Funded early learning and childcare (ELC) - setting sustainable rates 2024 to 2025: guidance

Annex B

Methodology for estimating the uplift required to enable payment of £12 per hour to childcare workers providing funded ELC

1. All funded providers in the private and third sector will receive additional funding to increase staff pay to at least £12 per hour from April 2024 via a fixed percentage uplift that is applied to their current (2023-24) sustainable rate(s). The commitment will also be applied in a fair and sustainable way for childminders who deliver funded ELC.

2. The size of this uplift has been calculated to reflect the estimated average increase in the staff cost element of the sustainable rate required to meet the increase in the real Living Wage from £10.90 per hour to £12 per hour.

3. Sustainable rates (for 2023-24) should be set, in line with the Sustainable Rates Guidance, at a level to allow funded providers in the private and third sector to pay at least the real Living Wage of £10.90 per hour to staff delivering funded ELC.

4. Moving to £12 per hour from April 2024 would represent a 10.1% increase in the staff costs associated with those workers who were receiving the previous real Living Wage rate of £10.90 per hour.

5. It is important to note that staff within these services will likely be on a range of salaries, with some above or below the real Living Wage rate of £10.90 per hour in 2023-24. The fixed uplift approach will therefore be based on uplifting the total staff cost element (not just those on the real Living Wage) of the average sustainable rate by 10.1%.

6. Applying the uplift to the overall staff cost element is expected to provide scope to providers to maintain existing pay differentials within their setting.

7. Going forward, and as identified in the joint Scottish Government and COSLA Sustainable Rates Review, there is a need for more robust and reliable evidence on the costs of delivering funded ELC in private, third and childminding sector providers. This includes a need for more robust information on staffing costs, including wage differentials within settings.

8. As part of previous actions undertaken to strengthen the sustainable rates setting process, local authorities identified a need for more support in gathering robust evidence on costs of delivery, which could then be used as the starting point for developing local sustainable rates. To support this, COSLA and local authorities, through the Improvement Service, commissioned Ipsos Mori to undertake an independent cost collection exercise. Ipsos Mori collected information from funded services in the private and third sector through a detailed survey in March 2022. There was also a separate, more limited, cost collection exercise of funded childminding services.

9. Evidence from the Ipsos Mori survey indicates that total staff costs accounted for between 70% and 80% of total costs for providers in the private and third sector who deliver funded ELC.

10. For the purposes of estimating the size of the fixed uplift it is assumed that between 70% and 80% of the sustainable rate that these providers receive is expected to reflect staffing costs. For our analysis we have used 75% as the average share of total costs accounted for by staff costs.

11. Uprating the total staff cost element (75%) of the sustainable rates by 10.1% would result in an increase in the overall rate of 7.6%.

12. In order to support payment of the increased real Living Wage all funded ELC providers in the private, and third sector will therefore receive a minimum uplift of 7.6% to the sustainable rate(s) they received in 2023-24.

13. As set out in the guidance, the commitment will also be applied in a fair and sustainable way for childminders, with the minimum 7.6% uplift to 2023-24 rates also being applied to the sustainable rates paid to all childminders delivering funded ELC in 2024-25. Whilst, as highlighted above, a more limited cost collection exercise of childminders was undertaken by Ipsos Mori in 2022, this does not provide the equivalent level of detail for childminders as the separate survey for private and third sector services. In light of this, and the need to collect more robust and reliable data on costs of delivery for childminders (as set out in the Sustainable Rates Review and in paragraph 7 of this Annex), in order to deliver the commitment in a fair and sustainable way, the same uplift will be applied to sustainable rates for all childminders delivering funded ELC as for private and third sector services.

14. Local authorities are responsible for determining the overall sustainable rate for 2024-25 in line with the published guidance. As highlighted in the guidance, the overall sustainable rate(s) for 2024-25 should, in addition to the minimum 7.6% uplift to enable payment of at least the real Living Wage, be set in line with the requirements of the sustainable rates guidance. These other elements are assumed to account for, on average, 25% of the sustainable rate in 2023-24.