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

Annex B: Methodology for estimating the minimum uplift to sustainable rates to reflect costs of the new real Living Wage rate from April 2026

Overview

1. All funded providers in the private and third sector will receive additional funding to increase staff pay to at least the new real Living Wage rate of £13.45 per hour from April 2026 via minimum uplifts that are applied to all of their current (2025-26) sustainable rate(s). The commitment will also be applied in a fair and sustainable way for childminders who deliver funded ELC.

2. The size of this uplift has been calculated to reflect the estimated average increase in the staff cost element of the sustainable rate required to meet the increase in the real Living Wage from £12.60 per hour to £13.45 per hour.

3. Sustainable rates (for 2025-26) should have been set, in line with the 2025-26 Sustainable Rates Guidance, at a level to allow funded providers in the private and third sector to pay at least the real Living Wage of £12.60 per hour to staff delivering funded ELC.

4. Moving to £13.45 per hour from April 2025 represents a 6.7% increase in the staff costs associated with those workers who were receiving the previous real Living Wage rate of £12.60 per hour. Local authorities will apply at least a 5.2% increase to all of their 2025-26 sustainable rates in 2026-27 in order to fund this increased pressure on the average staffing costs element of sustainable rates

5. It is important to note that staff within these services will likely be on a range of salaries, with some above or below the real Living Wage rate of £12.60 per hour in 2025-26. The minimum uplift approach therefore uplifts the total staff cost element (not just the element of staffing costs covering those on the real Living Wage) of the average sustainable rate by 6.7%.

6. Applying the uplift to the overall staff cost element is expected to provide scope to funded providers to maintain existing pay differentials within their settings.

Estimates for 2026-27

7. It is estimated that total staff costs account for, on average, 77% of total operating costs in day care of children services.

8. For the purposes of estimating the size of the minimum uplift it is assumed that staffing costs represent between 77% of the sustainable rate that these funded providers receive.

9. Uprating the total staff cost element (77%) of the sustainable rates by 6.7% (to reflect the increase in the real Living Wage) results in an increase in the overall rate of 5.2%.

10. In order to support payment of the increased real Living Wage all funded providers in the private, and third sector will therefore receive a minimum uplift of 5.2% to all of the sustainable rate(s) they received in 2025-26.

11. As set out in the guidance, the commitment will also be applied in a fair and sustainable way for childminders, with the minimum 5.2% uplift to 2025-26 rates also being applied to the sustainable rates paid to all childminders delivering funded ELC in 2026-27.

12. Local authorities are responsible for determining the overall sustainable rate for 2026-27 in line with this guidance. The overall sustainable rate(s) for 2026-27 should, in addition to the minimum 5.2% uplift to enable payment of at least the new real Living Wage, be set in line with this guidance. These other, non-staffing cost elements, are assumed to account for, on average, 23% of the sustainable rate.