The questions behind the numbers

National hourly funding rates of £4.88 for 3 to 4 year olds (including Early Years Pupil Premium) and £5.39 for two year olds were announced in the Government’s Autumn Spending Review. Are these rates enough and what lies beneath the numbers?

Independent research agency Ceeda was commissioned by the Pre-school Learning Alliance to evaluate the new national funding rates in the context of recent funding patterns; you can see the full detail of our analysis in the Alliance’s evidence submitted to the Childcare Bill Public Bill Committee (1) and also featured in Nurseryworld.

Assuming Local Authorities distribute the new rates in the same way as 2015/16 funds have been delegated,  Ceeda’s analysis suggests PVI providers can expect average funding shortfalls of 10% for 3 and 4 year olds and 15% for two year olds in April 2017.

There is of course, further detail to come in the form of consultation around a National Early Years Funding Formula. Future patterns of funding distribution may yet differ significantly from past trends but with modest increases in the overall funding pot, there will be winners and losers in April 2017.

Dr Jo Verrill, Managing Director at Ceeda says:

“We welcome the forthcoming DfE consultation on a funding formula for early years; it is essential that funding models reflect the reality of local delivery on the ground. With this in mind we would welcome more detail around the cost modelling applied in the DfE review of childcare costs, and have raised a number of important questions with the DfE analytical team.”

 Questions raised by Ceeda include amongst others:

Hourly rates of pay: Ceeda forecasts reflect statutory pay and pension changes including the National Living Wage and the inflationary pressures the latter is likely to bring (1). The DfE states that its costings are based on average hourly pay by qualification level using data collected in 2013/14 and inflated to 2014/15 values using HM Treasury analysis (2).  A National Living Wage will be introduced from April 2016. 

Our question is: Do pay rates used in the costing model account for the direct impact of the National Living Wage and the inflationary pressures that it will stimulate?

Employment on-costs:
 As well as employer NI and auto-enrolment contributions, employee on-costs include things such as time lost due to sickness, holiday entitlements and training. Ceeda’s forecasts factor in these costs using published national statistics and statutory minimum holiday allowance. Statutory holiday entitlement alone accounts for 10.79% of staff time. The DfE report states that ‘staffing requirements are uplifted by 10 per cent for training, sickness and holiday entitlements’ (2).

Our question is: What percentage of employee time has been attributed to each of the following costs – sickness absence, participation in training, holiday entitlements and maternity/paternity leave? 

Administration and managerial time: The DfE model uses data on supernumerary staff costs published by Ceeda (3) to inform its estimates of time spent on administration and managerial activities. Published data has been adapted by the department and usage, as described in the DfE funding review report (2), is not consistent with Ceeda modelling.  

Our question is: Has DfE cost-modelling properly accounted for administration and managerial time given that input variables sourced from Ceeda research have not been used in a manner consistent with the original methodology? 

Commenting on Ceeda’s analysis Neil Leitch, Chief Executive of the Pre-School Learning Alliance said:

“These figures raise serious concerns about the government's funding model, and whether the increased investment announced at Spending Review will in fact go anywhere near ensuring that the 30-hours offer is adequately funded.”

"It's vital, therefore, that the Department for Education responds to the questions raised by Ceeda as a matter of urgency. This is a unique opportunity to tackle the longstanding problem of sector underfunding, and should not be wasted.​"​




  1.        Pre-school Learning Alliance. Pre-school Learning Alliance response to the Department for Education call for evidence on the cost of providing childcare. 2015
  2.        Department for Education. Review of childcare costs: the analytical report. An economic assessment of the early education and childcare market and providers’ costs. 2015 Reference DFE-00295-2015
  3.        Ceeda. Counting the Cost: An analysis of delivery costs for funded early years education and childcare. 2014