17/01/2016

Childcare Bill 2015

Twenty two organisations and individuals gave evidence to the House of Commons Committee considering the Childcare Bill in December 2015, including MSA. DfE presented evidence in a Policy Statement and a Review of childcare costs. Several organisations questioned the accuracy of this evidence.

This paper is my personal view and seeks to set out the evidence and provide some comments on this and on the conclusions drawn, particularly by DfE.

The Bill went first to the House of Lords where an amendment was inserted to allow for a review of provision and related issues to be made before the scheme was introduced. This was overturned by DfE when the Bill went to the House of Commons, despite many organisations, including MSA, supporting the review. My impression is that the government thought that the Bill would be fairly straightforward and uncontroversial, whereas a range of issues around funding, parental eligibility criteria, numbers of places, patterns of demand during working hours and management of the scheme make it far more complicated. As MSA members are already experiencing, parents are anticipating receiving 30 hours of free places despite much of the EY sector questioning the schemes viability. Whilst there is broad backing for the 30 hours, critics say that there remain too many unanswered questions, not least about how the system can meet the demand moving from essentially part time provision to full time day care. DfE says that around 390,000 3 and 4 year olds will be eligiblebut 30 hours would come at the expense of part time places.

Current funding:

15 hours a week for 38 weeks p.a. universal entitlement for 3 and 4 year olds.

15 hours targeted entitlement for 38 weeks p.a. for the 40% most disadvantaged 2 year olds.

From September 2017 3 and 4 year olds where both parents (or a single parent) are working will be entitled to additional 15 hours a week for 38 weeks p.a.

The Childcare element of working tax creditup to 70% of childcare costs. This will be replaced by Universal Credit for 85% of childcare costs.

Tax free childcare: 20% of childcare costs up to £10,000 p.a. from 2017.

Childcare vouchersbeing phased out.

The pattern of funding taken up varies by provider type and by region.

What is proposed:

The current 15 hours is a universal entitlement. The additional 15 hours will be subject to eligibility criteria. These will be:

Both parents working (or the sole single parent)

Each parent earning, on average, a weekly minimum equivalent to 16 hours at national minimum wage, or national living wage and less than £100,000 a year. This can include zero hours workers, but they will need to show that they generally work equivalent to 16 hours.

Where one parent receives benefits for caring or disability, support will be given.

Parents will be able to apply for the scheme via the HMRC website, and a single application will cover both tax free childcare and the 30 hours entitlement.

Parents who are studying will not qualify for the entitlement unless they meet the other criteriathey may be eligible for the Care to Learn scheme which provides up to £175 per child per week.

The support would still be for 38 weeks a year.

The DfE sees the new entitlement as paying for additional hours parents are already purchasing from an early years setting (i.e. beyond the 15 hours entitlement) rather than going to another setting for these. So the extra hours which may at present be charged at rates to offset the loss made on the free hours, will not be chargeable to the parentthereby increasing the funding deficit where this occurs.

The scheme will be piloted from September 2016 and fully implemented from September 2017. The pilot areas will be announced shortly.

Summary of issues:

The Bill is heavily reliant on secondary legislation and the Delegated Powers and Regulatory Reforms Committee of Parliament has criticised the remarkable imbalance between the provision in the Bill and what was being left to regulations (i.e. what the DfE can decide). Partly as a result, the Bill gives the Secretary of State for Education new powers, but whilst imposing duties on local authorities to review provision, it gives them no powers to meet these duties. This seems likely to result in different local authorities having different approaches to the funding arrangements.

Funding remains a major concern, with many arguing that the current funding levels do not meet actual costs, making the scheme not financially viable. A common theme for many organisations was that providers would simply not join the scheme if it did not guarantee to meet the costs of provision or to allow top up charges.

A general view is that there remain too many unanswered questions, not least how the system could meet the demand. DfE says that around 390,000 3 and 4 year olds will be eligible.

PLA has estimated that the shortfall in funding 15 hours for 38 weeks for PVI non-domestic providers was £233.70 per year and that this would rise to £467.40 for 30 hours. The shortfall for 2 year old funding was said to be £456 p.a. IAPS produced corresponding shortfall figures for independent schools.

The income requirements do not address those on irregular zero hours contracts, night time or weekend working, people with more than one mini-job and other low earners who cannot guarantee their predicted income over a three month period. This is especially the case when the working hours for eligibility are to be increased from 8 to 16, although the basic test is one of income. So low earners may work longer hours, but not qualify on income grounds. It will be up to parents to confirm with HMRC that they are not separately earning over £100,000 to qualify for funded placesit still means that the joint parental income could be approaching £200,000, still allowing them to qualify. The childcare element of Universal Credit is another possible complication. At least providers do not have to deal with the money, although the old issue of parents booking a place in advance and then not actually taking it up remainsand no registration fee can be charged as the place is free.

The sum to be provided by the government for the whole scheme does not include the capacity to adjust (i.e. raise) funding to meet increased costs, such as for rents, utilities and staffing. MSA noted the costs of the Living Wage and Workplace Pensions will have to be absorbed by the employer if they cannot put up costs to the parents.

Local authorities current costs are not being met and that the proposals would increase authorities costs. At present, top slicing by local authorities averages 7% of the funding, but ranges from zero top slicing to 33%. Some also argued that level funding across the schools and the PVI sectors should be provided. However the NAHT and IAPS both said that cross subsidies from schools primary age budgets would remain necessary due to the shortfall in free place funding, so preventing a level playing field being created.

Only PACEY argued for regionally adjusted funding to take account of the high costs in some areas such as London.

Flexible hours was supported by some organisations, but questioned by others. Basically flexibility means that a child need not attend for a whole sessionbut there will be no payment for the part of the session not attended, and the implications for work cycles are considerable. MSAs view that any increase in hours would result in the number of places being reduced as part time places converted to full time was supported by other organisations.

SEN attracted many comments. MENCAP said that single parents with children with special needs were especially discriminated against by the working hours threshold and their capacity to work longer hours.

Childminders had a particular concern about not being able to access funding when caring for relatives children. Other issues affecting childminders are that they do not customarily make different charges according to childrens ages, instead charging similarly across the 0-5 range, unlike the funding. Regional variations in costs also affect childminders, especially in London.

The Department for Educations policy statement followed a 6 month review on the cost of providing childcare and contributed to the governments Autumn 2015 Spending Review. To counteract the local variations in funding (historical inconsistencies and inefficiencies) there will be a national funding formula for early years in 2017-18, fairly distributed across different types of providers and different parts of the country. The exact meaning of this is not clear and it will be subject to consultations in 2016. Payment arrangements will be subject to draft regulations in due course.

DfE emphasises high quality provision and notes the rise in staff qualification levels reported by NDNA. They are consulting on a new requirement that newly qualified level 2 and level 3 staff must hold a paediatric first aid certificate to count towards ratios, along with a new voluntary quality assurance mark for nurseries which have all staff trained in first aid. The link between funding levels, staff salaries and staff qualifications was not commented on.

The Department is considering how to support local authorities to draw up agreements with providers, possibly with a national model agreement. However the tone of the DfE document is very supportive of chains of providersfor example obtaining an agreement with one LA on food safety and hygiene standards which can then be used to support establishing provision in another authority.

The Department identifies several demand issues, including the level of spare capacity in the system. But it does not include the capacity of the system to move to 30 hours when much provision is based on sessional places.

Besides the policy statement the Department has issued an analytical report on a Review of Childcare Costs (25 November 2015) as an economic assessment of the early education and childcare market and providers costs. The report sees the childcare market as complex but functioning reasonably effectively with supply (of places) being healthy. Most providers are said to be breaking even or making a profitbut I would challenge the implications of this when funding is extended to 30 hours where the 15 hours funding operates at a loss. Regulation is seen by many as costly and complex. Quality in general is high.

DfE Statistics:

EY registered providers

81,560

Providers offering free entitlement

34, 530:

58% in PV sector

20% in primary school nurseries

18% with childminders

3% in independent school nurseries

1% maintained nursery schools

Number of group based providers

34,000:

76% PV

21% primary school nurseries

3% independent schools

1% maintained nursery schools

Number of childminders

47,560

Places

1,518,340 EY registered places:

83% in group-based settings

68% in PV settings

17% in childminders

12% in primary school nurseries

2% in maintained nursery schools

1% in independent schools

Hours taken up including free entitlement

14.3 on average:

26 hours in independent schools

20 hours in private settings

16 hours in primary school nurseries

15 hours in the voluntary sector

Average hours of care

nationally 18 hours a week.

 

Some more specific points on the DfE statistics:

Costs are analysed, although the basis of the information has been challenged by some organisations. The report heavily qualifies its statements, noting wide individual variations which appear to discount many of its assumptionsfor example school-based provision does not always account separately for its nursery provision, childminders do not always report labour and premises costs, different staffing and qualification mixes apply at different times in nurseries, and costs may be spread over different types of provision (EY day care and wrap around school provision). When this is set against other cost variablesgeographic, ownership/ renting premises, catering (meals provided vs packed lunches)to refer to English unit costs seems too generalised to be meaningful. Similarly income sources were not revealed by 30% of providers, making accurate analysis difficult.

Profitability: 37% of full day care and 25% of sessional providers made a profit or surplus. 31% of full day care and 43% of sessional providers covered costs. 15% and 21% respectively were operating at a loss, and 15% and 9% respectively did not know. Thus when added together the percentages just currently covering costs, making a loss or not knowing their financial position are 61% of full day care providers and 73% of sessional providers. Hardly a good basis for anyone to move to offer 30 hours!

Efficiencies in staffing are seen as possible with providers having more staff than required by the formal ratios. In a typical PVI setting 15% of unit delivery costs could be saved by strict adherence to statutory ratios, meaning staff would work fewer hours. A weaker argument is that costs could be reduced by using spare capacity in premises, by caring for other age groups (before and after school) or sharing back office functions with other providers (examples given are nursery chains and nurseries attached to schools sharing administrative staff). None of these seems very significant in my view.

The report sees potential scope for improving occupancy levels with flexible staffing in less busy times of the yearnecessary in terms of increased costs, with the National Living Wage being cited (pensions are not mentioned). Whilst this may be true on a business model, it seems to reflect thinking along the lines of zero hours contracts with staff working only when there is demand. This does not appear to be a good way to retain a well-qualified workforce. Demand managementi.e. raising occupancy levelsis briefly considered, but no clear indication is given of consideration of greater demand in the mornings as opposed to afternoon sessions.

The review found that different types of providers have different cost bases, and that variations between providers of the same type are great, depending on business practice, geography, size of setting etc. Whilst this may seem obvious, it at last provides government recognition of the position.

The market has grown, mainly by nurseries opening outstripping those closing. Childminders are most likely to leave. Since 2001 the number of sessional providers has almost halvedthis is offset by full day care providers growing. The 20 largest chains have just over 10% of the market.

Most parents identify provision by word of mouth. Many parents (over 1/3) identify a lack of information about choices. Provision for children with SEN is limited. There is a lot of informal provision, i.e. grandparents caring.

Staff qualifications have risen, but career progression rates are low.

Overall, two conclusions may be drawn. The data does not support clear arguments about costs, efficiencies and funding. There are too many variations between types of provider and within each type of providereven in the maintained sector. Secondly the 38 weeks issue is not directly addressed. The main argument for funding is to allow more women to enter the workforce, yet the capacity of settings to move beyond 38 weeks operation is not considered in any detail. From a Montessori perspective, parents will be able to say how long they wish a child to attendand if this cuts into the work cycle time, providers will need to argue the case for not doing, so, but ultimately the choice of hours is the parents. When taken together, and set in the context of profitability, the move to 30 hours seems a risky decision at best for many providers.

 

Martin Bradley

National Chairman

Montessori Schools Association