DfE has today launched a consultation on the new funding rates which will apply for 2-year-olds and under 2s when the new entitlements are introduced in England in 2024-25. The consultation sets out the government’s plans which are in brief:

• A new funding formula for both disadvantaged 2-year-olds and 2-year-olds with working parents. The illustrative modelling suggest this would produce a national average hourly funding rate for 2-year-olds of £8.17, with a range of rates for local authorities from £6.89 to £11.86.
• A new funding formula for children under 2 with working parents. The illustrative modelling suggests a national average hourly funding rate for the 9-month-old up to 2-year-old entitlement of £11.06 with rates for local authorities ranging from £9.33 to £16.17.
• To extend eligibility for Early Years Pupil Premium (EYPP) and Disability Access Fund (DAF) to the new entitlements
• To extend the framework of rules which local authorities apply to creating local funding formula for 3-/4-year-olds to cover the new entitlements including the model of a base rate plus supplements (mandatory for deprivation but others optional) and SENIF. The rules regarding pass-through rates and contingency funds would also apply to the new funding rates, with the pass through rate initially remaining at 95% but at a future date increasing to 97%.

Like the current funding formulae, under these new formulae the allocations to local authorities will be based on a base rate which will determine 89.5% of the rate plus an additional needs factor of 10.5%, multiplied by an Area Cost Adjustment reflecting local wages and premises costs. The additional needs factor will differ from the current formulae by including a mix of FSM and IDACI data with the stated aim of providing of better ensuring that the measures reflect areas with pockets of deprivation.

The existing funding formula for 3- and 4-year-olds is out of scope of the current consultation, as is the maintained nursery school supplementary funding. However, there is an open question at the end of the consultation response questionnaire.

The timetable for the introduction of the new entitlements is that parents will be able to access additional childcare for 38 weeks per year as follows:

• Now: 15 hrs/wk for eligible disadvantaged 2-year-olds, 15 hrs/wk from term after child’s 3rd birthday, 30 hrs/wk for children of eligible working parents
• From April 2024: As now 15 hours for 2-year-olds of eligible working parents
• From Sept 2024: As now plus 15 hours for children from 9 months old of eligible working parents
• From Sept 2025: As now plus 30 hours for children from 9 months old of eligible working parents

We welcome the recognition that the staff: child ratios for younger children give rise to increased costs, and that these new entitlements need to be funded to a higher level than those for older children. We welcome the extension of EYPP and DAF to the younger age groups, and the inclusion of a disadvantage supplement in the formula. However, we are concerned that

• settings will remain unable to cover their costs if the rates for 3- and 4-year-olds are not also raised to reflect the real cost of provision, and that this will undermine the ability of the sector to offer the new entitlements
• there is insufficient differential between the funding rates for children of working parents and disadvantaged 2-year-olds, with only the current rate of EYPP and disadvantage supplements which are a maximum of 10% and in practice very much lower. It will be far cheaper and easier for settings to have children of working parents for 30 hours than to take disadvantaged 2-year-olds which will negatively affect take-up of the latter entitlement
• a failure to extend the MNS supplementary funding to cover the new entitlements will once again put MNS in the impossible position of having to choose between offering the entitlements local families want and children need but increasing their deficits to do so, or not offering what is needed, restricting parents choice and impacting on the viability and attractiveness of the school
• this additional funding needs to come with additional checks and balances to ensure that settings are incentivised to invest in the quality of provision. With increasing numbers of private equity firms involved in the market, public money must be supporting frontline services not increasing profit levels. There will also need to be clarity to ensure that government entitlements remain free at the point of use, with clear guidance and enforcement regarding any permissible additional charges to parents and carers.

Read our draft response to the consultation below. We welcome comments from members on the consultation, as well as urging members to respond directly.