Question to the Department for Education:

To ask the Secretary of State for Education, what assessment she has made of the implications for her policies of regional disparities in funding available for early years providers.

The government currently funds local authorities to deliver the government-funded entitlements through the Early Years National Funding Formula (EYNFF) for 3 and 4-year-olds and a separate formula for 2-year-olds. These have been designed to allocate the department’s record investment in early years entitlement funding fairly and transparently across the country.

The EYNFF is made up of a universal base rate, which is the same hourly funding rate for every child in a local authority, plus funding factors for additional needs, based on the measures of free school meals, disability living allowance, and English as an additional language.

The formula also includes an area cost adjustment (ACA) multiplier to reflect variations in costs across different areas of the country. This uses the General Labour Market measure to reflect staff costs and a Rates Cost Adjustment to reflect premises related costs.

Each local authority’s EYNFF rate will vary depending on their level of additional needs and their ACA values. Following a consultation in 2022, the department has updated the funding formulae to ensure the funding system remains fair, effective and responsive to changing levels of need across different local authorities.

To distribute the additional £204 million funding provided from September for the existing entitlements through the Early Years Supplementary Grant (EYSG), the department has used the existing funding formulae for 2, 3 and 4-year-olds. This allows the department to recognise cost variations between local authority areas when determining the EYSG rates for individual local authorities.

With the introduction of the new entitlements for working parents of children aged 9 months to 2 years from 2024/25, the department has recently finished consulting on its proposed funding formula for distributing funding to local authorities, along with the accompanying local rules for local authorities to follow when passing on this funding to early years providers. That consultation closed on 8 September and the department will announce its response and confirm the final hourly funding rates for 2024/25 later this year.

At a local level, local authorities are responsible for setting individual provider funding rates in consultation with their providers and schools forum, and fund providers using their local funding formula. In setting their local funding formula, all local authorities are required to use the same base rate for all providers. On top of the base rate, additional funding can be paid to providers to reflect local needs through the use of a mandatory supplement for deprivation, and other discretionary supplements. But supplements are capped at a maximum of 12% of the total funding to providers.