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

Introduction

This chapter sets out the purpose and policy context for the data collection exercise. It outlines the rationale for the study, commissioned by the Scottish Government, to gather robust evidence on the costs of delivering funded ELC in private, third sector, and childminding settings.

The chapter also summarises the evolution of ELC policy in Scotland, including the implementation of the 1140 hours entitlement and the Funding Follows the Child framework, and explains how this research supports the joint Scottish Government and COSLA Sustainable Rates Review and future rate-setting guidance.

Purpose of the Study

This report presents the findings from a national data collection exercise commissioned by the Scottish Government to understand the costs of delivering funded Early Learning and Childcare (ELC) in private, third sector, and childminding settings. The aim of the study is to provide robust, up-to-date evidence on the financial realities of delivering high-quality ELC under the current 1140 hours funding model, and in line with the Scottish Government and COSLA Sustainable Rates Guidance. Specifically, the research explores the costs associated with staffing, premises, meals, and other operational factors, as well as providers’ expectations for future cost changes.

The findings will inform the future sustainable rates set by local authorities, including the development of new guidance, and will help to inform the Scottish Government and COSLA’s future financial planning.

Policy Context and Background

The expansion of funded ELC in Scotland has been a major policy initiative since the publication of A Blueprint for 2020 in 2017. This programme increased the entitlement to funded ELC to 1140 hours per year for all 3- and 4-year-olds and eligible 2-year-olds, with full implementation beginning in August 2021. The expansion aimed to improve child development outcomes, reduce the poverty-related attainment gap, and support parental employment and wellbeing.

To support this expansion, the Funding Follows the Child framework was introduced, emphasising flexibility, quality, and sustainability.

Funded ELC in Scotland must be provided free of charge to eligible children, as set out in legislation. This makes financial sustainability essential to ensure that providers across all sectors, private, third sector, and childminding, can continue to deliver the entitlement in response to demand.

Local authorities are responsible for setting sustainable funding rates for these providers. According to national guidance, a sustainable rate should reflect the cost of delivery, support high-quality provision, enable payment of the real Living Wage, and allow for investment in staff, resources, and the physical environment. Importantly, the rate should not require cross-subsidisation through charges for non-funded hours, nor undermine the local authority’s ability to fund services in the long term.

In December 2023, the Scottish Government and COSLA published a joint Sustainable Rates Review, outlining actions to improve the rate-setting process. These include updating the Sustainable Rates Guidance and exploring more centralised, robust approaches to cost data collection.

This study was commissioned to support those actions by gathering reliable data on the costs of delivering funded ELC. This data collection builds on previous exercises, including the 2016 and 2022 cost reviews, and seeks to provide an up to date picture of costs and also reflections from providers on delivering funded ELC.