Financing and Delivering the Expansion
Delivering this ambitious vision for the transformational expansion of ELC entitlement will require a funding model that supports an ELC sector that is varied, flexible, sustainable, and focused on delivering a high quality experience for our children.
Empowering teachers, parents and communities to achieve Excellence and Equity in Education - A Governance Review makes clear that effective governance requires funding to be fair and transparent and for resources to be available to support good decision making.
Given the level of ambition, and in light of the comprehensive analysis set out in the Financial Review, we will also assess the appropriateness of the overall funding model for delivering ELC.
Funding for delivery of the ELC entitlement of 600 hours is currently included with in the general revenue grant provided to local authorities.
Local authorities then decide how best to allocate this resource in order to meet their statutory duties, including delivering the funded entitlement.
Local authorities can deliver the entitlement through their own nurseries and provision, or contract with providers in the private and third sectors (referred to as partner providers).
In 2014-15, local authorities reported their gross expenditure on ELC was £347 million. This figure is expected to rise year on year over the period to 2019-20 as additional funding was provided to local authorities to support the ELC aspects of the 2014 CYP Act. However, analysis presented in the Financial Review indicates that so far not all of the resources allocated to local authorities to support the delivery of the 2014 Act have been spent on ELC  .
Additional resource, both revenue and capital, will also be required in order to fund the expansion in entitlement to 1140 hours. The Scottish Government is committed to meeting these costs, however this must be delivered efficiently whilst ensuring that a high quality service is provided.
Alternative Funding Model Options
There are a range of potential approaches to funding the provision of ELC in Scotland.
They range from predominately supply-side approaches where funding is directed through providers, to demand-led models where funding is directed through parents and carers. Many systems in practice, including Scotland's today, are a mix of both approaches.
An assessment of funding models would need to consider a range of criteria including, the four guiding principles of fair funding as set out in Empowering teachers, parents and communities to achieve Excellence and Equity in Education - A Governance Review and our aims for the expansion of ELC as set out on page 10 of this document. More specifically, it should include:
- The fairness, simplicity, transparency and predictability of the approach;
- The impact on quality and child outcomes;
- Choice and flexibility for parents and carers;
- The potential impact on disadvantaged families, and our ambition to reduce the attainment and inequality gaps;
- The level of accountability for ELC spending - ensuring that every penny earmarked for ELC provision is spent as intended;
- The impact on the sustainability of providers;
- The costs and timescales involved in developing and implementing an alternative system and whether they are outweighed by the potential benefits; and
- The potential costs to parents and carers, and to the Scottish Government.
We have identified the following broad funding models which provide different degrees of variation from the current system (which is predominately a supply-side approach), including more substantial shifts towards predominately demand-led approaches:
- Option 1: Funding Dependent on Delivery - funding would continue to be routed through the local government block grant route. However, local authorities would have to submit detailed plans to secure all, or potentially a proportion of, the spend. Alternatively, money not spent could either be clawed back or removed from the baseline for the following financial year;
- Option 2: Funding Follows the Child - a more demand-led system where parents and carers choose the provider, who must meet minimum agreed standards, and then the funding follows while still being administered by local authorities. This could be underpinned by the introduction of a funding formulae which set rates for the provision which would apply to all providers, regardless of sector. These rates could vary according to the age of the child, any additional support needs; across different providers, e.g. childminders, playgroups and nurseries; and, across rural and urban provision (to reflect differences in the average costs of delivery);
- Option 3: Early Learning and Childcare Accounts - a demand-led system where parents and carers receive the funding - through, for example, a system similar to that proposed by the Commission for Childcare Reform  - which they can then spend at a provider of their choice; and
- Option 4: A hybrid approach - a model with similar principles to the self-directing care approach  , whereby parents and carers choose how their child receives their ELC support - e.g. this could be determined by the local authority; parents and carers could choose their provider and then the money follows; or parents receive the funding (this could also be in the form of an Early Learning and Childcare Account, similar to option 3, to ensure that it is spent on ELC).
Question 19: What funding model would best support our vision for high quality and flexible ELC provision, which is accessible and affordable for all?
Phasing of the Expansion
The expansion will require substantial levels of investment in both the workforce and in infrastructure. The investment will be phased over a 3-4 year period to ensure that the required capacity is in place by 2020 to enable full roll-out the expanded entitlement.
This investment will result in additional capacity - in terms of new or expanded ELC settings and new ELC workers - becoming available within the sector.
Given the transformative nature of the expansion, and the potential structural changes that could result in the sector, it is challenging to assume that the system would be able to smoothly move from providing 600 hours to 1140 hours overnight.
A potential alternative approach, which could smooth the transition, is to phase in the additional entitlement for some children as additional capacity (both infrastructure and workforce) becomes available.
There are various options for phasing in entitlement. For example:
There could be an incremental increase in the level of entitlement made available (e.g. at some point between now and 2020 the entitlement could increase from 600 hours to, for example, 800 hours, as a step towards 1140 hours);
Allow local authorities to expand entitlement incrementally as increased capacity becomes available; and/or
Expanded entitlement offered to cover a range of cohorts, geographic areas or providers.
Each of these options carry additional cost and delivery implications, which would need to be carefully considered.
Question 20: If it were possible for aspects of the entitlement to be phased in ahead the full roll out by 2020, how should this be implemented?