Funded early learning and childcare in private, third sector and childminding settings: delivery costs

Conclusion

This report has presented the findings from a national data collection exercise designed to improve understanding of the costs associated with delivering funded ELC in private, third sector, and childminding settings across Scotland. Drawing on financial and operational data from providers, the study offers a detailed picture of the current cost landscape and the pressures facing the sector under the 1140 hours funding model.

The analysis shows that staffing remains the most significant cost driver, accounting for more than three-quarters of total expenditure in day care of children settings. While most practitioner-level roles meet or exceed the real Living Wage threshold, providers consistently reported challenges in recruiting and retaining staff, particularly in comparison to local authority settings. Pension contributions, National Insurance changes, and wage inflation were all cited as growing pressures that are not always reflected in current funding arrangements.

Costs associated with premises, meals, and session delivery also varied across provider types, with childminders typically operating at smaller scale and with different tenure models than day care of children services. The estimated cost per hour of delivering funded ELC varied depending on provider type, with self-reported estimates suggesting that actual costs may be higher, particularly for younger children requiring more intensive staffing.

Qualitative feedback from providers highlighted a range of concerns about the sustainability of delivering funded ELC. These included perceived disparities in funding between local authority and funded providers in the private, third and childminding sector, the adequacy and structure of the funded rate, and the challenges of supporting children with additional support needs. Many providers described making strategic compromises to remain viable, such as limiting investment in quality improvements or absorbing costs that are not covered by the funded rate.

While the dataset provides valuable insights, it also reflects the complexity of the sector and the diversity of experiences among providers. Limitations such as variation in accounting periods, and the influence of the current funding model on reported costs should be considered when interpreting the findings.

Taken together, the evidence presented in this report offers a detailed account of the financial realities of delivering funded ELC in Scotland. It will support ongoing discussions about rate-setting, funding adequacy, and the broader policy framework for early years provision. The findings also highlight areas where further engagement with providers may be beneficial to ensure that future approaches to funding and delivery are informed by the experiences and needs of those operating across the sector.

Finally, this exercise has now been undertaken several times, and each iteration has encountered some hesitancy among providers to share detailed financial data.

While the current approach has delivered useful insights, these challenges suggest that alternative methods should be explored to improve participation and data quality. Possible options include:

• Greater use of anonymised financial extracts from accounting systems to reduce perceived sensitivity.
• Developing a standing panel of providers who agree to share data regularly, building trust and continuity.
• Exploring how this data can be collected alongside other reporting providers are required to do.
• Piloting simplified or tiered reporting models that balance robustness with practicality for smaller settings.

Considering these options could help ensure future exercises are both proportionate and effective, while maintaining the confidence of providers and strengthening the evidence base for sustainable rate-setting.