Implementing the 
Early Years Single 
Funding Formula 
Practice Guidance July 2009 


Implementing the Early Years Single Funding Formula – Practice Guidance 03


Contents 

Contents 03 

1 Summary of Key Messages 05 

1.1 Timetable and Implementation 05 
1.2 Core Principles 05 
1.3 Working in Partnership 05 
1.4 Understanding Provider Costs 06 
1.5 The Structure of the Formula – base rates and supplements 06 
1.6 Affordability 06 
1.7 Ensuring the EYSFF supports providers 07 
1.8 Counting and adjusting for participation based funding 07 
1.9 Transition and Impact 07 
1.10 EY Providers – Maintained Sector 08 
1.11 EY Providers – PVI Sector 08 
1.12 Schools Forum 09 
1.13 And Finally… 09 
2 Introduction 10 

2.1 Context 10 
2.2 Interim Guidance 11 
2.3 Changes to Regulations 11 
2.4 Wider Funding Issues 13 
3 Timetable and Process 15 

3.1 Key Steps 16 
4 Core Principles 17 

4.1 Core Principles – Interim Guidance 17 
5 Working in Partnership 19 

6 Understanding Provider Costs 23 

6.1 Introduction 24 
6.2 Understanding Provider Costs 24 
6.3 Updating the Analysis 25 


04 Implementing the Early Years Single Funding Formula – Practice Guidance


7 Design and Implementation 26 

7.1 Basic Structure 27 

7.2 The Basic Rate 28 

7.3 Supplements 29 

7.4 Deprivation 30 

7.5 Quality 31 

7.6 Flexibility 34 

7.7 Affordability 37 

7.8 Interaction with Schools Funding Formula 38 

7.9 Nursery Schools 39 

7.10 Childminders 39 

7.11 Other Funding 40 

7.12 Profit 40 

7.13 Counting and Adjusting for participation led funding 40 

7.14 Counting and Adjusting in North Yorkshire 42 

8 Impact, Transition and Review 43 

8.1 Impact 44 

8.2 Transition 46 

8.3 Review 47 

GLOSSARY 48 

Appendices 53 
1 Working with Providers – Frequently Asked Questions 53 
2 Developing a Typical Cost Model – steps and examples 56 
3 Funding Deprivation 61 
4 Quality Checklist 64 
5 Relationship with Schools Funding Formula 66 
6 Nursery Schools 69 
7 Impact, Transition and Review – including learning from 
pilot authorities 71 



Implementing the Early Years Single Funding Formula – Practice Guidance 05


1. Summary of Key Messages
The Government announced in June 2007 that local authorities (LAs) will be 
required to design and implement a single local funding formula for funding the 
Free Entitlement to early years provision for 3 and 4 year olds across all sectors. 
The aim is to improve fairness and transparency in the way that funding is 
allocated to providers who deliver the Free Entitlement, and thereby support 
its extension to 15 hours, to be delivered more flexibly from September 2010. 

This document sets out the Government’s expectations for the Early Years Single 
Funding Formula (EYSFF) and provides guidance on how the formulae should be 
designed and implemented. It updates the interim guidance (published July 2008) 
and previous information updates to LAs, draws on learning from the eleven pilot 
authorities and sets out changes to regulations. 

The guidance is aimed primarily at LAs and sets out the actions they are required 
to take, as well as action they must and should take in order to introduce a formula 
that is successful and consistent with the underpinning objectives. 

1.1 Timetable and implementation 
The EYSFF must be fully implemented across England from April 2010. At the 
time of publication (July 2009), LAs should already have gained a clear 
understanding of typical local provider costs and be at the stage of starting 
to build their formulae in preparation for consultation and development of 
transition plans over Autumn 2009. 

LAs should review their implementation timetable against the timetable set out 
in Section 3. Any that are behind in the process should seek additional support 
from their regional Government Office to enable support to be put in place to 
ensure the April 2010 deadline is met. 

1.2 Core Principles 
This guidance sets out sixteen ‘core principles’ for the design and implementation 
of the EYSFF. These must all be observed by LAs. Principles include, ensuring that 
the EYSFF supports a mixed market and ensuring that all settings are funded on 
the basis of participation, not places. 

1.3 Working in partnership 
The experience of the pilot authorities has emphasised that all interested 
stakeholders, both at the LA and provider level, must be fully involved. Early Years 
and Schools Funding Officers must work closely together at every stage and both 



06 Implementing the Early Years Single Funding Formula – Practice Guidance


must have regard to the guidance contained here. This team must engage with 
all settings – private, voluntary, independent and maintained – throughout the 
process, to ensure that the EYSFF takes account of the diverse spectrum of costs 
and needs. Engagement on a one-to-one basis is recommended for settings that 
face particularly difficult issues (for example a significant change in funding), or 
that find the proposed changes difficult to understand. Final decisions should 
only be made after widespread consultation. 

1.4 Understanding Provider Costs 
The EYSFF should be based on a detailed understanding of providers’ costs in both 
the maintained and PVI sectors. LAs that have not completed a cost survey at the 
time of publication (July 2009) should ensure their Government Office (GO) knows 
this and move directly to building a typical cost model as a matter of urgency. 
BUT LAs must return to this stage no later than six months after implementation 
to ratify their formula and ensure that any changes can be implemented in time 
for the next financial year. 

1.5 The Structure of the Formula – base rates and supplements 
All EYSFF should include a base rate. This can be one single rate or multiple rates 
differentiated by type of providers according to variations in unavoidable costs. 
An arbitrary straight maintained/PVI provider split in the base rate that is not 
justified by the evidence is not in keeping with the core principles for the EYSFF 
as it is unlikely to reflect true cost differences and therefore has the potential to 
lock in unjustifiable funding differences. 

A deprivation factor will be required by regulation to be part of the EYSFF, as it is 
with all other school formulae. Other supplements should be considered to ensure 
the EYSFF supports wider early years policy objectives, in particular supplements 
should be considered as a means for incentivising improvements in the quality 
and flexibility of provision. All EYSFF should recognise the costs associated with 
quality and encourage a culture of continuous improvement. 

1.6 Affordability 
LAs should consider the new EYSFF budget and the revised 5-16 budget in the 
context of the whole Schools Budget. LAs should not have a starting position that 
assumes that everything is correctly balanced at present, but similarly should not 
start with the assumption that it is incorrectly balanced. All consideration of the 
split of the EYSFF budget and the 5-16 budget must be considered with the 
Schools Forum at budget setting time. 



Implementing the Early Years Single Funding Formula – Practice Guidance 07


In building the formula, the interaction of the EYSFF with the schools funding 
formula must be considered to ensure no double-counting or gaps. LAs will 
need to identify which elements of funding within the current schools funding 
formula will be replaced by the EYSFF, and which elements will be retained. 

The EYSFF should be developed in the context of a range of wider issues including 
other early years initiatives, any proposed changes to local admissions policies, 
and the review of the DSG. 

1.7 Ensuring the EYSFF supports providers 
LAs must make every effort to ensure that the EYSFF is designed and implemented 
in a way that supports their duties in respect of meeting parental demand and 
supporting child outcomes at five. Sustainability of providers must therefore be 
a key consideration. 

Additional factors, either to support places or cover other cost pressures, can be 
allocated in exceptional circumstances. However, this must not be used widely 
and must be based on clearly defined local imperatives for sufficiency and 
sustainability. 

Funding for nursery schools and nursery classes, especially those which were funded 
on the basis of places and which have low occupancy, may need special attention. 
The presumption against closure of nursery schools remains. Developing an EYSFF 
which encompasses childminders satisfactorily may also need special attention. 

1.8 Counting and adjusting for participation based funding 
There will be a requirement that, as a minimum, participation must be counted 
on a termly basis across all providers, but where a LA already has systems in place 
that go beyond this and are more reflective of participation, they are free to 
continue to use such systems. Budgets must be adjusted in the financial year 
in order to ensure funding reflects participation adequately and payments to 
providers must take account of the cash flow needs of providers and recognise 
that PVI and maintained providers will have different needs. 

1.9 Transition and Impact 
An assessment of the impact of the EYSFF on all settings must be included in the 
consultation process and where changes to individual providers are significant, 
they must be investigated and support must be given to providers. It will be 
important to ensure that data collection processes reflect the requirements of 
the EYSFF e.g. local participation forms may need to be updated, and IT systems 
improved to support additional data processing; 



08 Implementing the Early Years Single Funding Formula – Practice Guidance


Details of each LA’s EYSFF should be made widely available once finalised. 

The EYSFF will have to be updated to reflect developments in early years provision, 
and should therefore be structured to enable periodic change to be made to 
both basic rates and supplements, without wholesale re-design, in a similar way 
to the wider schools formula. 

1.10 EY Providers – Maintained Sector 
Work with the pilot authorities indicates that the most significant implications 
of the EYSFF are for maintained sector providers, particularly where place-led 
funding has hitherto been the norm for early years provision, and where settings 
have been running with spare capacity. Because participation led funding will be 
the norm, maintained sector providers must engage fully with the development 
of the EYSFF to ensure that the formula and its implications for funding levels are 
well understood. 

This will mean changes for some maintained providers, but the experience from 
the pilot authorities has been that although schools approached the change with 
trepidation, at the end of the process schools have seen very positive results and 
have been glad they made the changes. 

1.11 EY Providers – PVI Sector 
The EYSFF brings PVI sector providers into a common funding framework with 
maintained sector providers. It raises a number of challenges, not least because 
the EYSFF is likely to be more complex than existing PVI sector funding models, 
which tend to be based on very simple rate per hour calculations. PVI sector 
providers must therefore also engage fully in the development of the EYSFF to 
ensure that the formula and its implications for funding levels are well understood 
and they have the necessary tools and capacity to provide information to 
support the EYSFF. Training and IT equipment may be required for those settings 
which, for example, have struggled to complete electronic pupil census returns. 

PVI providers must be aware that an EYSFF does not automatically mean more 
money. What the EYSFF should mean is that the basis that providers are funded 
on is transparent and that the funding is provided on a rational assessment of 
sector costs. 



Implementing the Early Years Single Funding Formula – Practice Guidance 09


1.12 Schools Forum 
Schools Forums have a key role to play in the development of the EYSFF. The Forum 
is the ‘guardian’ of the local Schools Budget, and its distribution among schools and 
other bodies, and therefore must be closely involved throughout the development 
process. Schools Forums should, by now, have a representative of the PVI providers 
as a mandatory member. 

LAs should set up an Early Years Working Group as early as possible in the process 
to ensure that all provider sectors have appropriate representation, and that key 
LA departments are involved. Making this working group a sub committee of the 
Schools Forum could aid communication between key stakeholders and ensure 
the Schools Forum is regularly updated on developments. 

Other key issues for Schools Forums include: 

The affordability of the preferred formula, including whether the funding 
allocated to it is sufficient for all early years provision; 
Whether transitional protection is required for settings affected adversely 
by the change, and if so, what form of protection and for how long; 
How the minimum funding guarantee (MFG) should be used to offer such 
protection; 
The impact on schools admission policies, in particular the frequency of 
admission to nursery schools and nursery classes. 
1.13 And Finally… 
The words ‘must’ and ’should’ are used extensively throughout this guidance. 
Whilst a LA cannot be forced to do anything that is not set out in regulations, 
the word ‘must’ indicates that not following the guidance will seriously jeopardise 
a LA’s ability to introduce the EYSFF by April 2010. The word ‘should’ is intended 
to indicate that LAs will need to give serious consideration as to the issue before 
making a decision. 

As is the case with the schools funding formula, regulations will say that there 
must be an EYSFF, but much of the detail is left to LAs responsibility to review 
and refine their formula on a regular basis. This guidance is intended to make 
clear the expectations we have of LAs in developing their EYSFF and to provide 
support, drawing on the experience of our pilot authorities and the policy 
decisions that have been made along the way. 



10 Implementing the Early Years Single Funding Formula – Practice Guidance


2. Introduction 
2.1 Context 
Since April 2004 all 3 and 4 year olds in England have been entitled to part-time 
free early learning and childcare. The universal free entitlement is now being 
extended from 12.5 to 15 hours per week, to be delivered flexibly. The new offer 
aims to improve child outcomes by increasing access to quality early years provision, 
and by helping parents to access the offer in a way that better supports them to 
balance work and family life – both of which are crucial to reducing the effects 
of child poverty. 

To support this flexible extension and to address inconsistencies in how the offer 
is currently funded across the maintained nursery schools and nursery classes and 
private voluntary and independent (PVI) providers, the Government announced 
in June 2007 that LAs will be required to develop and use a single local formula – 
the Early Years Single Funding Formula (EYSFF) – for funding early years provision 
in the maintained and PVI sectors from 2010-11, and encouraged LAs to introduce 
the formula from April 2009 wherever possible. 

The EYSFF does not equate to there being a single rate of payment. The unavoidable 
costs that providers face vary by area and between providers so a single rate, that 
is not based on the evidence, would not be fair or reflective of the needs of 
providers to cover the costs of delivering the free entitlement. However, the EYSFF 
aims to introduce a consistent method of distribution of funding across the sector 
based on common principles and a more transparent approach. The formula also 
aims to ensure that the funding is more reflective of participation and supports a 
level playing field between different maintained and PVI providers, principally by 
ensuring providers are funded according to participation rather than places. This is 
common practice in PVI settings but has tended not to be the case in maintained 
settings. 55% of children access their free entitlement through PVI settings (Early 
Years Census, 2008) and PVIs are therefore an important sector for the free 
entitlement. Both should be treated equally. 



Implementing the Early Years Single Funding Formula – Practice Guidance 11


2.2 Updating the Interim Guidance 
Interim guidance on the implementation of the EYSFF was issued to LAs in July 
2008.1 Prior to that point, DCSF had been working with six pilot authorities that 
agreed to implement the single formula in April 2009 as part of the Formula 
Development Project (FDP). The six LAs involved in this project were Croydon, 
Hertfordshire, Leeds, Rochdale, Somerset and Southampton. A further five LAs 
subsequently joined the pilot – Derby, Greenwich, North Somerset, North Yorkshire 
and Shropshire. Of these eleven LAs, all bar two implemented their EYSFF 
successfully in April 2009. The interim guidance was based on learning from 
the original six pilot LAs. 

Whilst the majority of the core content of the interim guidance remains valid, 
this document brings that guidance up to date and builds on it and that of the 
LA updates that have been circulated since to provide a final guidance for LAs. 
This is in the light of the experience of all eleven pilot authorities and further 
consideration by the DCSF of some of the difficulties encountered during 
implementation. Where appropriate, this guidance incorporates material from 
the interim guidance, so as to create a single source for LAs. This guidance will: 

clarify in one place what action LAs must and should take in the development 
and implementation of the formula; 
reflect known and likely changes to regulations; 
provide a number of more specific examples based on the detail of the EYSFFs 
implemented by the pilot authorities – and where we have identified parts of 
the pilot implementation that are unsuccessful, highlight these; and 
concentrate on the key issues that LAs implementing in 2010 are likely to face. 
We are extremely grateful to the pilot authorities for tackling this ambitious 
project so enthusiastically and for allowing us to follow their progress so closely. 
All the partners worked with us and discussed their formulae with us throughout 
the process. But with the benefit of hindsight, some methods of implementation 
are not working as well as we would wish and we will be working with the pilot 
authorities to make changes in time for April 2010. Therefore LAs should look at 
any lessons shared by the pilot authorities in conjunction with this guidance. 

2.3 Changes to Regulations 
Over the last year we have continued to work with our pilot LAs to identify issues, 
to capture evidence, and to reach conclusions on the policy direction based on 
that evidence. As a result, at the time of publication (July 2009), we are in the 
process of making regulatory changes to facilitate the introduction of the EYSFF 

1 ‘Implementation of a Single Funding Formula for Early Years: Interim Guidance for Local Authorities’ July 2008. 
www.dcsf.gov.uk/everychildmatters/earlyyears/localauthorities/lapractice/entitlement/sffundingresources/ 



12 Implementing the Early Years Single Funding Formula – Practice Guidance


from 2010. In order to do this, we are introducing primary legislation via the 
Apprenticeships, Skills, Children and Learners Bill, to amend the School Standards 
and Framework Act 1998 (section 47ZA Free of charge early years provision 
outside a maintained school: budgetary framework: England). This change to 
the primary legislation will enable us to make secondary legislation to bring all 
early years funding under the Schools Finance Regulations.2 Draft regulations 
have been laid alongside the Bill and will be formally consulted on as soon as the 
passage of the Bill allows. We anticipate that the primary legislation will achieve 
Royal Assent in the Autumn of 2009, allowing us to make the changes to regulations 
shortly thereafter. 

The key changes to regulations are: 

LAs will have to use an EYSFF to distribute funding for the free entitlement 
to early years provision; 
Funding for PVI providers in the Schools Budget in a LA will move from the 
Centrally Retained Budget to the Individual Schools Budget; 
As a minimum, the counting of pupils to support participation-led funding 
must be on a termly basis. This will be set out in the School Finance Regulations 
and is discussed further in Section 7; 
The EYSFF will be required to include a deprivation factor, as is the case with 
schools funding formulae. This is discussed further in Section 7 and in the 
deprivation case study in Appendix 3; 
Funding must be given on the basis of participation – the number of children 
actually delivered to – not on the number of available places in a provider 
or similar factors. However, in recognition of the fact that LAs also have a 
sufficiency duty, the regulations will permit a factor to be included for 
additional funding to support sufficiency and sustainability, but this must 
not be used widely, and must have clear criteria as to the reasons for its use. 
Maintained schools in England are funded through sections 47-53 of the School Standards and 
Framework Act 1998. These sections enable regulations to be made providing detail of how schools are to 
be funded. These regulations (currently known as the School Finance Regulations) have been updated 
regularly since 1999. Briefly, the current regulations say that the funding provided by the DCSF to LAs 
through a grant known as the Dedicated Schools Grant (DSG) must be passed on to schools through a 
‘Schools Budget’. The Schools Budget is divided into the Centrally Retained Budget (CRB) – that is funding 
held by the LA to fund, for example, pupils with high special educational needs – and the Individual 
Schools Budget (ISB) which is given by means of a locally devised formula to schools to meet the needs of 
pupils in the LA schools. Currently, maintained nursery provision is funded from the ISB, whilst PVI 
providers are funded from a budget within the CRB. The new Act, assuming passage through Parliament, 
will allow the Schools Finance Regulations to be amended to allow the ISB to contain all funding for both 
maintained nurseries and PVI providers in one single budget. 



Implementing the Early Years Single Funding Formula – Practice Guidance 13


2.4 Wider Funding Issues 
Affordability: We are aware that there is anxiety amongst some providers about 
affordability and whether the rates paid will be sufficient to support the sustainability 
of settings. By encouraging LAs to create formulae which are built on clear and 
robust understandings of provider costs across the sector, the EYSFF aims to help 
address this issue. The process of defining these costs has led to consideration 
by the pilot authorities of the current funding totals for the free entitlement to 
early years provision. Proper consideration of the funding supporting the free 
entitlement is essential when implementing the EYSFF to ensure that the free 
entitlement is sustainable and supports the goals of quality provision delivered 
flexibly to improve outcomes for children. But, this must be in conjunction with 
an overview of the strategic funding pressures on the Schools Budget. 
We would, however, like to remind LAs that in making overall decisions about 
affordability and sustainability of providers as part of the EYSFF process, there are 
two important restrictions which must be respected: 

No top-up fees: As is already set out in the current ‘Code of Practice on the 
Provision of Free Nursery Education Places for Three-and Four-Year Olds’,3 LAs must 
continue to ensure that the basic entitlement is free at the point of delivery, and 
that providers should not levy any fee in this respect. In other words, whilst the 
rates providers charge for their privately funded hours are a matter for them to 
decide, and may not be dictated by LAs, providers cannot make access to the free 
entitlement conditional on the payment of any charge, and the free hours that 
children receive must be presented clearly to parents as hours on providers’ billing 
documentation. The Code is in the process of being revised, with a new draft 
being issued for formal consultation in Autumn 2009, prior to implementation in 
September 2010, but this aspect of it will not change and we will clarify further 
that free entitlement hours must be shown as just that, rather than as a monetary 
‘discount’ on bills. 

We are also aware that some LAs are telling providers that wrap around care 
must not be charged at a rate that is higher than the funding provided by the 
LA for the free entitlement. This is not acceptable and providers must be free to 
manage their business for wrap around care. 

The Minimum Funding Guarantee (MFG) for schools still applies: The MFG 
provides maintained schools with a minimum increase per pupil year on year. 
This is currently set at 2.1% each year in 2008-11. A major review of the 
Dedicated Schools Grant (DSG) is being undertaken over the course of 2009 and 
2010, with a view to implementation in the next multi-year funding cycle starting 
in 2011. The future of the Minimum Funding Guarantee is being considered in 
this context. We will keep you informed of any changes or decisions and how 

3 http://www.dcsf.gov.uk/everychildmatters/publications/0/1747/ 



14 Implementing the Early Years Single Funding Formula – Practice Guidance


this might effect EYSFF implementation. However, until 2011 the regulations 
regarding the MFG will continue to apply to maintained schools including the 
arrangements for Schools Forums to apply variations not affecting more than 
50% of pupils in schools in their area. LAs should consider how the MFG will 
impact in 2010 on the implementation of the EYSFF, but bear in mind that in 
future its current format is not guaranteed. 



Implementing the Early Years Single Funding Formula – Practice Guidance 15


3. Timetable and 
implementation process 
LAs should utilise this timetable and the self evaluation tool to assess where they 

are in the process, which areas need the most urgent attention, and where they 

need to call on their Government Office for help. 

The EYSFF must be fully implemented across England from April 2010. All LAs 
should have undertaken much of this process at the time of publication of this 
guidance (July 2009), and be at the stage of starting to build their EYSFF and 
undertake an impact assessment. Autumn will be a critical time for developing 
transition plans and consulting on proposals. The timeline below is the same as 
one which has previously been circulated to LAs: 

Establish Working Group 
Design and Conduct Cost Survey 
Validate Returns 
Develop Typical Cost Model 
Combine Approaches 
Analyse all data on costs 
Design Formula 
Build Formula 
Undertake Impact Assessment 
Develop Transitional Proposals 
Consult on New Proposals 
Provide indicative budgets 
using EYSFF 
Oct Nov Dec Jan Feb Mar Apr May Jun Jul 
2009 20102008 
Aug Sep Oct Nov Dec Jan Feb Mar 
Any slippage at this stage of the process can impact badly on a LA’s ultimate 
ability to deliver. LAs should utilise this timetable and the self evaluation tool to 
assess where they are in the process, which areas need the most urgent attention, 
and where they need to call on their Government Office for help. They should then 
look to seek additional support from their regional Government Office and/or 
the Department to enable support to be put in place to ensure the April 2010 
deadline is met. 



16 Implementing the Early Years Single Funding Formula – Practice Guidance 

3.1 Key Steps 
The overall process, as set out in the interim guidance, is shown below: 

Develop typical cost model 

– What categories of provider? 
– What are the typical costs incurred? 
– Real or aspirational costs? 
– Costing ‘free’ resources 
Combining the Two Approaches 

– Use the cost survey to help populate 
the model 
– Use the model to help verify the 
reported costs 
Establish LA Team 
– Include EY and schools managers 
– Communicate process to all providers 
– Update senior managers regularly 
Understand Providers’ Costs 
– Conduct Cost Survey and 
– Develop typical cost model 
Design the Cost Survey 
– Every setting or sample? 
– If sample, what mix? 
– Which cost categories? 
– How to identify the relevant costs and hours? 
Check the Returns 
– Chase responses to maximise returns 
– Have all/only the relevant costs been included? 
– Have costs been allocated to age groups 
correctly? 
– Are owners’ costs reasonable? 
– Are premises costs justifiable? 
Establish provider 
working group to 
consult on formula 
development 

Consult on format of 
survey with providers 
Use providers to help 
develop the model 

Check details with 
providers as required 

Check findings with 
providers as required 

Consult on design 
issues with providers 

Consult on emerging 
formula detail with 
providers Involvement 
of Schools Forum in 
endorsing the 
proposed formula 

Design the Formula 
– Ensure core principles are followed 
– Include factor for deprivation 
– What aspects of provision do we wish to promote 
(e.g. focus on quality, flexibility)? 
– What supplements has the cost survey suggested? 
– Are there major cost differences between types 
of settings that should be reflected? 
Build the Formula 
– How do we put the chosen elements into a 
formula? 
– Does the formula provide the right incentives? 
– Are the selected elements large enough to 
make a difference? 
– Is it affordable? 
Undertake Impact Assessment 
– Which are the biggest winners and losers? 
– Are these changes justified? 
– Can the losers cope with the loss? 
– Do the winners really merit the gain? 
– What is the impact on schools? 
Develop Transition Proposals 
– How fast do we want to move to the new 
formula? 
– What protection can we afford? 
– Are we prepared to allow any settings to fail? 
– Is sufficiency best dealt with by bespoke 
measures? 
Analyse the Data 
– What are the greatest cost differences? 
– Are they linked to certain types of operation? 
– To what extent are they unavoidable? 
– Or do they occur because of the provider’s 
choice? 
– Or poor occupancy levels? 
– Are costs by grade similar across settings? 
Fully transparent 
consultation especially 
critical 
Fully transparent 
consultation especially 
critical Formal approval 
from Schools Forum 
required to final 
proposal 



Implementing the Early Years Single Funding Formula – Practice Guidance 17


4. Core Principles
LA’s must have regard to the core principles when developing their formula.


4.1 Core Principles – Interim Guidance 
The core principles underpinning the EYSFF were originally set out in the interim 
guidance and are re-stated here with additional points are set out in italics. 

The development of an EYSFF should: 

Support effective and efficient distribution of resources at the local level; 
Facilitate greater flexibility of provision so that parents have greater choice in 
how they use the free entitlement; 
Preserve diversity and choice in the market; 
Incentivise improvements in the quality of provision and recognise the ongoing 
costs associated with quality; 
Support the narrowing of achievement gaps and recognise the additional costs 
associated with children from deprived backgrounds; 
• Be clear and transparent.
With regards to the operation of the formula:
The same factors should be taken into account when deciding the level of 
funding for each sector; 
Decisions must be transparent and any differences between the sectors 
should be justifiable and demonstrable; 
The level of funding should be broadly cost-reflective and all the main cost 
elements should have been considered explicitly; 
There should be no perverse incentives and any change in the formula must 
not endanger sufficiency of provision; 
The formula must be based on common cost information from both the PVI 
and maintained sectors and all costs and public sources of incomes should 
be considered; 


18 Implementing the Early Years Single Funding Formula – Practice Guidance


Settings should be funded on the basis of participation, not places or similar 
factors. Participation must be counted on a termly basis, at the least, and this will 
be required in regulation (See Section 7); 
An additional factor to support sufficiency and sustainability will be allowed but 
this must not be used widely and must have clear criteria; 
The formula must take into account the sustainability of all settings, giving 
sufficient stability to all sectors to plan for the future and improve quality; 
Transition from the current funding mechanism to the future funding 
mechanism must be planned and managed carefully, and based on a clear 
impact assessment; 
The application of the formula in different settings should be based on 
common operating principles wherever possible; All aspects of the proposed 
EYSFF must be the result of partnership working with all those involved, and final 
decisions on structure and operation of the formula should be made only after 
widespread consultation. 


Implementing the Early Years Single Funding Formula – Practice Guidance 19


5. Working in Partnership 
LAs must: 

Manage the expectations of their providers effectively and ensure that all
providers from PVI and maintained sectors are engaged throughout the 
process of developing the EYSFF;
Build strong internal partnerships from the outset, including early years and
schools finance officers, schools forums and with senior managers and
representative members;
• Make changes ‘with’ providers not ‘to’ providers.
LAs should:
Engage with all settings to keep them aware of the nature of the changes that 
will happen – and ensure they are kept broadly up to date with progress; 
Set up a smaller working group, which is representative of all providers to
discuss the details;
Make every effort to use the knowledge, skills and understanding of 
representative groups such as the National Day Nurseries Association (NDNA) 
and the Pre-School Learning Alliance (PSLA); 
Establish a local team from the LA that includes the right people from early
years policy leads and schools finance personnel;
Ensure senior LA managers, Schools Forum members and elected members 
are kept informed and up to date.
LAs must not: 

Allow the individual needs of one type of setting to dominate discussions within 
their locally established working groups; 
Leave any sector out of the process of building a formula – maintained and 
PVI providers of all types must be included.


20 Implementing the Early Years Single Funding Formula – Practice Guidance


Effective partnership working within LAs, and with providers outside, is crucially 
important for ensuring that the EYSFF is developed and implemented successfully 
and addresses the needs of all partners. The clear message from all the pilot LAs was 
that the longer the timescale that has been devoted to joint working / consultation 
with all sectors, the easier the process has been. 

Partnership working between local authorities and providers 

It is essential for local authorities to communicate to providers from all sectors, 
and engage them fully throughout the process. 

The implementation of the EYSFF will generate both expectation and concern 
amongst providers in all sectors, and LAs must therefore manage the expectations 
of their providers effectively. Partnership working with providers is also critical to 
getting the EYSFF right. Achieving early engagement with all of the sectors has, 
in most pilot authorities, been a challenge. Key learning points have been that it 
is essential to persevere, to provide regular and frequent feedback, to help the 
different providers to understand the needs and aims of other sectors and to 
demonstrate progress and build trust. Those pilot authorities who excluded a 
sector from their consultation and formula building process found they were 
not ready to implement the formula in time. 

LAs must therefore ensure that all partners are engaged as early as possible in the 
process of developing the EYSFF, in order to help shape thinking from the outset, 
and to avoid any group of providers from feeling that they have no influence 
over the process. Early engagement can be particularly useful in developing a 
full understanding of provider costs, either from the cost survey or through 
input toward and sense-checking of the Typical Cost Model (TCM) which LAs 
should have developed at the initial stage (discussed more fully in Section 6 
and at Appendix 2). But ongoing engagement is also vital as discussions over 
the consultation period can significantly affect the final formula. In every case, 
pilot authorities’ initial proposals for the formula have changed for the better as 
a result of a robust and full consultation process. 

Engagement throughout the process should be at two levels: 

All settings need to be aware of the nature of the changes that will happen, 
and be kept broadly up to date with progress; 
A smaller provider working group, which is broadly representative of all providers, 
should be established to consult and discuss the detail with. 
It is recommended that you consider appointing a dedicated single contact point, 
and building a package of measures to help settings keep up to date, for example 
sending regular updates, holding regular events or running drop in sessions. 
Settings from all sectors will have many questions and, especially at the beginning 
of the process, pilot authorities had few of the answers. Having a dedicated and 



Implementing the Early Years Single Funding Formula – Practice Guidance 21


consistent contact point has proved to be very positive for many pilot authorities. 
Drop-in sessions for all settings throughout the process gives the authority a 
mechanism to explain the likely changes to providers, minimises ‘surprises’, 
and also helps to shape the final outcome. 

The composition of the provider working group is a matter for LAs to decide. 
However models based both on separate consultative groups for each sub-sector, 
and a single group with representation from all sectors were used by pilot LAs. 
The latter was more effective in promoting better understanding of the issues 
across sectors. 

There is no prescribed format to the structure and composition of the group – 
the key issue is that it should be as representative as possible of all providers on a 
broadly proportionate basis. In particular, LAs must ensure that their maintained 
sector providers are fully engaged, as there is some evidence that schools have 
not realised that the changes will affect them. In this respect, one pilot authority 
has used head teacher ‘champions’ to help communicate the changes to their 
colleagues, and this has proved to be very effective. 

Any group of partners will need to be small enough to discuss detailed issues, 
but large enough to cover a representative range of providers. This suggests up 
to a dozen external representatives covering, at least: 

• Nursery schools and nursery classes separately; 
• Day nurseries; 
• Playgroups; 
• Larger and smaller operators; 
• Settings in deprived and less-deprived areas; 
• Different geographical areas (for larger LAs). 
Experience from the pilot authorities suggests that the use of existing local 
communication channels (e.g. representative associations for playgroups, 
childminders, and day nurseries) is advisable. Pilot authorities found that gaining 
the active support of these groups proved to be invaluable, since information 
can be disseminated much more quickly, and though a channel that individual 
settings already use and trust. This group is often a sub-group of the Schools 
Forum which enables professional feedback to the Forum of the progress and 
will help ensure they are engaged and involved. The pilot authorities also found 
that drawing on the skills and understanding of representative groups, such as 
the National Day Nursery Association (NDNA) and the Pre-School Learning 
Alliance (PLA), was valuable. We recommend that other LAs engage with such 
organisations as well. 



22 Implementing the Early Years Single Funding Formula – Practice Guidance


Appendix 1 sets out answers to some of the questions that are likely to arise 
through consultation with providers. Further advice on good consultation, 
including model terms of reference for an Early Years Working Group, was 
circulated to all local authorities in June 2009 and is available online.4 

Partnership working with local authorities 

Schools formula officers must jointly lead the internal consultation with Early Years 
officers. Staff responsible for the schools finance, information specialists and 
administrative support must also stay closely involved. 

Pilot authorities also identified the importance of establishing a local team from 
the outset that includes the right people from Early Years policy leads and Schools 
Finance personnel. As set out in the Interim Guidance, it is essential for LAs to: 

• Establish the authority team as early as possible; 
• Include Early Years and Schools Finance managers; 
• Update senior managers regularly on the work undertaken and its implications. 
Without this, there is a real risk that a process that is perceived as either 
‘finance-led’ or ‘early years-led’ may stall at a critical time late in the project, 
because it hasn’t taken full account of the wider implications of the proposed 
formula. Although the planning process tends to have been led by one or 
the other, the involvement of both is vital, and failure to involve both has the 
potential not only to cause delays, but also the high risk that an EYSFF may not 
be implemented successfully. This has happened in two of the pilot LAs. 

It is also critical that senior managers of the authority and the Schools Forum are 
involved in supporting the process from an early stage and that they, and elected 
members, understand these changes, and can provide strategic leadership for this work. 

Section 2: Authority Experiences 

The Schools Forum has an important role and responsibilities in overseeing this 
implementation. Regular updates on progress are an important tool to ensure 
ongoing engagement, and to achieve a formula that the Forum will understand 
and support. 

Experience shows that, It is therefore imperative that consultation is undertaken 
as fully as possible, and as early in the process as possible, so as to allow time for 
subsequent revision of LAs initial proposals. 

4 http://www.dcsf.gov.uk/everychildmatters/earlyyears/localauthorities/lapractice/entitlement/ 
sffundingresources/sffresources/ 



Implementing the Early Years Single Funding Formula – Practice Guidance 23


6. Understanding Provider Costs
LAs must: 

Gain an understanding of typical costs faced by different types of providers in 
their area, including a reasonable rate of return for PVI providers to ensure they 
are sustainable; 
Be able to explain and justify any differences in the funding allocated to different 
categories of provider under the new formula. 
LAs should: 

Have completed a cost survey involving all maintained and PVI sectors and 
have validated the findings in consultation with the Early Years Working Group 
by the time this guidance is issued (July 2009); 
Develop a Typical Cost Model (TCM), involve providers in this process and 
validate this through checking findings with a cross-section of providers. If a 
cost survey has not been fully completed by July 2009, LAs should move directly 
to this activity but the LA must ensure that they go back to validate the model 
with knowledge of real provider costs within 6 months of implementation to 
enable any changes that need to be made to the formula to take place before 
the next financial year; 
Update their understanding of provider costs on a regular basis through
conversations with providers across the sector.
LAs must not: 

Develop a formula which is not based on a rigorous analysis of provider costs. 


24 Implementing the Early Years Single Funding Formula – Practice Guidance


6.1 Introduction 
As stated in the interim guidance, it is important that all LAs develop a clear and 
comprehensive understanding of their providers’ costs in order to ensure that, 
as far as possible, the key principles set out in Section 4 of this guidance are 
observed. In particular, LAs must be able to clearly explain any differences in the 
funding allocated to different categories of provider under the EYSFF. LAs must, 
as a minimum, be in a position to justify and explain in wholly transparent manner: 

The core level of funding and any differences between providers of different 
characteristics, including any differences in funding levels between providers 
in different sectors; 
All supplementary payments over and above the core funding level; 
All funding that is based on anything other than actual levels of participation. 
Developing a level of understanding which enables LAs to justify their formulae 
in these ways is challenging. Two approaches were used by pilot authorities to 
develop their understanding of providers’ costs – the cost survey, which all LAs 
should already have undertaken, and what we have termed the ‘Typical Cost 
Model’(TCM). 

These two approaches, the cost survey and the TCM, are supportive of one 
another. Subject to the level of progress that has already been made, LAs should 
use both a cost survey and typical cost model to support their further work on 
understanding provider costs; one should be used to ‘sense check’ the other. 

6.2 Understanding Provider Costs 
All of the pilot authorities have undertaken a cost survey, and have supported 
this with comprehensive work to analyse and validate cost data from both their 
PVI and maintained sectors. All LAs implementing in 2010 should have already 
undertaken this part of the overall formula development process. In general, 
the work involved has not been easy, and has sometimes led to a poor response. 
Nevertheless, the pilot authorities regard the process as being vital as it built 
understanding of the differences in cost structures between settings and 
supported early engagement with all providers and laid the foundations of 
ongoing partnerships. 

In addition, LAs have built a TCM which uses both maintained and PVI cost data 
to build a detailed view of providers’ costs, differentiating between providers 
with different cost structures as required. LAs that have used this approach have 
involved providers from all sectors in the process as a part of their engagement 
with their provider community. An outline process for building a TCM is described 
at Appendix 2. 



Implementing the Early Years Single Funding Formula – Practice Guidance 25


The pilot authorities have also used their schools funding formula to help them 
identify potential cost models for their EYSFF, including which costs will continue 
to be funded through the schools funding formula, and which will be funded 
through the EYSFF. This is discussed further in Section 7 and in the case study 
material at Appendix 5. 

We recognise that a cost survey is a lengthy process and at the time of publication 
(July 2009) it would be almost impossible for a LA which has not yet undertaken 
such a survey to complete it in time to implement the EYSFF by April 2010. 
Learning from the pilots suggests that TCMs which are validated against the 
actual costs of a broad cross-section of providers can provide effective and 
sustainable base data to inform the EYSFF. Therefore, where a LA has not already 
conducted and completed a provider cost survey by summer 2009, it must 
move directly to building a TCM. However, this stage must not be forgotten. 
Where this has happened, LAs must go back within no more than six months of 
implementation to validate their model with knowledge of actual provider costs 
and where this cannot be validated, they must review their model to ensure any 
changes are made in time for the following financial year. It is not acceptable to 
have a continuing model that is not based on an analysis of the actual costs of 
local providers. 

6.3 Updating the Analysis 
As a matter of good practice, LAs should also consider costs as part of the ongoing 
conversations with providers so as to ensure that their understanding of providers’ 
costs remains relevant and up to date. For example, LAs may wish to update the main 
cost categories within the cost analysis on an annual basis using publicly available 
data such as relevant pay scales or salary cost indices for staff costs. In the event 
that other costs are subject to significant cost pressures – energy costs are a recent 
example of this – LAs should also reflect such pressures in their cost analysis. 
LAs may also wish to use the cost analysis and cost modelling work to help 
providers develop a more robust and complete understanding of their own costs, 
especially in cases where the cost survey demonstrates that their understanding 
is not well developed. 

Although not formally a part of the cost analysis, LAs should also review all other 
factors which drive funding in the EYSFF, on a regular basis. These include patterns 
of deprivation within the LA, and the data which underpins other supplements 
such as quality and flexibility. 



26 Implementing the Early Years Single Funding Formula – Practice Guidance


7. Design and Implementation
LAs will be required in regulation to: 

Distribute funding for the free entitlement on participation, not places, and count 
pupils to support this, across all providers, on a termly basis as a minimum; 
• Incorporate a deprivation supplement, or ‘factor’, into the EYSFF.
LAs must:
Determine one or more basic hourly rates for providers, based on an evidence 
based approach that is reflective of the cost of delivery; 
Ensure measures used to determine supplements are robust, transparent, 
and easily understandable, that supplements do not create unnecessary
bureaucracy and that there are no overlaps with the base rate;
Ensure quality is sufficiently supported and incentivised in the funding system 
in general; 
Adjust budgets within the financial year to reflect participation adequately
across all sectors and must take account of the cash flow needs of providers
and payments must be at least half termly, if not monthly for PVI providers;
Give all providers an indicative budget at the start of the year which reflects
anticipated participation.
LAs should 

Decide which supplements are needed to meet local policy objectives; 
Ensure all supplements have maximum effect – including by considering
whether the impact of significant differences in settings, the fit with other
tools the LA has, how to minimise any harm caused by cliff edges, and being
aware of implications for data collection processes;
Strongly consider building in a quality supplement and a flexibility supplement. 
LAs should be clear how this fits with other tools for incentivising and 
encouraging improvement in these areas and when the EYSFF comes up for 
review, look at each of these in light of the revised Code of Practice on the free 
entitlement (due to be published in Spring 2010). 


Implementing the Early Years Single Funding Formula – Practice Guidance 27


Treat the affordability assessment as an iterative process; 
Ensure that funding through the schools formula does not double-fund
allocations through the EYSFF (or vice versa)
Pay special regard to the funding of Nursery Schools and Child Minders, 
who are both distinctive in different ways. The basic approach however
should be the same as for other providers – based on evidence of cost;
Take account of the legitimate need for PVI providers to generate some profit; 
Consider the size of the EYSFF budget and the revised 5-16 budget in the
context of the whole Schools Budget.
LAs must not: 

Lock unjustifiable sector differences into the funding system permanently, 
e.g. a dual base rate that offers one rate for all maintained settings, and 
another for all PVIs; 
Use lump sums frequently, without clear justification or as a device to
continue existing levels of funding to particular sectors permanently;
Make additional sustainability payments frequently or where size or location
do not make sustainability a genuine concern.
7.1 Basic Structure 
As set out in the interim guidance, the basic structure of the formula is likely to be: 

(Basic Hourly 
Rate + 
Hourly 
Supplements) X 
Number of hours 
of participation + Other 
supplements 
This rate may 
vary according 
to the 
providers’ cost 
structures 
Additional 
amounts per hour 
for extra need or 
to recognise 
policy objectives 
such as 
improving quality 
The method of 
counting the level 
of participation 
must be same for 
all providers and 
follow the minimum 
requirements set 
out in Section 7 
In some limited 
circumstances 
(e.g. sufficiency) 
it may be 
appropriate to 
provide lump 
sum amounts 



28 Implementing the Early Years Single Funding Formula – Practice Guidance


LAs therefore have two options to deliver this and should choose either: 

1. To build a differentiated hourly base rate with relatively few supplements; OR 
2. A common core rate for funding all sectors supported by relatively high 
supplements for those types of settings where the core rate did not reflect 
the underlying costs of certain types of settings. 
Whichever option a LA chooses they will need to ensure that as with all parts of 
their formula the rationale is transparent and justifiable. 

As noted in the Introduction, changes to the Schools Finance Regulations will 
introduce two key changes that will have a significant impact on the design of 
the formula. These are: 

The Regulations already include a requirement for formulae to have a deprivation 
factor and this will be extended to the EYSFF. This means that there must always 
be at least one supplement – for deprivation; 
From April 2010 LAs will be required to fund on a participation basis and place-led 
funding will not be allowed. Lump sums should be used carefully and justifiably. 
Factors to support the sufficiency duty or sustainability will be permitted 
but should be used sparingly. This means that LAs should give very careful 
consideration to the use of lump sums, and avoid using them as a device to 
continue existing funding levels for particular sectors permanently through 
other means. 
7.2 The Basic Rate 
Each EYSFF needs to incorporate one or more basic rates per child – usually 
expressed as a rate per child per hour. The basic rate – where option 1 is followed 

– should be sufficient for a provider to deliver the free entitlement in a manner 
that meets acceptable quality levels to a child who does not have additional 
educational needs. However, some pilot authorities found that a common rate 
for all sectors, supported by relatively high supplements capturing underlying 
costs for certain types of settings, worked (as in option 2). Most of the pilot 
authorities, however, have developed multiple basic rates, each of which reflects 
the cost structures of groups of similar providers or settings with similar 
characteristics e.g. number of pupils or staff qualifications. 
Results from the cost survey and/or from the development of the TCM are likely 
to provide evidence of similar cost structures among different types of provider. 
It is therefore recommended that local knowledge is also used to determine 
whether there is a case for differential rates to reflect the differences in costs 
faced by different types of provider. 



Implementing the Early Years Single Funding Formula – Practice Guidance 29


As stated in the single funding formula emerging lessons document circulated 
to all LAs in May 2009,5 LAs must not discriminate by sector through an arbitrary 
dual base rate that offers one rate for all maintained settings and another for all 
PVI settings. Experience from the pilots suggests that robust cost analysis is 
unlikely to conclude that a simplistic, sector-based categorisation is reflective 
of the range of cost structures of the different types of provider. The effect of 
making such a simplistic maintained/PVI distinction could be to lock a two-tier 
funding regime into the system, prevent a level playing field and reduce the 
ability of the PVI sector to offer quality provision using Level 3 + staff across the 
piece. All LAs must therefore ensure that the base rates they identify are the result 
of an evidence based approach that is reflective of the cost of delivery. 

As noted above, a number of the pilot authorities have developed their EYSFF 
with multiple, differentiated rates. Where LAs follow the multiple rates approach, 
they should ensure that the basis is justifiable and implications are absolutely clear 
for providers. This means: 

Data which supports the calculation and administration of different rates 
can be collected without undue effort at either LA or setting level; 
Settings are given clear guidance on which rates are applicable to them, 
both for the base rate and any supplements which may apply; 
Settings are given clear guidance on how different rates are to be reflected 
in payments for additional hours. 
Whichever approach LAs take they should as a minimum ensure that the EYSFF 
recognises and supports the costs associated with meeting national standards 
on key drivers of quality, especially minimum staffing ratios and qualifications. 

7.3 Supplements 
In addition to the mandatory deprivation supplement, other supplements to 
the basic rate may be desirable to allow LAs to reflect the needs of individual 
children, for example to drive local policy objectives, the need to enhance the 
overall level of quality of provision. A range of supplements were considered 
by the pilot authorities. In assessing how much funding to distribute through 
supplements, it is good practice for LAs to consider: 

How different will the levels of funding be between the providers receiving 
the highest and lowest levels of funding? If settings are very similar in terms 
of quality and set deprivation criteria, a supplement may not be appropriate. 
Updates to LAs have been provided at regular intervals since the launch of the pilots in November 2007. 
All updates can be viewed on the Every Child Matters website at 
www.dcsf.gov.uk/everychildmatters/earlyyears/localauthorities/lapractice/entitlement/sffundingresources/ 



30 Implementing the Early Years Single Funding Formula – Practice Guidance


How much funding will be distributed in aggregate using the supplement? 
What is the supplement trying to support and what are the costs of that 
policy intention? 
If the amount is very high, will it be affordable? Is it reasonable to 
distribute a high proportion of funding on one supplement?
If the amount is very low, is it worth the additional complication of
incorporating the supplement? Can the funding be sensibly used to 
achieve the policy aim it is intended to support?
How will any ‘cliff edges’ that may appear be smoothed? For example, there is 
a risk when building supplements that this could lead to settings experiencing 
very sharp changes in funding levels associated with the gain or loss of such a 
supplement. LAs must consider how to address these. ‘Cliff edges’ should also 
be considered in the wider formula as well. 
What will the implications be for data collection processes and information 
systems which may be affected by the EYSFF, particularly in regard to 
the payment of supplements? 
7.4 Deprivation and the deprivation supplement 
Meeting the needs of deprived children is a key part of the Government’s 
objective of narrowing the gap between children from different backgrounds. 
Therefore, as noted , funding for deprivation will be a mandatory part of the 
EYSFF and, as such, LAs should incorporate a deprivation supplement into their 
formula. A deprivation factor is already a requirement under the schools funding 
formula and therefore in introducing the EYSFF, early years providers will be 
brought under the same regulatory framework.6 LAs must consider a number 
of core factors in relation to deprivation including: 

The approach used to classify deprivation. Pilot authorities have used the 
Income Deprivation Affecting Children Index (IDACI), the Index of Multiple 
Deprivation (IMD), MOSAIC (a commercial package based on post-code data), 
and tax credit data, sometimes in combination; 
The approach already in place for the wider schools funding formula and 
whether this can be easily passported to the EYSFF; 
All early years providers will be brought under the Schools Finance Regulations. These are currently set 
out in the Schools Finance (England) 2008 Regulations which will be amended to include early years 
provision. Section 19 (2) sets out the requirement for LAs to have a factor for deprivation. The current 
regulations can be viewed at http://www.opsi.gov.uk/si/si2008/uksi_20080228_en_1 



Implementing the Early Years Single Funding Formula – Practice Guidance 31


The amount of deprivation funding to be allocated within the EYSFF and 
how providers can use it to support narrowing the gap; and 
The method by which the total deprivation funding will be allocated to 
each setting. 
LAs will also have to ensure they have detailed information relating to existing 
levels of deprivation; review the methodology currently used in the schools 
funding formula; develop a methodology which balances ease of administration, 
at both LA and setting level, with a need to target funding where it is most needed; 
and ensure there is a clear basis for any differences in the value of deprivation 
supplements across settings. 

Although there are many commonalities, each pilot authority has adopted a 
different approach, either in terms of the methodology used to classify deprivation, 
the amount of funding to allocate through the deprivation supplement, or the 
way that the additional funding for each setting is calculated. Further details 
are set out in the case study material on deprivation at Appendix 3. 

7.5 Quality and the quality supplement 
All the available evidence shows that quality is the key driver for improving 
children’s outcomes and narrowing attainment gaps, and that it is particularly 
crucial for children from disadvantaged backgrounds. As such, LAs must use the 
EYSFF to support and promote quality and encourage a culture of continuous 
improvement in the quality of provision. 

LAs need to consider how they can incentivise high quality provision and 
improvement. The pilot authorities who most successfully incentivised quality 
through their EYSFF did so through the use of a quality supplement. All LAs 
should strongly consider including a quality supplement to reward providers who 
demonstrate strengths or efforts to raise quality. 

Suitable indicators of quality include: 

Workforce qualifications; 
Ofsted inspection ratings; 
Membership of an approved quality improvement or assurance scheme that 
has been developed in conjunction with providers, combined with a continuous 
cycle of quality improvement; 
Well-developed self evaluation processes, based on the Ofsted Self Evaluation 
Form (SEF) and which include active plans for staff development and training. 


32 Implementing the Early Years Single Funding Formula – Practice Guidance


Learning from the pilot authorities emphasises that in applying these measures 
to a supplement it is critical to think through the implications from the provider 
perspective. LAs should ensure that any measures used are robust and transparent, 
take into account sustainability in quality improvement and should not build in 
unnecessary bureaucracy for providers. This means: 

employing data that is easy for providers to supply and for LAs to collect, 
that is readily understandable to providers; 
Employ data which leads to predictable levels of funding; 
Put plans in place to smooth ‘cliff edges’; 
Ensure quality assurance schemes are widely known and trusted and build 
on the process involved in the Ofsted Self Evaluation Form; 
Ensure you have a scheme that will reflect improvements in quality on an 
annual basis; 
Ensure that your scheme does not impose unnecessary additional burdens 
on providers; 
considering the implications for providers that work across a number of LAs , 
including balancing the benefits of flexibility between quality schemes where 
another scheme is of an equivalent standard. 
Designing a quality supplement 

a) One pilot authority took an approach of taking account of minimum 
expectations through a differentiated base rate, and using the quality 
supplement purely as a means of rewarding settings who go the extra mile. 
Their model included six different base rates for the different types of 
providers, for example a playgroup, a day nursery, a maintained nursery 
class, a childminder etc. Their quality supplement was then based on two 
quality measures. The first is attendance at training schemes that they have 
established locally, where participation adds an amount to the hourly base 
rate of a provider. The second is based on meeting the criteria and signing 
up to their local quality assurance scheme as a first step to promote a 
culture of continuous improvement. Providers who are signed up receive 
a lump sum of £1000 per year. 

b) Another option could be to aim for a simpler base rate and take account of 
unavoidable cost differences associated with staffing through the supplement. 
For example, a quality supplement based on the employment of graduates 
would mean all maintained settings would be entitled to the supplement 



Implementing the Early Years Single Funding Formula – Practice Guidance 33


because of legal requirements for nursery classes to have a teacher, but the 
supplement also acts as an incentive to PVI providers, most of whom do 
not currently employ a graduate. In this instance, the LA could align the 
Graduate Leader Fund (GLF)7 with the EYSFF pot and draw on this funding 
to support a supplement on training of, or recruitment of, graduates. 

c) A LA could build a quality supplement based on participation in a local 
quality improvement programme reflecting the four key principles of the 
Early Years Quality Improvement Support Programme (EYQISP) developed 
by the National Strategies: 

the role of effective leadership in securing and improving quality; 
a continuous cycle of self-evaluation, improvement and reflection; 
a system of support and challenge which is transparent and agreed by all; 
strong partnerships between LAs, settings, and the settings’ communities. 
Ofsted ratings could be used as a further measure to target those settings which 
were receiving consistently ‘satisfactory’ ratings with the aim of achieving ‘good’ 
or higher. The LA Early Years team could support the settings to use the Ofsted 
Self Evaluation Form to establish their strengths and areas for development and 
work with them on action plans to improve their provision across the board. 

As illustrated by the examples above, in taking account of quality, LAs should also 
ensure they are clear about how it fits with other aspects of the formula and tools 
that the LA has for raising quality. This means: 

Being clear about the fit between the base rate and the quality supplement, 
and whether the supplement is being used to incentivise quality improvement 
only or incentivise improvement and reflect some of the costs associated with 
meeting national standards; 
Being clear about the inter-face with the Graduate Leader Fund; 
Being clear about how the quality supplement interacts with other tools for 
raising quality which the local authority has. 
The Government is considering making it a legal requirement that all full daycare settings have a graduate 
by 2015 and that all early learning and childcare workers have a full and relevant Level 3 qualification by 
the same date. LAs will need to bear in mind that at a future date the formula may have to be updated in 
time to reflect this change as part of an ongoing review of the formula. 



34 Implementing the Early Years Single Funding Formula – Practice Guidance


As set out in the introduction, at the time of publication the Code of Practice 
on the Free Entitlement is being reviewed. This section of the guidance should 
be reviewed in light of the final Code which is due for publication in early 2010 
(to be implemented September 2010). 

Further details on these issues and a list of questions for consideration are 
included at the checklist at Appendix 4. 

7.6 Flexibility and the flexibility supplement 
The Government has committed to extending the free entitlement to 15 hours 
and for that entitlement to be delivered more flexibility from September 2010. 
We recognise that for many providers the move to flexibility represents not only 
a significant culture change, but also some real practical and sometimes financial 
barriers. We therefore strongly encourage all LAs to use the EYSFF as part of a package 
of measures to support, promote and incentivise flexible patterns of delivery by: 

Recognising and supporting the costs associated with delivering different patterns 
of provision, e.g. delivering over the lunch period or opening longer hours; and 
Incentivising settings to move away from sessional provision and deliver the 
entitlement in patterns that are more responsive to parental demand. 
It is for LAs to decide how best to take account of these factors and how best to 
reflect these factors between the base rate and a flexibility supplement. However, 
we know from our pathfinder authorities on the flexible extension that financial 
support is not always the most important factor and where it is made available 
it should be accompanied by planning and support from the LA. 

The introduction of flexibility means that the entitlement needs to be offered to 
parents in a way which meets their needs and gives them real choices about how 
they access their free provision. That will require close co-operation at the local 
level between LAs and the diverse range of providers we want to see delivering 
the free entitlement. 



Implementing the Early Years Single Funding Formula – Practice Guidance 35


LAs will need to build a definition of flexibility for their local area, within the 
national parameters,8 and to work in partnership with providers to build a clear 
offer to parents. Flexibility is not necessarily about just offering longer hours, but 
also about offering different patterns of provision. Based on this, LAs will need to: 

• Build a local definition of flexibility; 
• Decide what they want to incentivise; 
• Decide how they want to do it. 
LAs will need to negotiate with all their providers on how they will contribute to 
the ‘local flexible offer’ in order to meet demand, but balance that with practical 
considerations for providers. Whilst we recognise that not all providers will be 
able to offer the same levels of flexibility, LAs should encourage providers to 
be ambitious about what they offer and so should consider how the EYSFF can 
support those ambitions. 

There are two broad approaches that LAs can take to building a flexibility 
supplement – although neither are exclusive and both can be utilised within 
the formula. However, LAs should be clear about why they have adopted an 
approach and any implications for the wider formula. The two approaches are: 

a) Build a supplement that acts as an incentive to deliver different patterns 
of provision; and/or 

b) Build a supplement that recognises the additional costs of delivering flexibility. 

LAs will need to decide their approach based on their local definition of flexibility 
and the demands of their local parents. 

National parameters for flexibility have recently been consulted on as part of the revision of the Code of 
Practice for LAs on the provision of the free entitlement. The process to revise the Code began in May with 
the launch of a Discussion Paper which closed on 8 July 2009. This was the first of a two staged approach. 
The Discussion paper looked to ask for views on flexibility around whether the national parameters 
currently in place were the right ones; whether the process for reaching a locally set entitlement properly 
balances the need to respond to parental demand with the need to ensure delivery is practical and 
sustainable for providers; and whether the model struck the right balance between nationally set 
principles and parameters and a locally determined entitlement as well as wider issues. The results of this 
discussion paper will be used to draft a new Code of Practice that will be put out to a formal 12 week 
consultation in the Autumn of 2009. The current version of the Code, A Code of Practice on the Provision of 
Free Nursery Education Places for 3 & 4 year olds (2006) can be found at 
www.dcsf.gov.uk/everychildmatters/strategy/improvingquality/guidance/nurseryeducation/ 
nurseryeducation/ 



36 Implementing the Early Years Single Funding Formula – Practice Guidance


Designing a flexibility supplement 

Approach A: 

Incentivising flexible patterns of delivery can mean different things and our 
pilots that took this approach considered both longer hours and different 
patterns of delivery, such as delivery over more than the minimum 38 weeks. 
In the first case, the supplement was built to encourage providers to offer 
parents the opportunity to access more hours in a day rather than sessions 
and therefore an additional uplift was built in depending on the range of 
hours a provider could offer. The longer the hours available, the bigger the 
uplift. Others gave an additional lump sum per hour, per child once providers 
were able to offer a minimum number of hours. 

The second approach was to incentivise providers to allow parents to ‘stretch’9 
the free entitlement over a longer period than 38 weeks. Where providers were 
able to deliver the offer over a period of 40 weeks or more, an additional lump 
sum per hour, per child was offered. 

Approach B: 

Delivering flexible provision can come with additional costs for providers and 
some of the pilot LAs looked to use a flexibility supplement to recognise this 
and enable providers to change their patterns of delivery. For example, 
flexibility can mean that provision is delivered over the lunch period therefore 
one pilot authority based their flexibility supplement on the cost of a meal. 
This enabled providers to deliver over the lunch period and ensured that the 
cost of lunch did not become a barrier to access. 

Another approach was to recognise that flexibility can mean that provision 
is delivered at less popular times and therefore staff costs may be increased. 
A higher base rate was therefore introduced for any provider that was able to 
deliver flexibility. 

All approaches must use measures that are easily understandable to providers and 
lead to predictable levels of funding. 

‘Stretching’ the free entitlement over more than 38 weeks is a Government ambition set out in the 
document Next Steps for Early Learning and Childcare (Jan 2009). 
http://publications.everychildmatters.gov.uk/default.aspx?PageFunction=productdetails& 
PageMode=publications&ProductId=DCSF-00173-2009 



Implementing the Early Years Single Funding Formula – Practice Guidance 37


Where a LA decided to use a flexibility supplement they should: 

Make sure your definition of flexibility is within the national parameters;10 
Ensure that your definition of flexibility is reflective of parental demand; 
Clearly communicate to both parents and providers what flexibility means 
in your area; 
Ensure your scheme does not impose additional burdens on providers. 
Where a quality and flexibility supplement are used, when the EYSFF comes up 
for review, LAs should particularly look at each of these in light of the revised 
Code of Practice on the Free Entitlement that will be published in the Spring 
of 2010. 

7.7 Affordability 
The affordability of the proposed arrangements has been a prime consideration 
for the pilot authorities. After due consideration of the evidence by Schools 
Forums, some have identified additional funding from their Schools Budget to 
help implement the changes, and in particular to fund incremental increases in 
levels of funding to the PVI sector. In other words, the pilot authorities have not 
necessarily assumed that the early years funding is a ‘zero sum game’, in which 
increases to one sector inevitably means decreases to another. 

LAs should treat the affordability assessment as an iterative process, to match an 
overall funding limit, and to ensure that the impact on individual providers is 
managed. In this respect, some LA’s have found the concept of defining a local early 
years budget, based upon a robust cost analysis useful and it is recommended that, 
as a matter of good practice, authorities explore this option. 

10 The national parameters are not themselves a definition of flexibility, but the national boundaries within 
which the free entitlement must operate within. Also see footnote 9. 



38 Implementing the Early Years Single Funding Formula – Practice Guidance


Coping with the affordability challenge 

Hertfordshire identified that its proposals for its EYSFF would require a 
significant increase of around 10 per cent in the funding allocation to Early Years. 
The team working on the EYSFF first raised the need for additional funding 
with the Schools Forum in April 2008, following a presentation on the 
development of the formula and a discussion about the LAs processes for 
allocating DSG headroom. The matter was discussed with the Schools Forum 
over several meetings, addressing issues such as targeting the extra funding 
at raising standards. A breakdown of the requirements for additional funding 
was agreed in October 2008 allowing them to proceed with their formula. 

Rochdale, in contrast with the LAs that found additional funding for the EYSFF, 
sought to build a formula that addressed the perceived inequalities in the 
former funding system, whilst not increasing the overall cost. This was 
achieved successfully through the introduction of differentiated funding rates; 
supplements for deprivation, flexibility and quality; and application of the 
Minimum Funding Guarantee as a transition measure to offer protection to 
all providers that would have lost funding (although the LA has made it clear 
to providers that they should not rely on the MFG for long term protection 
and that it may need to be gradually faded out). 

7.8 Interaction with the Schools Funding Formula 
For maintained sector funding, and especially for maintained nursery class 
funding, the interaction of the EYSFF and the schools funding formula has to be 
considered as, in addition to pupil-led elements, funding for nursery education 
may be allocated directly or indirectly through a range of other formula elements 
including premises-related elements, lump sums, Standards Fund allocations, 
and capital funding. The application of MFG protection is also potentially very 
significant, particularly for settings which have been receiving protection for 
some time in relation to changes in funding connected to nursery provision. 

Choosing to disaggregate items from the schools formula or using an abatement 
factor (which is consistent with the approach used for sixth form funding in 
secondary schools by many LAs) offers transparency in relation to these funding 
streams, but LAs will have to decide whether the sums of money involved are 
sufficient to justify the work involved in disaggregating them from the schools 
funding formula. However, they should ensure that funding through the schools 
formula does not double-fund allocations through the EYSFF (and vice versa). 

Further details in relation to interaction with the Schools Formula are set out in 
Appendix 5. 



Implementing the Early Years Single Funding Formula – Practice Guidance 39


7.9 Nursery Schools 
In most of the pilot authorities, nursery schools have been shown to have the 
highest cost base. Whether this translates into a significantly higher rate per hour 
appears to depend fundamentally on the extent to which: 

The costs are absorbed by a sufficiently large number of hours of provision, 
thereby leading to an acceptable cost per hour of provision; 
The costs can be shared by other services, thereby leading to a sharing of 
management, administration and premises costs. 
In determining funding for nursery schools under the EYSFF, LAs must remain 
aware of the presumption against closure of nursery schools. Therefore, LAs must 
undertake detailed work to ensure that the costs and funding of maintained 
nursery schools have been examined fully as part of the cost analysis, and that 
these costs are fully reflected. However, where applicable LAs must be able to 
demonstrate the reason for higher base rates for nursery schools and avoid large 
lump sum supplements, where they are not cost-reflective, and are designed to 
simply perpetuate existing funding differences. Instead they must work closely 
with any nursery school that will see substantial reductions in their funding. 

Further details are set out in Appendix 6. 

7.10 Childminders 
Childminders have a very different cost structure to other early years providers, 
primarily as a result of the lower numbers of children they provide for and the 
fact that they deliver from home, rather than from dedicated business premises. 
Our pilot LAs took various approaches to funding childminders. 

At one end of the spectrum, some pilot authorities took quite a narrow approach 
to operating within the principles of the EYSFF – paying childminders quite a low 
rate, on the basis of a strict interpretation of their cost analysis of what it costs a 
childminder to deliver the free entitlement. At the other end, some pilot LAs took 
the approach of looking at what it ‘should’ cost a childminder to deliver the free 
entitlement if they were treated on a comparable basis with a daycare provider 
(so were paid for premises, for their low ratios, aspirational qualifications etc) 
and consequently came out with a far higher rate. 

It is our view that a LA’s approach to funding childminders should, so far as possible, 
be the same as the approach to any other sector and stay in line with the principles 
of the EYSFF, primarily that where a differentiated base rate is implemented, it is based 
on the evidence shown from a LA’s cost survey and TCM. The cost analysis should 
take into account the distinctive elements of delivering as a childminder – the 
impact on a childminders home of operating their business from it, the smaller 
group sizes involved etc. 



40 Implementing the Early Years Single Funding Formula – Practice Guidance


A LA should also consider (as it does for other settings) how it can incentivise 
quality within its childminder market through the use of supplements within its 
formula. In ‘Next Steps for Early Learning and Childcare’, published in January 2009, 
we committed to looking at new approaches to enhance childminders’ professional 
development and LAs may like to consider how to use their quality supplement 
to support this ambition. 

7.11 Other Funding 
Funding for the free early years entitlement must be based on participation 
levels. However, there may be a very few circumstances in which an alternative 
approach is appropriate. One might be in rural areas where the sustainability 
of particular settings would suffer if all funding was participation based. 

In general, the pilot authorities have chosen to address sustainability issues 
outside their formula by extending approaches to sustainability already in place 
for PVI settings. However, there are also examples of supplements being used to 
deal with sustainability issues connected to sparsity and/or rurality. For example: 

North Yorkshire weights the basic hourly rate by +75% if the setting is more 
than three miles from the nearest alternative, and by +125% there is no other 
provider within five miles; 
Hertfordshire protects the number of places funded in some small rural settings. 
These additional payments should apply to only a very small proportion of providers 
where their size and location make sustainability a genuine concern. 

7.12 Profit 
There may be a temptation for private sector providers not to declare profit or 
for LAs to ‘disallow’ it for the purpose of calculating appropriate funding levels. 
However, in the context of a mixed market with significant provision from the 
private sector it is entirely legitimate for providers of all kinds to generate 
surpluses, either to provide a return on their own investment or for future 
investment. LAs must take this into account when designing their formulae. 

7.13 Counting and adjusting for participation led funding 
As stated in the introduction, the counting of pupils to support participation-led 
funding must be, at least, on a termly basis. This will be set out as a requirement in 
the School Finance Regulations and is a change from previous regulations which 
required authorities to use the most recent data about actual hours and led to 
significant variation in the data used by LAs. 



Implementing the Early Years Single Funding Formula – Practice Guidance 41


The rationale for this change was set out in advice circulated to all LAs in June 2009 
and available online.11 There has been a reconsideration of this advice since its 
publication and it has been revised slightly as a result. At a minimum, LAs must 
count participation using data collected at census date. LAs are therefore free to 
continue to utilise systems that they may already have in place that go beyond 
this and are in fact more reflective of participation. Where this is happening we 
would strongly welcome any case studies as to how this might work more widely. 
We are concerned that there should, where possible, be more budgetary stability 
in the system for providers but recognise that local practice does not always 
make this an option. 

In order to support a genuinely participation-led approach, all LAs must also 
adjust budgets to reflect fluctuations in participation within the financial year, across 
all sectors. Providers will need to know as early as practical the effect that the 
new adjustment will have on their budget. For the maintained sector this may 
be enough and the actual adjustment to the budget can take place later as a 
‘wash-up’ at the end of the year. PVI providers however have different needs. 
Providers need to pay staff monthly and need to have the cash to do so. It is 
completely unreasonable that a provider should rely upon an overdraft at any 
stage as a result of payment schedules of LAs. LAs therefore must consider how 
they will notify providers of adjustments to budgets and how they will pay providers 
the adjusted budget so that the provider remains viable and does not have 
cashflow difficulties. 

In addition, LAs must provide all providers with an indicative budget at the beginning 
of the financial year which broadly reflects anticipated participation. To achieve this 
they will need to estimate take up of the free entitlement. The methodology can 
be determined locally, but experience from the pilot authorities suggests that 
basing figures on the previous year’s census for each of the three terms can be a 
reliable indicator in the majority of cases where known change is not happening, 
and LAs may wish to consider using this as a starting point. Using ‘known’ data 
for the initial allocations is an important factor to those settings receiving actual 
cash as it helps make the process of determining their initial funding profile 
more transparent. 

The indicative budget should be as accurate as possible and therefore LAs should 
also consider if and how they intend to estimate for exceptional changes over 
the coming financial year – such as planned expansion of a nursery. 

11 http://www.dcsf.gov.uk/everychildmatters/earlyyears/localauthorities/lapractice/entitlement/ 
sffundingresources/sffresources/ 



42 Implementing the Early Years Single Funding Formula – Practice Guidance


7.14 Counting and adjusting in North Yorkshire 
There will be a termly count of pupils on the same date for both maintained 
and PVI settings, based upon the number of hours the child is registered to 
attend in the week of the count. Indicative funding allocations will be based 
on the count for the previous year, and these will then be adjusted for the 
count of the actual year in question. 

Funding will not be deducted for children who leave immediately after the 
count, but it is expected that settings take children who wish to start after 
the count, providing they still have an available place and providing the 
additional child does not trigger the need for additional staffing. 

Although some LAs had chosen to track start and leaving dates of all children 
and only fund settings when a child is actually attending, North Yorkshire 
argued (and settings agreed) that to introduce such a system for over 400 
early years settings would add considerably to the bureaucratic burden 
on providers. 

PVI settings prefer the continuation of existing arrangements under which 
funding is adjusted each term to reflect the actual numbers of children/hours 
in that term’s count. This reflects current arrangements, except that settings 
support a modification to introduce monthly rather than termly payment. 

Schools prefer their funding to be fixed at the beginning of the financial year 
and not adjusted during the year. Schools’ budgets will therefore be adjusted 
at the end of the year, based on participation levels during the year. 



Implementing the Early Years Single Funding Formula – Practice Guidance 43


8.Impact,TransitionandReview
LAs must: 

Undertake an impact assessment of the effect of the new formula for 
every setting;
Ensure settings fully understand the basis on which they will be funded,
including the basic rate and any supplements that will apply.
LAs should: 

Look for possible unintended consequences of the new formula for every setting 
such as changes of provider behaviour in response to the new funding regime; 
Consider the interaction between the formula and other policy changes 
including to school admissions and in relation to other early years initiatives;
Identify where exceptional circumstances mean there is a clear argument for
additional funding to support sufficiency and sustainability – and be able to
show there are clear reasons for its use;
Allow time to test out any changes to administrative and data collection
processes as part of the EYSFF;
Not see the introduction of the EYSFF as the end of the process, but review it
periodically as a matter of good practice;
• Ensure their EYSFF is widely available.
LAs must not:
Use the Minimum Funding Guarantee to allow funding for maintained settings 
to continue at current levels irrespective of actual participation in the long term; 
Implement transitional arrangements which require more than 3 years for
settings to reach the level of funding determined by the EYSFF.


44 Implementing the Early Years Single Funding Formula – Practice Guidance


8.1 Impact 
The introduction of the EYSFF may create winners and losers in terms of funding 
levels. This will depend, amongst other things, on the levels at which base rates 
and supplements are set, and whether or not additional funding has been added 
to the overall early years funding level. 

All of the pilot authorities have undertaken full impact assessments to determine 
the extent of such change in implementing their EYSFF, and have shared the 
outcome with their providers through the consultation process. In a number of 
cases, the outcome of the impact assessment and of subsequent consultation 
has led to changes in the proposed EYSFF, and a further review of the impact 
assessment, which was again shared with providers before implementation. 

Impact assessments will need to be undertaken at the earliest opportunity, 
shared with all settings, and explained fully. In carrying out the financial impact 
assessment LAs should ensure that: 

There is consistency in content, data and presentation of the assessment to all settings; 
The impact assessment for all settings is included in the consultation process 
undertaken in respect of the implementation of the EYSFF; 
The cost of any transitional/protection arrangements (see below) is identified 
clearly in the assessment, together with any proposals to fund such costs, 
including the timescales by when all settings will be on the same funding basis; 
The impact on settings which are significant to the LAs sufficiency duty is 
well understood; 
The impact assessment is reviewed regularly to reflect the latest iteration of 
the formula. 
The greatest impact in the pilot authorities has been on the maintained sector, 
particularly where place-led funding was used, and where occupancy levels have 
previously been low. In addition, moving to participation-led funding can add to 
the funding shortfall in circumstances where schools have allowed children to 
take advantage of long ‘lead-in’ times following admission. However, for the PVI 
sector which has always been participation-led funded, the impact has generally 
been positive. 



Implementing the Early Years Single Funding Formula – Practice Guidance 45


Where there have been significant shifts in funding, pilot authorities have put in 
place appropriate transition measures – which are covered in more detail below – 
to ensure that a setting does not see a sudden fall in funding levels, whilst also 
ensuring that transition is carefully managed to ensure their continued viability 
and sustainability of the setting. In some cases, this has been achieved through a 
gradual reduction in their funding levels over a three year period. In some pilot 
authorities additional funding has been allocated to early years from total DSG 
levels. Such increases have both permitted increases in the level of funding for PVI 
settings to a level nearer to that of maintained settings, and have reduced the need 
for protection for the maintained sector (See section 7.7 for further discussion). 

8.1.1 Wider factors for consideration in the impact assessment 
Impact assessments must take account of the fit with and impact on other early years 
initiatives. Two other significant early years initiatives are being introduced or 
rolled out from September 2009 and LA’s must take account of these changes: 

The free entitlement for three and four year olds is being extended from 
12.5 to 15 hours per week, to be delivered flexibly. From September 2009 
it will be available to the 25% most disadvantaged three and four year olds. 
All three and four year olds will be eligible for 15 hours from September 2010; 
The offer to provide free early learning to 15% of the most disadvantaged 
two year olds has been extended further to cover all LAs. 
LAs must use the impact assessment process to make sure that the implementation 
and operation of the EYSFF supports the development of these policies and the 
objectives behind them – and does not detract from them. 



46 Implementing the Early Years Single Funding Formula – Practice Guidance


8.1.2. Local authorities also need to consider the interaction with 
schools admissions as part of the impact assessment. 
Schools admissions policies and processes, including issues such as one point of 
entry, early admissions, and late admissions, have been an important consideration 
in implementing these new EY initiatives. LAs may therefore wish to consider: 

The impact of changes to their admissions policy: changes to admissions 
arrangements can affect the pattern of demand for nursery places in both the 
maintained and PVI sectors and, consequently, the level and predictability of 
providers’ funding levels. In considering this impact, LAs should be aware that 
in response to the Rose Review of the Primary Curriculum, the government has 
accepted that it should become the norm for all children to enter school in the 
September following their fourth birthday, but have also committed to enabling a 
child to access the equivalent place (up to 25 hours) in a PVI setting or maintained 
nurseries from 2011.12 
The wider impact on the local market of participation-led funding, and in 
particular whether participation-led funding will provide an incentive for 
schools to admit children earlier, thereby reducing the potential market for 
PVI providers. 
8.2 Transition 
Using the impact assessment to understand which settings are to experience 
changes in funding levels as a result of the EYSFF, the pilot LAs have built 
transitional mechanisms into their formulae. 

The favoured approach of the pilot authorities to transitional protection has been 
a phased transition to the new funding levels over a two or three year timescale, 
allowing settings time to adjust to the new funding level. It should be remembered 
that transitional protection is only a temporary measure and that there must be a clear 
plan over no more than three years to move a setting gradually to its new funding 
levels under the EYSFF. 

12 
In response to Jim Rose’s Primary Curriculum Review on 30 April 2009, the government accepted the 
proposal that children should ideally start school in the September immediately following their fourth 
birthday, possibly on a part-time basis for some children, but with parents having freedom to choose up 
until compulsory school age (which starts the term after a child turns five). Two thirds of local authorities 
already operate September entry admissions policies which are in keeping with this commitment but a 
number of authorities may be anticipating having to make changes to their admissions for 2011. In response 
to Rose, the government also recognised that not all parents wish their child’s early years experience to 
take place in a school setting and therefore committed to funding for full time provision (up to 25 hours) 
for those children whose parents did not opt to start reception at this stage. At the time of publication, 
the government’s implementation plans for this policy have not been finalised but they will be set out 
in autumn 2009. A copy of the Report and the Written Ministerial Statement can be found at 
http://www.dcsf.gov.uk/primarycurriculumreview/ 



Implementing the Early Years Single Funding Formula – Practice Guidance 47


It should be noted that MFG can also offer some transitional protection to schools, 
but this is presently under review as a part of the wider DSG review, and should 
not therefore be relied on as a simple solution to the transitional issue. Some of 
the pilot LAs have excluded early years from the MFG. 

Some of the pilot authorities are also offering other forms of non-financial support, 
such as helping providers to re-shape their services to limit the impact of the 
changes, or providing support in business or financial planning, over the transition 
period. Indeed, such measures can be of more benefit in the longer term. 

8.3 Review 
The introduction of the EYSFF should not be seen as the end of the process. 
The formula will need to be kept under review as a matter of good practice, 
but in the first few years of the formula, this is especially true. The impact of the 
formula over the first year should be monitored and if changes are required, 
then these should be recognised in time to consider and consult upon change 
for 2011. The way that it was envisaged that the formula would work and the 
way that it actually works could be different and the earlier that changes can be 
made, the better for providers. 

To aide this review, LAs should make their EYSFF widely available once finalised. 
This will enable providers from across the spectrum to better highlight any 
issues, should they exist. 

Further details on both impact assessment and transition are set out in 
Appendix 7. 



48 Implementing the Early Years Single Funding Formula – Practice Guidance


GLOSSARY


Term Stands for Description 
ACORN ACORN is a leading geo-demographic 
tool used to identify and understand 
the UK population (competitor to 
MOSAIC – see below). 
Aspirational 
Costs 
Costs which reflect a desired cost level 
rather than the actual current cost level. 
AWPU Age Weighted 
Pupil Unit 
A factor used in local authority funding 
formulae to distribute different amounts 
of funding for pupils of different ages. 
CEL Central 
Expenditure 
Limit 
The maximum amount of expenditure 
that can be retained by the local 
authority from the Schools Budget for 
central items without gaining the 
approval of the Schools Forum. 
Cliff Edge Any situation where a formula creates a 
significant change in the level of funding 
as a result of a minimal difference in the 
characteristics of the provider. 
Code of Practice Statutory guidance on the free 
entitlement, to which local authorities 
must have regard – draft revised version to 
be consulted upon in Autumn 2009, with 
final implementation September 2010. 
Cost 
Apportionment 
The apportionment of the costs relating 
to a single resource or activity to the 
multiple users of the resource or activity 
on an agreed basis. 
Deprivation Funding to support children from 
socially deprived backgrounds so as to 
promote their opportunity to achieve 
at equivalent levels to other children. 
Dividend A distribution of the profits of a business 
to its owner(s) in proportion to their 
share in the ownership of the business. 



Implementing the Early Years Single Funding Formula – Practice Guidance 49


Term Stands for Description 
DSG Dedicated 
Schools Grant 
The ring-fenced grant from DCSF to local 
authorities covering funding delegated 
to schools, and other provision for pupils 
such as Pupil Referral Units and early 
years education in Private, Voluntary 
and Independent settings. 
Early Years 
Abatement 
Factor 
An amount of money which would be 
deducted from school allocations for 
nursery classes to reflect funding now 
being delivered through the EYSFF, 
rather the schools funding formula. 
EYC Early Years 
Census 
The annual collection of information 
from each local authority on pupils 
accessing the free entitlement in private, 
voluntary and independent settings. 
EYSFF Early Years 
Single Funding 
Formula 
The agreed acronym for the new 
single formula. 
Flexibility The free entitlement is being extended 
to 15 hours, offered flexibly from 
September 2010. Interim Guidance on 
the extension of the free entitlement and 
the definition of flexibility is available at 
www.everychildmatters.gov.uk/earlyyears/ 
lapractice/entitlement/ 
FTE Full Time 
Equivalent 
DSG funding is based on the number of 
full-time equivalent pupils. Where a pupil 
is not in full time education the purpose 
is to reflect the amount of provision they 
are taking up for funding purposes. 
IDACI Income 
Deprivation 
Affecting 
Children Index 
A supplementary index to the IMD 
measuring income deprivation amongst 
children. 



50 Implementing the Early Years Single Funding Formula – Practice Guidance


Term Stands for Description 
IMD Index of 
Multiple 
Deprivation 
IMD combines a number of indicators 
across economic, social and housing 
issues into a single deprivation score for 
each small area in England. This allows 
each area to be ranked relative to one 
another according to their level of 
deprivation. 
Impact 
Assessment 
An assessment of a change to each 
individual setting within a LA. For example 
the financial impact or pupil number 
impact and to also consider any benefits 
there may be. 
ISB Individual 
Schools Budget 
The sum of the delegated budgets of all 
schools in a LA. 
Management Fee A fee levied by an owner of a business 
in payment for services provided to the 
business or by a head office of a business 
on a subordinate part of the business in 
payment for services provided by the 
head office function. 
MFG Minimum 
Funding 
Guarantee 
A guaranteed increase for a school in 
year-on-year funding per pupil where 
pupil numbers are constant. For the 
current funding period (2008-2011) 
this is 2.1% per annum per pupil. 
MOSAIC A market-leading consumer segmentation 
product which classifies all 24 million 
UK households into 11 groups, 61 types 
and 243 segments (competitor to ACORN 
– see above). 
NCMA National 
Childminding 
Association 
The professional association 
representing childminders. 
NDNA National Day 
Nurseries 
Association 
The professional association 
representing day nurseries. 



Implementing the Early Years Single Funding Formula – Practice Guidance 51


Term Stands for Description 
Outlier A value at the outer ends of a range of 
values and which may not be consistent 
with the other values in the range. 
Participation The level of attendance at a setting on 
which funding under the free 
entitlement is to be based. 
Perverse 
Incentive 
A feature of the formula that provides a 
reward for taking a future action that is 
at variance with or even the opposite of 
that intended, and/or that promotes 
inefficiency. 
PLA Pre-school 
Learning 
Alliance 
The professional association representing 
sessional pre-schools. 
PVI Private, 
Voluntary, 
Independent 
The different categories of childcare 
providers other than those in the 
maintained sector. 
Schools Budget The sum of funding from the DSG plus 
Learning and Skills Council for post 16 
education plus any other funding the 
LA choose to add which must be used 
for purposes prescribed in regulation 
for education. The early years funding 
for the free entitlement is part of the 
Schools Budget. 
School Budget 
Share 
The funding provided to a school under 
the terms of the local authority’s school 
funding arrangements. 
Sufficiency A LA’s obligation to ensure that sufficient 
places exist to offer parents provision 
under the terms of the free entitlement. 
Supplement An additional payment to a setting 
which reflects a particular characteristic. 



52 Implementing the Early Years Single Funding Formula – Practice Guidance


Term Stands for Description 
Sustainability The ability of a setting to remain 
financially viable. 
Windfall Gain An unexpected and significant gain from 
a change in the funding arrangements 
which cannot be justified. 
Transitional 
Arrangements 
Arrangement put in place to ensure 
that the transition from the current 
funding regime to the single formula is 
manageable for all or the large majority 
of settings. 



Implementing the Early Years Single Funding Formula – Practice Guidance 53


APPENDIX 

APPENDIX 1: Working with providers – 
Frequently Asked Questions 

1. 
Can the free entitlement be offered over two days if parents require 
those hours? 
NO – The free entitlement must be delivered over a minimum of three days as set out 
in the current national parameters for flexibility. 

2. 
My setting is in a church hall and we can only open in the morning and 
could not offer eight hours in one day. Does that mean that I cannot 
claim funding? 
NO – The requirements state maximum hours that a parent can claim for one day 
but if you are open for shorter periods, that is fine and you can still claim funding. 
You can also encourage parents to take more days. 

It is a LA’s responsibility to ensure that there are enough settings in the borough 
offering different packages for parents. 

3. 
We are a nursery and allow parents to just access free entitlement, 
but only in the mornings. Can we continue to do this? 
MAYBE – Each setting will need to offer a package of provision that is reflective of 
parental demand. Whilst we do not expect a setting to be able to meet the needs 
of every individual parent, we do want them to shape their offer in a way that is 
responsive to the needs of most. 

4. 
I am a Network Childminder. Can I offer the free entitlement as part 
of my service? 
YES – As long as you meet the basic criteria set out in the Code of Practice and any 
delegated conditions the LA may have, then you are encouraged to offer the free 
entitlement as part of your service. 

5. 
We are a nursery class. Can parents have some sessions in our class and 
some in a local pre school or nursery? 
YES – Parents can, if a school can offer this flexibility, mix between schools and 
private providers. However, the entitlement can only be claimed across a maximum 
of two settings. 



54 Implementing the Early Years Single Funding Formula – Practice Guidance


6. 
What does ‘free at point of entry’ mean? 
That the free entitlement should be just that – free. A parent, whether they are just 
taking up the free entitlement or also purchasing additional hours, should not be 
charged, required to pay a deposit, or any top up fees for the first 12.5 hours 
(rising to 15 in 2010). 

7. 
We are a nursery and we take the funding off the fees. Can we still 
do this? 
NO – the funding is not a subsidy, it is to deliver a free place. This is wrong. Your billing 
must be clear and show that the parent has accessed free entitlement. 

8. 
If a parent is going to use our nursery for more hours than their 
free entitlement can we charge a deposit? 
YES – But only in relation to the additional hours. Your policy should be clearly 
communicated. 

9. 
I am a childminder. Do I have to show the free entitlement as part of 
my bill? 
YES – If you are offering the free entitlement it must be clear which hours are free. 

10. Our setting is offering the free entitlement over a lunch time. Can we 
charge for the meal? 
YES – But it cannot be a condition of access. Parents must have a choice. So you will 
need to allow the parent the opportunity to provide a pack lunch if they prefer. 

11. Is there going to be a head count day for each term? 
YES – this will be the department’s census day for the term. These days should be 
used as a minimum, but where a LA already has systems in place that are more 
representative of participation across all sectors, it can continue to use these. 
We are keen to ensure that there is stability of budgets as well as consideration 
of participation. 

This is discussed further in Section 7. 



Implementing the Early Years Single Funding Formula – Practice Guidance 55


12. Will children be funded for more than 38 weeks a year? 
Each child will be funded for 12.5 hours, rising to 15 hours from 2010, over 38 weeks a 
year. In addition, we are considering how best to deliver the free entitlement over more 
than 38 weeks for those parents who wish to ‘stretch’ the offer, as per our commitment 
in Next Steps for Early Learning and Childcare published in January 2009. 

13. I’m a provider. Will I have to fill in termly returns for the council? 
YES – This is the minimum basis that a LA will use in order to count the number of 
children a setting will have to deliver to and use that information to provide indicative 
budgets at the start of the year, and adjust during the year where necessary. 

14. What happens if I suddenly have a lot of children join my setting that 
I had not estimated for? Will I have to wait for the following year to 
receive the money? 
NO – The system allows us to adjust your payments up, as well as down. How each LA 
adjusts payments will be left to local discretion, however, they are strongly advised to 
adjust payments according to the needs of the setting. 

15. We are a nursery class. Will we be funded from the beginning of term? 
If you are delivering the free entitlement from the beginning of term, you will be 
funded from the beginning of term, otherwise the funding will start when the child 
starts your setting. 

16. Will children be eligible for funding as soon as they turn three years old? 
NO – This has not changed. A child qualifies from the 1 September, 1 January or 
1 April following their 3rd birthday. 

17. Will funding be cut for days when a child is sick or on holiday? 
NO – Providers will not be penalised if a child is booked to attend the setting but is 
absent for these reasons. However LAs will want to use their discretion where absence 
is recurring or for extended periods. 



56 Implementing the Early Years Single Funding Formula – Practice Guidance


APPENDIX 2: Developing a Typical Cost Model (TCM) 

The main reason for producing a typical cost model is to use it as a ‘sense check’ 
against your cost survey results. However, it can also be of use where: 

The data gathered from the cost survey is unsatisfactory; 
The cost survey provides information only on current or historic expenditure, 
and may not therefore be suitable to the implementation of the fully flexible 
offer, when the nature of provision, and therefore costs, may change. 
The LA is behind schedule and has not conducted a cost survey by summer 2009. 
This appendix provides guidance for LAs in preparing their own cost models. 
Two examples of typical cost models were also included at pages 33-37 of the 
interim guidance published in 2008. 

Where to start 

The nursery pupil Age Weighted Pupil Unit (AWPU) in the schools formula may 
provide a starting point for developing a cost model for the EYSFF, particularly 
for LAs which have an activity-led schools formula. The AWPU will contain most 
of the information required to calculate a typical cost model for the maintained 
sector. The methodology can be applied to the PVI sector by substituting the unit 
costs which apply in that sector. For example, the average unit cost for a teacher 
would be substituted by an average unit cost for an EYP working in the PVI sector. 

Where LAs do not have an activity-led AWPU, or the AWPU is an inappropriate basis 
for the PVI settings, they can generate similar information by mapping provision 
within and across settings to identify all the inputs which are required to deliver 
the free entitlement. Working with small groups of providers, from all sectors, LAs can 
collect information which is broadly equivalent to the cost survey, including: 

Management and administration costs; 
The qualifications and numbers of staff, how many children are included in 
each teaching group, and how much time is allocated to the free entitlement 
in addition to direct teaching time for preparation, planning and assessment 
for example. This staff profile will be the basic determinant of the overall costs 
for each setting / sector; 
Materials and supplies essential to the delivery of the free entitlement; and 
Premises and maintenance requirements. 
For each of these inputs, LAs will be interested in both: 



Implementing the Early Years Single Funding Formula – Practice Guidance 57


Costs which are applicable uniformly across all types of providers; 
Significant and genuine cost differences between different types of providers. 
These cost differences may eventually be reflected in differential hourly rates for 
different types of providers. 

Where LAs are introducing a quality supplement, this approach can also be used 
to identify criteria which can be used to define quality provision. LAs can also use 
this approach to address cost and delivery issues in relation to the implementation 
of the fully flexible offer by modelling how provision might change with 
increased flexibility. 

Developing Staff Profiles for Different Sectors 

Staff salaries will be a major influence on the overall costs of provision, and 
variations in staff qualifications between settings will be one of the main drivers in 
the variation in overall salary costs. There are three stages in developing the analysis: 

Gathering information about staff profiles and qualifications, and how these 
are related to the delivery of the free entitlement. In other words: how many 
staff with what qualifications and for how many children? 
Attribution of a salary cost to each staff type e.g. based on their qualifications; 
Allocation of the salary costs on a per pupil basis. 
Stage 1: Staff Profiles 

The table below shows the type of information that LA should seek to collect from 
their provider discussions (or from the development of their activity-led AWPU): 

Nursery 
School 
Nursery 
Class 
Full Day 
Care 
Sessional 
Pre-school 
Childminder 
Children per Group 26 26 20 30 3 
Staff per Teaching Group 3 3 4 5 1 
Senior teacher 1 
Qualified teacher 1 
NN School 1 1 
Early Years Professional (EYP) 1 
Qualified (level 5+) 
Qualified (level 4) 1 1 1 
Qualified (level 3) 1 1 2 2 
Qualified (level 2) 2 
Qualified (level 1) 



58 Implementing the Early Years Single Funding Formula – Practice Guidance


LAs should also take account of the statutory requirements for the different sectors: 

For the maintained sector there is a legal requirement for a qualified teacher in 
a nursery class. In addition, a 1 to13 staffing ratio applies to all nursery classes. 
The first person must be a qualified teacher and the next person must have a 
relevant Level 3 qualification in early years or childcare; 
The PVI sector has a staffing ratio of 1 to 8 for three and four year olds, and a 
ratio of 1 to 3 for childminders; 
In most settings it could be argued that, irrespective of the size, there is a need 
to fund a supernumerary in order to undertake other tasks. 
Discussion may identify differences between settings within the same sector – 
LAs should therefore investigate whether the different staff profiles result in 
significantly different overall salary costs when translated into a per pupil amount 
(see stage 3). 

Stage 2: Identifying Salary Costs 

Having identified staff profiles for each sector, a salary cost will then have to be 
attributed to each staff type: 

For teachers, LAs will have to choose a point on the pay scales that is broadly 
representative of the costs in their maintained settings; 
For other staff employed in maintained settings, comparable pay scales for 
nursery nurses and learning support assistants (LSAs) are usually set by the 
LA and should be accessible through HR support; 
For staff employed in PVI settings, salary data is likely to be more difficult to 
obtain and to validate. One option is to map LA pay scales (for staff working for 
the LA in early years settings) to PVI staff contracts / qualifications and calculate 
a set of salary estimates for each qualification standard – this can again be 
validated with PVI settings representatives. 

For all staff costs, LA’s will also need to consider: 

On-costs i.e. National Insurance and other conditions of service such as 
pension contributions and sickness pay. The impact of on-costs is likely to 
be greater in the maintained sector that the PVI sector but should not be 
assumed to be so, especially in quality settings; 
Contracted hours e.g. there are a contractual number of hours for teaching 
staff which may differ to other staff employed within the maintained sector; 


Implementing the Early Years Single Funding Formula – Practice Guidance 59


Holiday entitlement – this may be slightly different for different sectors, and may 
vary according to whether settings are term-time only or open all year round; 
Training and development – this can be included in the staff cost assumptions, 
or specified as a separate cost; 
Hours allocated to the free entitlement – for a teacher in a nursery class, 
for example, all of their time and therefore salary is attributable to the free 
entitlement, but for a full day care setting, only a portion of the total staff 
salary is attributable to the free entitlement. 
Completing this process will provide LAs with the total teaching costs related to 
the delivery of the free entitlement. This can then be translated into an hourly rate 
for the EYSFF (incorporating other costs to be considered later in this appendix). 

Stage 3: Allocating Staff Costs on a Per Pupil Basis 

By adding up the total salary costs and dividing by the number of hours of provision, 
LAs can compare costs between different types of settings, and to determine 
whether it is appropriate to incorporate different rates for different types of 
settings within the EYSFF. LAs may also wish to consider whether to incorporate a 
factor relating to occupancy levels at this stage in order to meet their sufficiency 
and sustainability duty. This approach recognises the difficulty of achieving 100% 
occupancy and therefore reduces the number of children per teaching group, and 
increases the per pupil cost. The occupancy level can be varied by type of setting 
to recognise the differing levels of occupancy typically achieved. 

Other Inputs 

In addition to staffing, LAs will also need to consider whether to include a range 
of other inputs including: 

Element All Settings 
Management Time All costs associated with the management of the free 
entitlement for a setting e.g. headteachers / deputy 
headteachers or managers / deputy managers. 
Administration 
Time 
All costs associated with administration of the free 
entitlement e.g. arranging parent / teacher meetings, 
completing statutory paperwork. 
Supplies and 
Materials 
All costs incurred in providing supplies and materials to 
support the free entitlement e.g. art materials, IT supplies. 
Building Resources Premises related costs including the internal space 
occupied by the setting, outside space, utilities, cleaning 
supplies, maintenance. 



60 Implementing the Early Years Single Funding Formula – Practice Guidance


As with the staff costs, LAs will need to consider variation within and between 
sectors, and to determine when and if different costs should be reflected in their 
EYSFF. In particular, it is important to ensure that: 

Appropriate and transparent salary levels are used; 
Costs are attributed on a participation basis, reflecting only the number of 
pupils receiving the free entitlement; 
No costs are funded through both the EYSFF and through the schools formula. 
Profit 

There may be a temptation for private sector providers not to declare profit or 
for LAs to ‘disallow’ it for the purposes of calculating funding levels. However, 
in the context of a mixed market with significant provision from the private 
sector it is entirely legitimate for providers of all kinds to generate surpluses, 
either to provide a return on their own investment or for future investment and 
this must be included when building a TCM. 

Caveats to Using the Activity Cost Model Approach 

This approach does have two particular caveats in relation to affordability: 

Whether to use ’real’ or ‘aspirational’ costs e.g. should the model include the 
actual staff costs, or a higher rate deemed necessary to attract and maintain 
staff of the appropriate level of qualification and quality? Affordability 
constraints are likely to limit the level of aspirational cost that can be included; 
Whether to apply a cost to ‘free resource’ such as volunteer staff? LAs should 
consider attributing a cost to resource of this kind, as not to do so could mean 
that funding would be insufficient in the event that the free resource becomes 
unavailable. Known affordability constraints may also limit this approach. 


Implementing the Early Years Single Funding Formula – Practice Guidance 61


APPENDIX 3: Deprivation13 

In implementing the EYSFF for the free entitlement for early years, it will be a 
requirement to allocate a proportion of funding based on deprivation – this will 
be a mandatory element of whatever funding formula authorities develop in 
line with regulations. The purposes of the deprivation element of the funding 
formula are: 

To target under-achievement among children from socially deprived 
backgrounds (as identified by LAs assessments of foundation stage outcomes 
for example); 
To allocate additional funding to settings which support children from socially 
deprived backgrounds, to enable them to provide the additional support 
required so as to ‘promote their opportunity to achieve at equivalent levels to 
other children’;14 
To support settings’ efforts to target deprivation appropriately e.g. through 
specialist skills and training, additional staff and increased resources. 
LAs are free to determine: 

How deprivation will be specified and measured; 
How much funding will be allocated to deprivation within their early years 
formula; 
What proportion of children in their authority will benefit from deprivation 
funding; 
How funding will be provided for particular children; and 
The criteria by which settings will access deprivation funding. 
At all times LAs will need to consider what sort of support the funding is 
intended to provide and therefore will need to make an assessment of how much 
is required to enable that support to be properly funded. 

It is in making these choices that considerable variation has been seen amongst 
the pilot authorities: 

13 An expanded version of this note was circulated as part of the local authority update in June and is 
available on the ECM website under the Captured Learning section at 
http://www.dcsf.gov.uk/everychildmatters/earlyyears/localauthorities/lapractice/entitlement/ 
sffundingresources/sffresources/ 

14 Implementation of a single funding formula for early years – Interim guidance for local authorities, 
DCSF, July 2008.asdss 



62 Implementing the Early Years Single Funding Formula – Practice Guidance


Shropshire looked to use its deprivation funding to support the needs of the 
most deprived children in the LA, and also to provide settings with some 
stability in their funding. The LA top-sliced 5% of its early years budget to 
support deprivation, and used a weighting system based on the IMD to ensure 
the children from the most deprived areas received a higher proportion of 
funding. Settings receive a lump sum which reflects the number of children 
from deprived areas, their hours of participation and the level of deprivation – 
this is then fixed for three years and settings are then able to make longer 
term budget decisions to better meet the needs of the children; 
North Yorkshire chose to top-slice 3.5% of its early years budget (consistent 
with the amount allocated through the schools formula) to support its 
deprivation funding. Children at each setting are linked to an IMD score 
by their postcode and the average IMD percentage across all children is 
calculated for each setting. The average percentage is then applied to the 
total number of funded hours for the setting i.e. all settings will receive some 
funding for deprivation but those with the highest cumulative levels of 
deprivation across all their pupils will receive the highest levels of funding. 
In addition to the universal support, settings that are located in the top 
quartile of deprived areas using the IMD receive an additional allocation 
again calculated using IMD scores and hours of participation. The allocations 
are based on children in the setting in the January census; 
Derby decided to mirror its practices in the schools formula for its EYSFF, 
using the IMD to identify children living in the 40% most deprived super 
output areas (SOAs). This enabled it to draw on existing expertise and data 
processing techniques from the schools funding team, as well as giving a 
consistent methodology for early years and schools. An hourly supplement 
is allocated to each child and there are also supplements for English as an 
additional language (EAL), vulnerable children and SEN. The supplements 
are subsequently added to the base rate that each setting receives for each 
child attracting the supplement. 
The experience of the pilot authorities demonstrates that there is not one fixed 
approach which should be followed, nor a single method which should be seen 
as best practice. Instead, LAs should take account of the following points: 

Ensure they have detailed information relating to existing levels of deprivation 
and the impact deprivation has on outcomes and achievement; 
Review the methodology currently used in the schools formula, and work with 
knowledge holders to determine whether it could and should be translated 
to the EYSFF; 


Implementing the Early Years Single Funding Formula – Practice Guidance 63


Work with knowledge-holders on deprivation measures to agree which 
indicators will be used to measure deprivation, particularly if they plan to 
use measures which are not currently being used e.g. in their schools 
funding formula; 
Develop a methodology which balances ease of administration for the LA 
and settings, with a need to target funding where it is most needed; 
Consider carefully whether allocations will be based on pupil counts, or hours 
of participation, or some combination of the two to ensure that funding is 
targeted appropriately; 
Take into account any stability issues in year-on-year funding levels which 
may result from the methodology, for example by applying rolling averages 
rather than single year calculations; 
Be aware that patterns of deprivation can change, and therefore ensure that 
the data is capable of being reviewed regularly and is reviewed regularly as 
new information becomes available; and 
Ensure there is a clear and justifiable basis for any differences in the value of 
deprivation supplements across the sectors and also for differences in the 
processes used to allocate the supplements. 


64 Implementing the Early Years Single Funding Formula – Practice Guidance


APPENDIX 4: Quality Checklist 

Be clear about the inter face with the Graduate Leader Fund (GLF) – Schemes
that recognise staff development or training, or workforce qualifications can
overlap with the Graduate Leader Fund, which is designed to help secure more
graduates to lead practice in full daycare settings in the PVI sector. The GLF can
be aligned with the EYSFF, to support a supplement payable on the training of, 
or recruitment of, graduates. LAs therefore need to think through how this
interface will work.


Be clear about the inter face with standards set out in the local agreement 
(or ‘delegated conditions’) – Delegated conditions have the potential to be used
as an additional measure to drive up standards by clarifying responsibilities and
setting clear expectations. LAs must make sure that any delegated conditions
they have in relation to quality are linked into their basis for a quality supplement
and that both are based on a clear rationale.


Ensure quality assurance schemes are widely known and trusted – LAs should
also be mindful of the impact of using a specific local QA scheme on large
providers who may be operating across many authority areas. We suggest 
that you consider acceptance of any QA schemes which meet the principles
developed by the National Quality Improvement Network (NQIN), available 
at www.ncb.org.uk.


Ensure you have a scheme that will reflect improvements in quality on an
annual basis – Since the introduction of the Early Years Foundation Stage (EYFS)
framework for inspection in September 2008, Ofsted inspectors have put a strong
emphasis on judging the quality of early education and childcare provision, and
do so using a four point scale: outstanding, good, satisfactory or inadequate. 
LA’s may therefore wish to consider this as the basis for any quality supplement.
However, given that the current inspection cycle is not due to be completed until
July 2012, use of the Ofsted rating is unlikely to be applicable without combination
with another measure. LAs should also ensure that quality incentives and rewards
keep pace with settings’ quality improvements.


Ensure that your scheme does not impose additional burdens on providers 
Many providers complain about additional burdens imposed by LAs. 
LAs therefore need to bear in mind that the majority of providers are small
businesses, and that quality or other compliance processes and paperwork
should be kept to a minimum.




Implementing the Early Years Single Funding Formula – Practice Guidance 65


Key Points for Consideration 

1. Do you want to implement a quality supplement? 
2. If no, how are you going to make sure that your formula both supports and 
incentivises quality? 
3. If yes, what measure are you going to use to incentivise improvement – 
how does this fit with your base rate? 
4. What aspects of quality do you want to recognise, and how will you ensure 
the data you collect to measure these aspects is easy to collect and readily 
understandable to providers? 
5. How are you going to prevent major cliff-edges and ensure predicable levels 
of funding? 
6. Are you clear about how the quality supplement fits with other tools for 
ensuring quality in the free entitlement? 
7. How will the supplement be applied, e.g. lump sum, additional hourly rate? 
8. What are the administration arrangements and are you clear about the extent 
of the burden they impose on providers? 
9. What mechanisms are required for ensuring the supplement is spent on 
improving quality? 


66 Implementing the Early Years Single Funding Formula – Practice Guidance


APPENDIX 5: Relationship with the Schools Funding Formula 

LAs will need to ensure that they understand the relationship between their 
EYSFF and their schools funding formula fully, and ensure they identify all 
funding currently allocated to maintained settings for their nursery classes, 
either directly or indirectly. Without this process, there is the potential for double 
funding, particularly if schools receive funding through the EYSFF for activities 
or costs which continue to be funded through the schools funding formula. 

There are two broad options available for LAs in implementing the EYSFF: 

Option one: to disaggregate only the pupil-led elements of the of schools 
funding formula for maintained nursery classes, and to leave the other 
elements within the schools funding formula; 
Option two: to disaggregate all nursery-related funding, or to abate the 
relevant elements of the funding to take account of the nursery class element. 
For the pilot authorities, the predominant choice has been option 1. The main 
exceptions to this are Derby and Rochdale, which have both selected option 2, 
and have included a form of abatement within their schools formula for schools 
with nursery classes. Most of the pilot authorities, however, have used the cost 
data and a similar approach that is inherent in their schools funding formula to 
help shape their EYSFF. Specific examples include: 

Derby chose to ensure that, as far as was possible, all elements of nursery 
education would be funded through their EYSFF rather than their schools 
formula. This included identifying all elements of the schools funding formula 
which allocated funding to nursery provision and ‘scaled back’ the funding 
accordingly. For example, premises-related funding which was allocated on 
space data was scaled back on a proportionate basis, using the number of 
nursery pupils as a proportion of total pupils; 
For settings in Greenwich, the basic PVI hourly rate is higher than the rate for 
maintained settings, because all maintained sector premises-related costs 
and some administration costs have been retained within the schools formula. 
However, Greenwich has translated the premises-related costs for maintained 
settings into an equivalent hourly rate for purposes of illustration, to demonstrate 
that their approach is transparent, and that cost differences can be understood 
by all settings. The LA intends to undertake additional work to disaggregate 
premises costs from the schools formula during the transitional phase for 
the EYSFF; 
North Somerset decided to transfer the directly related nursery funding 
elements in the main schools formula to the EYSFF, and made no further 
attempt to disaggregate other elements such as lump sums, other than 


Implementing the Early Years Single Funding Formula – Practice Guidance 67


funding for social deprivation. A sum equivalent to the funding required 
to meet the cost of social deprivation in maintained nursery classes was
transferred from the mainstream formula to the EYSFF budget;


In Rochdale, the base rate for all sectors for the EYSFF includes an element of 
expenditure previously funded through the main formula for primary schools. 
Rochdale has therefore included an ‘Early Years Abatement Factor’ within its 
schools formula for schools with nursery classes. This is similar to the sixth 
form abatement used to avoid double-funding of sixth-form education for 
secondary schools. The ’Early Years Abatement Factor’ will eliminate the 
double-funding inherent in some areas of funding e.g. management, small 
schools, floor area, grounds area, rates etc. In practice, this will mean that a 
proportion of the total funding allocated to each school with a nursery class 
through the schools funding formula will be deducted, but replaced by the 
EYSFF allocation to that school. 
Whichever method is chosen, LAs need to make it clear and very transparent 
exactly what funding is being allocated to early years provision and that double 
funding is not occurring and ensure that: 

Personnel with expertise in the structure of the schools funding formula are 
involved in the development of the EYSFF; 
Administration and information requirements are considered both as a cost for 
settings in supplying additional information, and as a burden on the LA itself; 
Maintained settings do not receive additional funding through ‘hidden’ 
elements of the schools funding formula; 
Their approach balances simplicity with equity i.e. no settings benefit or are 
penalised unfairly; 
Their approach is transparent and can be replicated from year-to-year; 
No costs are either unfunded or double-funded; 
Particular attention is paid to maintained settings which also host Children’s 
Centres, or which are the lead agency for Children’s Centres; 
Particular attention is paid to maintained settings which receive income from 
PVI settings for use of space – it will be important to ensure that the process 
does not penalise / reward either setting unfairly; 
Existing and unjustifiable funding differences between maintained and PVI 
settings are not simply replicated; 


68 Implementing the Early Years Single Funding Formula – Practice Guidance


There is an opportunity to review the impact of their choices during the 
transitional period for the EYSFF; 
Implications for MFG protection within the schools funding formula are 
considered, and that there is clarity and transparency about how the MFG 
will work with the EYSFF. However, it will be important to remember that the 
future of the MFG is currently under consideration as part of the wider DSG 
Review that is taking place over the course of 2009/10. Whilst LAs should 
consider how the MFG will impact on the implementation of the EYSFF, they 
will need to bear in mind that its future in its current format is not guaranteed. 


Implementing the Early Years Single Funding Formula – Practice Guidance 69


APPENDIX 6: Nursery Schools 

For those LAs that have separate nursery schools, incorporating them into EYSFF 
has presented particular challenges. These challenges are generally as a result 
of historic differences in funding. Maintained nursery schools also tend to have 
higher management, administration and premises costs than maintained nursery 
classes, principally because these costs are not shared across the higher number 
of pupils that are found in typical infant/primary schools. The experience of the 
pilot authorities can be summarised as follows: 

The nursery school ‘context’ in each LA played a significant role in determining 
how the EYSFF was calculated and applied. The LAs needed to consider the 
role of the schools, for example, if they were deliberately located in areas of 
high deprivation and were meeting a particular need in those areas. If that 
were the case, higher levels of funding should be driven by a combination 
of basic entitlement and deprivation factors; 
Most of the pilot authorities found that nursery schools needed to be funded 
at a higher rate due to their higher costs and unavoidable costs such as the 
legal requirement to have a Headteacher; 
The pilot authorities are still generally funding nursery schools at a higher 
rate than other settings, either directly through an enhanced hourly rate, or 
through lump sums and/or sector-related supplements, although this is not 
universally the case; 
The pilot authorities have taken time to work with their nursery schools on 
an individual basis to help them prepare for the new funding arrangements; 
The pilot authorities have considered other options for reducing costs 
(management costs in particular) as part of the development of the EYSFF and 
other developments in Early Years Education e.g. co-location with Children’s 
Centres, and/or mergers or federations with other maintained schools. 
The following examples from the pilot authorities illustrate some of these 
experiences: 

North Yorkshire has just three nursery schools, all of which are linked to 
Children’s Centres. Funding was previously on a place-led basis, so the 
transition to a participation-based EYSFF has presented particular challenges. 
For the three nursery schools, the average hourly rate is approximately 36% 
higher than the rate for maintained nursery classes and independent schools, 
and 50% higher than the rate for PVI day nurseries. The nursery schools also 
receive funding for their Children’s Centre functions, some of which will cover 
shared costs e.g. management roles and premises. To support the schools 
which are losing funding under the EYSFF, the LA has introduced a three-year 
transitional arrangement, which moves settings from the current funding to 
the new funding in equal step-changes by 2011/12; 


70 Implementing the Early Years Single Funding Formula – Practice Guidance


Derby had recently reviewed places in nursery schools and also moved 
away from place-funding in maintained settings. It was therefore relatively 
straightforward to develop an hourly rate for nursery schools. The hourly 
rate reflects premises, teaching and management costs, and also takes into 
account other income received by maintained settings. For maintained 
nursery schools, the hourly rate was 75% higher than the rate for maintained 
nursery classes, and 50% higher than the rate for full day care settings. 
In determining funding for nursery schools and/or Children’s Centres under the 
EYSFF, LAs should: 

Ensure that the costs of maintained nursery schools have been examined fully 
as part of the cost analysis; 
Identify any existing differences in funding between individual nursery schools 
prior to the development of the EYSFF; 
Ensure that all links with the schools funding formula are properly understood, 
and that all relevant funding sources are reflected in the EYSFF; 
Review places and participation across the maintained sector – it may be 
necessary to address surplus place issues as part of the development of 
the EYSFF; 
Ensure, in all cases where the outcome of the EYSFF is a higher rate for 
nursery schools than other forms of provision, that there is a clear rationale 
for doing so; 
Avoid large lump sum supplements where possible, particularly if they are not 
cost-reflective, and simply perpetuate existing funding differences; 
Work closely with any setting that will see substantial reductions in their funding. 
Consider a range of possible solutions to mitigate the impact of reducing 
funding and ensure the presumption against closure of nursery schools is fully 
supported e.g. shared management costs, measures to increase participation 
levels, co-location with Children’s Centres and/or other services. 



Implementing the Early Years Single Funding Formula – Practice Guidance 71


APPENDIX 7: Impact, Transition and Review – including Learning 
from the Pilots 

The introduction of the EYSFF may create some turbulence in providers’ funding 
levels. For those LAs which previously funded their maintained provision on 
places, the impact of the change to participation-led funding alone is likely to be 
significant. Other fundamental changes, including bringing all settings within a 
single funding mechanism, and the introduction of specific supplements such as 
deprivation funding, are also likely to have an impact on settings’ funding levels. 

LAs must therefore undertake an impact assessment of the effect of the EYSFF 
for every setting. This assessment could take different forms, depending on the 
degree of turbulence expected, and could extend beyond the immediate early 
years arena if there are changes to other DSG-funded activities at the same time 
(such as a change to the formula for allocating school budget shares). Authorities 
should model the impact of each specific change that they make, distinguishing 
for example between the impact of the formula change, the impact of the 
introduction of fifteen hours of free entitlement, and the impact of any other 
change that may be considered. The overall aims of the assessment should include: 

Giving assurance that the overwhelming majority of settings will be able to 
cope with changes caused by the new arrangements; 
Identification of which settings may be affected adversely by the changes, 
and to consider whether or not additional support may need to be provided; 
Consideration of whether any settings will benefit to an unreasonable extent 
from the changes, and to consider whether such benefit should be limited; and 
Consideration of the effect on capacity and parental choice. 
All the implementing authorities in the study have undertaken impact assessments 
in implementing their EYSFF, and have shared the outcome with their providers 
through the consultation process. In a number of cases, the outcome of the impact 
assessment and subsequent consultation has led to changes in the proposed EYSFF 
and a review of the impact assessment, which was again shared with providers 
before implementation. 

Where there have been significant shifts in funding, pilot authorities have put in 
place appropriate transition measures – which are covered in more detail below – 
to ensure that a setting does not see a sudden fall in funding levels, but that the 
transition is carefully managed to ensure their continued viability and sustainability. 

In some cases, this has been achieved through a gradual reduction in their 
funding levels over a three year period. In some pilot authorities additional 
funding has been allocated to early years from total DSG levels. Such increases 



72 Implementing the Early Years Single Funding Formula – Practice Guidance


have both permitted increases in the level of funding for PVI settings to a level 
nearer to that of maintained settings, and have reduced the need for protection 
for the maintained sector. 

Greenwich 

Greenwich has undertaken a detailed assessment of the impact of the EYSFF, 
and has implemented a two-year transition arrangement designed to ensure 
that all issues are resolved at the start of the next three year budget cycle. 

The impact assessment was made more complicated as a result of the LA’s long 
history of funding additional hours/full-time places for nursery-age children. 
As a first step to addressing this issue, new criteria for accessing additional hours 
have been developed, and there will be transition over two years to enable 
full-time places to be better targeted to specific need. 

The impact assessment also demonstrated that maintained nursery classes would 
see the biggest reductions in their funding, primarily as a result of moving from 
place-led to participation-led funding. These settings will be protected from the 
impact of the change through a guarantee of at least 80% of their 2008-09 
allocation in 2009-10, and 75% in 2010-11. From 2011-12 they will receive the 
actual funding level calculated by the EYSFF. 

Additional funding of around 1.7% of previous EY funding levels was calculated to 
be required in the PVI sector to support the new funding levels which was found 
from headroom in the DSG. No other transitional arrangements were therefore 
required for this sector. 

In very exceptional cases, where the EYSFF impacts on the sustainability provision, 
it may be necessary to provide further support and Greenwich are considering 
these cases on a setting-by-setting basis. 

North Somerset 

The LA based its EYSFF on a needs-based, activity-led approach. The overall 
model adopted was calculated to cost 8.5% more than the existing funding for 
the PVI sector, taking into account the new supplement for social deprivation. 
The Schools Forum supported an increase in the overall early years budget in 
January 2008, for implementation in April 2009, and the LA was then able to 
consult with all providers knowing that the overall level of funding would not be 
an issue. The impact assessment indicated that all PVI settings would receive an 
increase in funding, assuming the same levels of participation as in the previous 
year. As a consequence, there was no need for transitional arrangements for the 
PVI sector. 



Implementing the Early Years Single Funding Formula – Practice Guidance 73


The impact assessment also demonstrated that the maintained sector nursery 
classes would lose funding, and this has led to a change in maintained provision: 

The LA removed surplus places in the maintained sector – all of the schools 
that have nursery classes agreed to reduce the number of places; 
All maintained settings are based on the same multiples of places – 26 – 
rather than the range of different place levels that existed historically; 
The practice of a lengthy lead-in time for three and four year olds under 
which it was common for children not to take up the full entitlement until 
the second term has been ceased; and 
The single point of intake into schools in September of each year has been 
changed so that nursery classes now admit three and four year olds each term. 
North Yorkshire 

The impact assessment highlighted two key issues: 

The maintained sector, and in particular nursery classes, will lose funding 
under the new arrangements, mainly because of the move away from 
place-led funding; 
The impact of the enhanced flexible entitlement on the income of certain settings, 
especially full day nurseries and independent schools generated concern. 
The LA originally wanted transition to the EYSFF funding levels over four years, 
but after discussion with the DCSF, it was agreed to implement a three year 
transitional arrangement. The transitional funding arrangement works as follows: 

In 2009-10 a setting which loses funding will receive the funding determined 
by the EYSFF plus 80% of the difference between the funding it would have 
received under the previous funding mechanism and the EYSFF; 
A setting which gains funding will receive the funding determined by the 
EYSFF less 80% of the difference between the funding it would have received 
under the previous funding mechanism and the EYSFF; 
In 2010/11 the principle will be the same, but the percentages will move 
to 60%; 
In 2011/12 the principle will be the same, but the percentages will move 
to 40%; 
In 2012/13 the EYSFF will apply in full. 


74 Implementing the Early Years Single Funding Formula – Practice Guidance


The greatest impact in the pilot LAs has been on the maintained sector, 
particularly where place-led funding was used, and where occupancy levels 
have been low. In addition, moving to participation-led funding can add to the 
funding shortfall where schools have allowed long ‘lead-in’ times for children. 

As a consequence, the pilot LA’s have built transitional mechanisms into their 
formula to allow a staged progression to the new funding levels. The MFG can 
offer transitional protection to schools, but is presently under review as a part 
of the wider DSG Review and should not therefore be relied on as a simple 
solution to the transitional issue. Some pilot LA’s have agreed to exclude early 
years funding from the MFG calculation. However, for the PVI sector which has 
always been participation-led funded, the impact has generally been positive. 

Finally, the introduction of the EYSFF should not be seen as the end of the process. 
The formula will need to be kept under review as a matter of good practice, 
but in the first years of the new formula this is especially true. The impact of 
the formula over the first year should be monitored and if changes are required 
then these should be recognised in time to consider and consult upon change 
for 2011. The way that it was envisaged that the formula would work and the 
way that it actually works could be different and the earlier that changes can be 
made the better for providers. 



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or order copies from online.publications@teachernet.gov.uk 

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