participants on the means to shape and build upon the approach in future years.

Scottish Borders

• Cost Modelling – a survey and focus groups led by Scotland Excel.

Shetland Islands

• Other approach aligned with the principles for setting sustainable rates – Consumer Price Inflation (CPI) related increase.
• Sustainable rates from August 2020 were developed using survey costs method.
• The Terms and Conditions for the Council's Flexible Framework stated that an annual uplift would be applied in line with the CPI increase.
• Sustainable rates from August 2021 have been increased by 1.5% (April 2021 CPI).
• The Flexible Framework covers a 5 year period, Shetland Islands Council would look at carrying out a detailed cost survey again, ahead of renewing their Flexible Framework in August 2025.

South Ayrshire

• Cost Modelling - used an external consultant to support cost modelling.
• Regular engagement and consultation with local funded providers with regards to Funding Follows the Child and setting of sustainable rates.
• External consultant used to support cost modelling setting of sustainable rate in South Ayrshire.
• As a small authority South Ayrshire drew on other local authorities cost modelling processes and other examples including Ipsos MORI survey conducted in 2016.

South Lanarkshire

• Survey (Costs) - Ipsos MORI work undertaken across the West Partnership.
• Rates set / paid across all providers in accordance with 10 year procurement agreement.
• Rate will be considered annually.
• Work undertaken as part of the Regional Improvement Collaborative (West Partnership) for ELC using Ipsos MORI analysis from private partner providers and from third sector providers. This was done in 2019 and analysis provided effective profile for the sustainable rate.
• Work to align across West Partnership may be a long term consideration for all parties however challenges exist.

Stirling

• Survey (Costs) – Review detailed cost information provided by private and third sector providers.
• The increase to the hourly rate in Stirling from April 2021 takes into account inflation at 1% and the increase in the real Living Wage.

West Dunbartonshire

• With the support of Ipsos MORI, the West Partnership funded private providers, were given the opportunity to provide an up to date assessment of their operating costs in order to set a sustainable rate.
• Providers completed an online survey covering questions about costs and business models.
• Working Group - West Dunbartonshire Council Finance Officer worked with partners to show how the cost per child was calculated, taking into account actual costs of providing an hour of ELC; based on cost per child, providers' costs, income, capacity and occupancy.
• Current hourly rate and cost per meal has been set and agreed with providers for 2021/22. A commitment to review the rate has also been made to funded providers in West Dunbartonshire.

West Lothian

• Survey (Costs and Prices).
• Meetings with all private partner providers.
• A short term working group (consisting of partner providers, Finance and Education).
• Through consultation with private partner providers, Scottish Childminding Association (SCMA) and local playgroup, agreed to set up a short term working group which then agreed the content of the survey which was issued on current costs/charges.
• Individual meetings were then held to discuss content of the survey returned.
• Cost modelling also undertaken.

Western Isles

• Survey (Costs) - this approach is being used currently to review and set rates for 2021-22 onwards.