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

Introduction

1. The payment of sustainable rates to funded providers in the private, third and childminding sectors is vital to supporting financial sustainability, and is a key aspect of Funding Follows the Child.

2. This updated guidance, which replaces previous versions of the sustainable rates guidance, sets out the process for local authorities to set sustainable rates for 2026-27.

3. The guidance has also been updated to reflect the recommendations of the joint Scottish Government and COSLA Sustainable Rates Review (the “Review”) in particular to introduce greater standardisation in the rates setting process.

Background

4. The Scottish Government and COSLA have issued joint guidance for local authorities to support them to set sustainable rates for private, third sector and childminding providers to deliver funded ELC. Four iterations of this guidance have been published to date:

• April 2019 – original guidance to support local authorities to set sustainable rates from August 2020.
• May 2022 – interim guidance, to complement the original 2019 guidance, for local authorities to set rates in recognition of the challenges of ensuring a sustainable rate given the impacts of the COVID-19 pandemic and the costs crisis.
• March 2024 – updated guidance setting out how the commitment for childcare workers delivering funded ELC in private and third sector services to be paid at least £12 per hour from April 2024 would be delivered through the sustainable rates setting process in 2024-25.
• February 2025 – updated guidance incorporating further changes to support standardisation of rate-setting process, to support delivery of the recommendations of the joint Scottish Government and COSLA Sustainable Rates Review, and setting out the approach to uplifting rates to fund payment of the real Living Wage in 2025-26.

5. In December 2023 the Scottish Government and COSLA published the Sustainable Rates Review. The Review set out a wide ranging programme of reform to strengthen the process for setting sustainable rates.

6. This included updating the sustainable rates guidance, in particular to move towards greater standardisation; and working with local government and funded providers to consider options for obtaining more robust and reliable cost data to ensure a full understanding of the costs of providing funded ELC in different settings.

7. A key principle of the sustainable rates setting process is that it should be evidence-based, taking account of the cost of providing ELC in a local area based on parameters which are clear and transparent. To support this, and deliver the recommendation from the Sustainable Rates Review, the Diffley Partnership were contracted by the Scottish Government to undertake the ELC Costs Survey, with evidence collected during 2025 from providers. The independent report and supporting data tables will be published by the Scottish Government shortly.

8. In 2026-27, the Scottish Government will provide a further £11 million to support local authorities to set sustainable rates that enable staff delivering Early Learning and Childcare in private and third sector commissioned services to continue to be paid at least the real Living Wage. The commitment will also be delivered in a fair and sustainable way for childminders delivering funded ELC. 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.

9. This funding is in addition to £25.7 million of recurring funding to support the real Living Wage uplifts since 2024-25.

10. The Scottish Government and COSLA recognise that local authority consideration of sustainable rates is a key aspect of overall local authority budget-setting ahead of the financial year, and as such local engagement and consideration for 2026-27 will already have taken place in many areas.

Sustainable rates setting for 2026-27

11. This guidance sets out the process for local authorities to set sustainable rates for private, third sector and childminding providers delivering funded ELC in 2026-27. It replaces previous versions of the sustainable rates guidance.

12. It is designed to support local authorities to pass on the additional funding to funded providers to enable payment of the real Living Wage uplift from April 2026 as part of the annual sustainable rate setting process and in line with the approach agreed by the Scottish Government and COSLA for 2026-27.

13. Section 2 (The National Standard for all Early Learning and Childcare Providers) of the Funding Follows the Child Operating Guidance sets out how settings can meet the Fair Work criterion in the National Standard and the ELC real Living Wage commitment. The real Living Wage commitment requirements are also included in Annex A of this guidance.

14. The Guidance builds on the 2025-26 guidance to implement the recommendations of the Sustainable Rates Review.

15. Local authorities are asked to continue to embed the changes, to deliver the Sustainable Rates Review recommendations, 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).

Next Steps

16. The ELC Costs Survey provides a detailed and complex set of new information to inform sustainable rates setting. 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.

17. To support long term reform the Scottish Government and COSLA will also ask the Sustainable Rates Review Implementation Working Group, to consider any specific issues raised in the research, which could inform their future programme of work.

18. New sustainable rates guidance will be published in early 2027 to reflect arrangements for 2027-28.