Last reviewed 2 March 2012

On February 3 the National Audit Office (NAO) published a new report on early years provision.

The report, Delivering the Free Entitlement to Education for Three and Four-Year-Olds, examines the delivery of free education and explores issues around the funding of the early years settings that provide childcare places under the free entitlement scheme.

The report finds that there has been a high take-up nationally of free education places for three- and four-year-olds, but it points out that there are wide variations in both take-up and access to high-quality provision depending on where children live.

The report also looks into whether or not the Government is getting value for money in delivering the free entitlement to early education and finds that there are positive indicators of value for money. However, the report concludes that the Department for Education (DfE) must address variations in take-up, quality of provision and the impact on attainment in later years to achieve a fuller picture and to prove the case for value.

What is free entitlement?

Currently all three and four-year-olds are entitled to 15 hours per week of free education for 38 weeks per year. They are eligible for this free education for two years before reaching the compulsory school age.

The Government first introduced the entitlement for four-year-olds in 1998. Previously, some local authorities prioritised free early education while in other areas free provision was limited. In 2004, the Government extended the entitlement to three-year-olds and in September 2010 it extended it again to its current level of 15 hours per week. It plans to extend the entitlement to disadvantaged two-year-olds from September 2013, and to cover 40% of two year-olds from 2014/15.

Under the scheme, parents choose a local provider and the entitlement should be free at the point of delivery. Parents can pay for additional hours, and some use less than the full entitlement. The scheme is seen as an important element in increasing or enabling attendance by disadvantaged children.

In January 2011, 831,800 children were receiving the entitlement. A further 390,000 four year-olds were in reception classes in primary schools, which children become eligible for in the September after their fourth birthday.

What are the costs?

Providers of the free entitlement include state schools, as well as private, voluntary and independent providers. Local authorities set the funding rates, and the process for paying providers to deliver the free entitlement, using funds provided by the DfE through the Dedicated Schools Grant.

The free entitlement cost an estimated £1.6 billion in 2010/11 and forecast spending has increased to £1.9 billion for 2011/12, reflecting an increase in the entitlement to 15 hours per week from September 2010.

A further 260,000 children per year will be covered by the extension of the entitlement to 40% of two-year-olds. The Government has announced additional funding for local authorities of £64 million in 2011/12 increasing each year to £760 million in 2014/15 to fund this additional provision.

The benefits of free entitlement

Achieving objectives

The NAO report states that a high national take-up rate for early education has been sustained as the DfE has expanded the entitlement. However, it also reports wide variations in take-up between local authorities.

According to the report, the number of children taking up some free early education has increased with 1.2 million three- and four-year-olds benefitting from some free education in January 2011, 8% more than in 2008.

In addition, the DfE has sustained a take-up rate (take-up as a percentage of the three- and four-year-old population) of 95% since 2008, despite an increasing eligible population in that period. They note, however, that this figure is boosted by the high participation of four-year-olds in reception classes, which is not part of the free entitlement.

The variation noted by the NAO between local authorities amounts to a range of uptake scores between 62% to 102% with some of the differences reflecting the provision of entitlement places for children travelling between authorities.

Take-up for children from the most disadvantaged families is also lower than overall take-up.

According to the DfE’s survey of parents, the take-up rate among disadvantaged three- and four-year-olds was nine percentage points lower on average across 2008 and 2009 than for other children.

Quality of take-up

The NAO has found that the quality of providers offering the entitlement has been sustained overall since 2008/09 but access to high-quality provision varies depending on where children live.

As evidence the NAO points out that in 2008/09, 78% of Ofsted inspection judgements were good or outstanding, following the introduction of the Early Years Foundation Stage, and 79% in 2010/11.

However, the percentage of non-maintained providers receiving good or outstanding inspection judgments rose from 75% (2008/09) to 81% (2010/11), while the percentage of maintained providers receiving good or outstanding inspection judgments was 84% in 2008/09 and 75% in 2010/11 (this figure partly reflects a change in the inspection regime since September 2010).

For each local authority, the percentage of good or outstanding provision in March 2011 ranged from 64% to 97%. Areas of highest deprivation were less likely to have high-quality provision.

Improvements in children’s development

Children’s development as measured at age five has improved, the NAO report, but results at age seven have not.

Nationally, at age five, the NAO reports that 59% of children achieved a good level of development in 2010/11 compared with 45% in 2005/06. The gap in outcomes between the lowest achievers and their peers has also narrowed and taken together these seem to suggest a positive effect from widening early years entitlement.

The NAO report states that the Government did intend that the entitlement would have lasting effects on child development throughout primary school and beyond but there is no real evidence for this lasting effect as yet. National Key Stage 1 results have shown almost no improvement since 2007, so it is not yet clear that the entitlement is leading to longer-term educational benefits.

Funding arrangements

The NAO found that local authorities direct different proportions of national funding to the entitlement, and that these funding arrangements provide only limited incentives for providers to improve quality.

The NAO analysis suggests local authorities allocate between 3.5% and 9.8% of their Dedicated Schools Grant to the entitlement. There was some evidence that those authorities directing a higher percentage of their grant to the entitlement were also those with higher deprivation and those with higher median wages, but there were no links with take-up rates or quality.

The survey of local authorities carried out by the NAO found that 9 out of 10 reported that the funding formula was improving both transparency and fairness. 72% estimated that their formula funding was sufficient to cover costs for all or most providers, but around 10% estimated that funding was sufficient to cover the costs of only a few or none of their providers.

The NAO found that funding formulae were generally complex, that they varied across authorities and at least a third are based on a limited understanding of provider costs.

Value for money

The NAO report concludes that progress has been made against many objectives, which are positive indicators of value for money, including:

  • the entitlement has been extended

  • overall take-up levels have been sustained

  • children’s development as measured at age five has improved.

Despite this progress, the report concludes that a longer-term impact on attainment is not yet visible and that there is not yet any confidence that funding arrangements are efficient. In particular, the NAO makes the point that the Government and its partners do not yet sufficiently understand the relationship between local performance and funding, including how far variations in rates paid to providers reflect legitimate local factors.


The NAO report states that, given existing variations, the DfE needs to understand any significant patterns in the relationships between funding and take-up, quality and availability of provision more clearly so that it can drive value for money in revised funding arrangements and guidance.

It makes the following recommendations.

  • Existing information should be used to confirm which factors in the delivery system drive successful performance.

  • The overall performance of local authorities should be analysed over time to identify where additional funding is not improving take-up.

  • Key data should be identified to support local authorities in benchmarking their own performance with peer authorities.

  • The DfE should work with its partners to develop consistent public information to help parents, providers and others in understanding local performance and holding local authorities to account.

  • The DfE should enhance the information available to help parents choose providers, including considering the frequency of inspection and whether other quality information is sufficiently transparent.

  • Local funding formula arrangements should be simplified and revised formulae should be developed to incentivise providers to meet government objectives to improve quality and support take-up for disadvantaged children.

Finally, the report states that the Government will need to analyse further whether the longer-term benefits anticipated from the entitlement are being realised by:

  • collecting more evidence about the longer-term benefits of early education

  • developing measures to judge the return on investment in the entitlement.

Reaction to the report

The NAO report has been generally welcomed.

The National Association of Head Teachers has said that ongoing investment in early years was essential and that the report adds weight to that evidence, particularly at age five, that it improves outcomes for children, particularly those in disadvantaged areas or from disadvantaged families.

The Pre-School Learning Alliance said that the report highlighted the good work that the early years sector was doing but noted a concern that some children may lose the advantage gained in the first few years of school. It also said it was concerned that the report was actually highlighting “structural deficiencies” in the system whereby the take-up of the free entitlement is lowest in disadvantaged families despite the free entitlement scheme being intended to target them.

The Alliance reaffirmed its call for the Early Years Foundation Stage (EYFS) to be extended to the end of Key Stage 1.

Neil Leitch, Alliance Chief Executive, said, "This NAO report is valuable as it reasserts what we in the early years and childcare sector know already, namely that there is a link between high-quality early years provision and children’s developmental outcomes at the age of five.”

Further Information

The NAO report is available from the NAO website.

The Pre-School Learning Alliance response can be found here.