Funded early learning and childcare 2026-27: guidance for setting sustainable rates

Summary of 2026-27 sustainable rates setting process

• This guidance sets out the approach for local authorities to set sustainable rates for the delivery of funded early learning and childcare (ELC) for 2026-27. It replaces all previous iterations of the sustainable rates setting guidance.
• The Scottish Government is providing local authorities with additional funding of £11 million in 2026-27 to support local authorities to set sustainable rates that enable childcare workers delivering funded ELC in private and third sector services to be paid at least the new real Living Wage rate of £13.45 per hour from April 2026. The Scottish Government is also adding an additional £20 million to the Local Government Settlement in 2026-27, which local authorities can use to fund the real Living Wage increase across adult social care, children’s social care, and for workers delivering funded ELC in private and third sector childcare services.
• Local authorities will pass this additional funding to funded providers through a minimum 5.2% uplift to all 2025-26 sustainable rates. The uplift reflects the estimated increase in the average staff cost element of the sustainable rate required to meet the real Living Wage uplift from April 2026. It is estimated that staffing costs account for, on average, 77% of the provider’s total costs (which we apply to 77% of the sustainable rate).
• The minimum 5.2% uplift will also be applied to all sustainable rates paid to childminders delivering funded ELC.
• The remainder of the sustainable rate, covering non-staffing costs (estimated to account for, on average, 23% of the sustainable rate) will be set in-line with the requirements of this guidance. The overall rates set must also be affordable for local authorities in terms of the budgets available. Given the challenging financial position for local authorities, it is recognised that not all will be able to provide an uplift beyond the 5.2%.
• Where sustainable rates for 2026-27 are confirmed after April 2026 local authorities should ensure that any payments to funded providers to support delivery of the real Living Wage uplift are backdated to 1 April 2026.
• This updated guidance reflects the recommendations of the Scottish Government and COSLA Sustainable Rates Review – in particular to introduce greater standardisation in the rate setting process and to build on the progress made by local authorities in 2025-26.
• Full implementation of these changes required more robust and reliable data to improve the sustainable rate setting process.
• To address this, and to improve the data available to inform funded ELC rates-setting by local authorities, the Scottish Government contracted the Diffley Partnership to undertake a new national ELC Costs Survey during 2025.
• The Diffley Partnership’s report and supporting data tables are due to be published by the Scottish Government shortly.
• The Scottish Government and COSLA recognise that it is important that both local and national government take time to consider the ELC Costs Survey report and supporting data carefully in partnership with childcare providers and sector representative organisations. Next steps on the continued implementation of the joint Sustainable Rates Review will be considered by the Sustainable Rates Review Implementation Working Group and set out in due course.
• Local authorities are asked to continue to embed the changes outlined in the 2025-26 guidance within the rate setting process from 2026-27 onwards, including:
  • bringing rates paid to childminders in line with other types of provision;
  • a higher rate for 2 year old provision, recognising the different staffing ratio requirements for this age group; and
  • a separate payment rate for each free meal (to support delivery of the free meal commitment) to improve clarity and transparency for funded providers (and not to provide this as a “top-up” to the sustainable rate).