Section 1: Funding Follows the Child
The Funding Follows the Child approach will increase choice for families whilst providing them with the certainty that those settings delivering the Early Learning and Childcare ( ELC) entitlement are offering high quality provision.
The key aspects of the Funding Follows the Child approach:
- Getting It Right for Every Child will be placed clearly at the centre of our approach to improving the Early Years' experience of our children;
- it is underpinned by a National Standard, which all providers who wish to deliver the funded entitlement will have to meet from the full statutory roll out of 1140 hours of funded ELC entitlement;
- families will be able to access high quality funded ELC with the provider of their choice if that provider meets the criteria set out in the National Standard, wishes to deliver the funded entitlement, and is able to offer the entitlement in-line with local ELC delivery plans (subject to the setting's overall capacity);
- local authorities will retain the statutory responsibility for ensuring that funded ELC entitlement is available to all eligible children in their area, and will be the primary guarantors of quality and key enablers of flexibility and choice - ensuring that there is a range of options for families in their area;
- funding to deliver the funded ELC entitlement continues to be channelled through local authorities – it will not go directly to providers or to families  ;
- there is a commitment to simplifying the process for, and reducing the burden on, providers who wish to deliver the funded entitlement and all providers will face the same National Standard for becoming, and continuing to be, a funded provider;
- local authorities will set a rate locally that is paid to funded providers to deliver the ELC entitlement which is sustainable and reflects national policy priorities, including funding to enable payment of the 'real' living wage to all childcare workers delivering the funded entitlement;
- funded providers who agree to deliver the funded ELC entitlement will agree to pay the 'real' living wage to all childcare workers delivering the funded entitlement; and
- it is 'provider neutral' - a guaranteed standard of high quality early learning and childcare in all funded settings who meet the criteria in the National Standard.
What do we mean by Provider Neutral?
The Funding Follows the Child approach allows for service delivery to be provider neutral.
For children and their families, this means:
- a guaranteed standard of high quality funded early learning and childcare across all settings who meet the criteria in the National Standard;
- all children will have access to staff with the right level of skills, within a setting with the right resource to support them with any additional support needs;
- choice of settings where parents/carers can access their child's funded ELC entitlement and choice in the pattern of how they access this provision;
- parents and carers can expect to access their child's statutory hours free at the point of access.
For providers this means:
- a sustainable funding rate, set at a local level for providers that reflects the cost of delivery in a setting and allows for delivery of national priorities including payment of the 'real' living wage to all childcare workers delivering the funded entitlement;
- fair payment practices meaning receiving payments for delivering these hours from local authorities as early as is practically possible;
- staff across all settings will receive the appropriate level of support to deliver a high quality ELC experience for children.
A Financially Sustainable Sector
The publication 'Financial Review of early learning and childcare in Scotland: the current landscape'  highlighted that under the current system, the funding rate paid to around 40% of funded providers does not cover their costs for delivering the funded hours ( i.e. the rate does not reflect the cost of care).
As we move towards a provider neutral approach from 2020, it will be essential that provision is financially sustainable in order to ensure that providers across all sectors are willing and able to deliver the funded entitlement. The Scottish Government is committed to delivering a funding package to local authorities for the expansion which supports sustainable provision across all sectors.
In order to determine what a sustainable rate in 2020 might be, it is important to have a shared understanding of the cost of care in delivering funded ELC. This will support local authorities to establish an affordable and sustainable rate for delivery of funded ELC across all settings.
Through the Service Models Working Group, and working with providers, we will develop a set of principles, supported by guidance to support local authorities and providers to establish affordable and sustainable rates for delivery of the funded hours. This will be published in Autumn 2018 as part of a suite of operating guidance and supporting material for providers and local authorities.
Process for becoming a Provider of the Funded Entitlement
Local authorities are responsible for ensuring provision of ELC in their local area, including utilising services from private and third sector providers. Local authorities in Scotland have a statutory duty to deliver all of their services, including ELC, under Best Value as set out by the Local Government in Scotland Act 2003.
There are variations across local authorities as to how and when they procure funded ELC services from providers. For example, some authorities operate a continually open framework agreement - where providers who meet local criteria go onto the framework at any point in the year and can then deliver the funded entitlement. Others operate a similar framework system but on an annual or three year basis meaning that providers must wait until the process opens to become a funded provider.
When a setting enters into partnership with a local authority, an agreement or contract will be established setting out the terms and conditions required for partnership, including potential termination of the agreement.
Our on-going engagement has highlighted a need to simplify and wherever possible standardise the approach to establishing how an eligible provider becomes a funded provider. This has led to the development of three key stages for any potential funded provider:
(1) meet the criteria within the National Standard, as assessed by the local authority;
(2) receive the offer of the locally-set sustainable funding rate from the local authority; and
(3) sign a contract to become a funded provider.
Each local authority will continue to be responsible for implementing these steps locally, retaining flexibility around the local process. As we move towards the new system being implemented, the Service Models Working Group will support local authorities as they share the knowledge and best practice for their local areas in establishing funded ELC services from providers in the private and third sector.
Guidance, including key principles, and templates to promote simplicity in the approach to become or continue to be funded provider to be published in Autumn 2018.
Question 1: What factors should be considered in developing a simple, standardised yet flexible process for becoming a funded provider?
Under the Funding Follows the Child approach local authorities will continue to have the statutory responsibility for ensuring that funded ELC entitlement is available to all eligible children in their areas. With the exception of inspection gradings, local authorities will also be responsible for assessing and monitoring compliance with the National Standard, as part of their contract management arrangements and in their role as guarantors of quality. It will be for local authorities to decide how to fulfil this responsibility.
It is expected that local authorities and providers will work together meaningfully and in genuine partnership in delivering flexible ELC provision, while continuing to ensure a high quality experience for the child is maintained and accessible to all children. There are already good examples of partnership working between authorities and providers, which all authorities and providers are encouraged to build on.
The National Standard sets out the requirements for both providers and local authorities. However, whilst there is, rightly, a high expectation on providers delivering the funded ELC entitlement, providers should also have high expectations on the support that they receive in delivering this service.
Under a 'provider neutral' approach there should be a clear and consistent level of support that providers across all settings can expect from local authorities. The approach is built on partnership, and by entering into agreements with providers to deliver the funded entitlement, local authorities will be accepting the expectations on them to support providers through – in particular, but not limited to:
- a sustainable funding rate that reflects the cost of delivery in a setting and allows for delivery of national priorities including payment of the 'real' living wage to all childcare workers delivering the funded entitlement;
- fair payment practices for both parents/carers and providers;
- staff across all settings receiving the appropriate level of support to deliver a high quality ELC experience for children;
- providing clarity on support ( e.g. through Quality Improvement Officers) and how this support is reflected in the rate.
There may be circumstances in which enhanced improvement support is required. This will include circumstances in which the withdrawal of a setting's funded provider status would have a significant impact on children's ability to access statutory ELC within their local area.
Providers will also have access to improvement support from the Care Inspectorate. The Care Inspectorate has a duty, under the Public Services Reform (Scotland) Act 2010 (Section 44(1)), not only to inspect settings but also to support settings with quality improvement.
Equally, under a provider neutral approach, there should also be a clear and consistent level of service delivery that providers across all settings should be expected to maintain, including continuing to meet the criteria set out in the National Standard. This will not only ensure the proper use of public funds, but will also guarantee consistency of high quality provision across all provider types.
By entering into an agreement with local authorities to deliver the funded entitlement, providers will be accepting the expectations on them to comply with certain requirements. The detailed requirements will be agreed with the local authority when entering into partnership and should include:
- a guaranteed standard of high quality Early Learning and Childcare for children;
- a commitment to pay the 'real' living wage to staff delivering the funded ELC entitlement;
- a commitment to work within the parameters of the local authority's model of delivery;
- attending local provider network meetings or equivalent;
- a commitment to ongoing and constructive communication with the local authority, including compliance with local authority quality monitoring arrangements; and
- open and regular communication with parents.
Question 2: What are the key shared principles which should underpin an effective and positive partnership between local authorities and funded providers?
What does Funding Follows the Child mean for Local Authorities, Providers and Families?
1) Local authorities
- Quality - As the primary guarantors of quality, local authorities will retain statutory responsibility for ensuring that high quality funded ELC, as defined by the National Standard, is available to all eligible children in their area, and will receive funding from Scottish Government to enable them to discharge this responsibility.
- Child Outcomes – Getting It Right for Every Child will be placed clearly at the centre of our approach to improving the Early Years' Experience of our children. The approach is underpinned by eight indicators of wellbeing: safe, healthy, achieving, nurtured, active, respected, responsible and included. These indicators represent the basic requirements that all children need to grow and develop and should be considered in the planning process for any child receiving funded ELC to ensure the best possible outcomes for children.
- National Standard – local authority settings will have to meet the criteria set out in the National Standard.
- Sustainable Rate - Local authorities will set a sustainable rate and work in partnership with providers in the private and third sectors who want to deliver the funded entitlement. These rates will be set to reflect local needs as well as reflect national policy priorities, including payment of the 'real' living wage.
- Fair work Practices – local authorities should continue to ensure that they are adopting fair work practices, including a fair and equal pay policy.
- Flexibility – As key enablers of flexibility and choice, local authorities will enable a system that is provider neutral with the focus on the settings best placed to deliver quality outcomes for children. Local authorities will engage with their local communities to determine how to deliver flexibility in line with local need, taking into account the view of parents who wish to work, train or study. Flexibility will be delivered through both their own settings and through their use of funded providers.
- Affordability - Local authorities will retain statutory responsibility for ensuring that funded ELC entitlement is available to all eligible children in their area, free at point of access. The delivery of ELC services at a local level should improve affordability for parents alongside creating a financially sustainable service model for all sectors.
- Quality – Children will have access to high quality ELC experience regardless of where they access their entitlement: whether in local authority, private, voluntary/third sector nurseries or through provision offered by childminders. This will help ensure that regardless of setting, the funded ELC experience helps to give children the best start in life and contributes to their health, wellbeing and cognitive development.
- Child Outcomes - Getting It Right for Every Child will be placed clearly at the centre of our approach to improving the Early Years' Experience of our children. The approach uses eight indicators of wellbeing: safe, healthy, achieving, nurtured, active, respected, responsible and included. These indicators represent the basic requirements that all children need to grow and develop and should be considered in the planning process for any child receiving funded ELC to ensure the best possible outcomes for children.
- National Standard - Providers will face a more open and proportionate approach for delivering the funded entitlement. The criteria for becoming a funded provider will be clear and consistent.
- Sustainable Rate - Funding will be provided in a way that is consistent with a provider neutral approach. It will reflect the cost of service delivery, regardless of which sector is delivering the funded hours, but recognising that funding will still flow via local authorities, who will ensure the rate is sustainable for funded providers. Key characteristics of a sustainable rate include:
- The rate will support delivery of a high quality experience for all children regardless of setting;
- It will be a rate that more accurately reflects the cost of provision, and the delivery of national policy objectives, regardless of setting;
- The rate will generate investment in the setting – staff, resources and physical environment; and
- It will enable payment of the 'real' living wage, for those delivering the funded entitlement.
- Fair work Practices - The single most important driver of the quality of a child's early learning and childcare experience is a high quality diverse workforce. The promotion of fair work practices, including ensuring that staff are fairly remunerated, have secure regular employment, and are able to undertake training and career-long professional learning, is a key way of supporting a high quality workforce. Providers will be required to adopt fair work practices, including a commitment to supporting the 'real' living wage for those, as a minimum, delivering the funded ELC entitlement in their settings.
- Flexibility – Providers will continue to offer parents/carers increased flexibility of how the funded entitlement is accessed, which will support more parents/carers to work, train or study.
- Affordability – Funding provided by local authorities to funded providers for delivery of the statutory hours will be at a sustainable rate, which more accurately reflects the costs of delivery. Therefore, settings will not charge families in respect of the statutory funded hours or require the parent/carer to pay in advance and receive a refund later. A sustainable rate should also remove the pressures on some providers to increase the hourly rate charged to families accessing non-funded hours.
- Demand - Local parental demand will be the primary driver of local flexibility, but within a system which safeguards high quality provision.
- Choice - Families will be able to access funded ELC in the provider of their choice if that provider meets the criteria set out in the National Standard, is able to offer the entitlement in-line with local ELC delivery plans and has a place available.
- Quality - The key aspiration for offering 1140 hours of funded ELC is to deliver the best possible outcomes for children. For that reason, only the best quality providers will be able to offer the funded hours. Families across Scotland can expect a high quality funded ELC experience regardless of where they access their entitlement: whether in local authority, private, voluntary/third sector nurseries or through provision offered by childminders. This will help ensure that irrespective of setting, the funded ELC experience helps to give children the best start in life and contributes to their health, wellbeing and cognitive development and works towards ending the poverty attainment gap  .
- Affordability - Funded hours will be free at point of access, regardless of whether the funded hours are provided by the public, private or third sectors or through provision offered by childminders. Parents/Carers will not be charged in advance for statutory hours and no top-up fees will be charged to parents/carers relating to the statutory 1140 hours. However, there may be circumstances in which parents opt to pay additional costs for additional services e.g. snacks, wrap-around hours.
- Dedicated and Highly-Qualified Workforce - We know that the most important driver of quality in ELC is a dedicated, highly skilled and well-qualified workforce. More workers in the ELC sector being paid the 'real' living wage should increase staff retention rates, strengthening the benefits for children and families by allowing practitioners to build up strong, trusted relationships through consistent contact time. A strong focus on professional learning and development within the National Standard will also contribute to the quality of the workforce.