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

Section 2: Principles for the sustainable rates setting process

25. The following principles should be applied when setting sustainable rates:

• Local authorities and funded providers should approach the sustainable rates setting process with a focus on a high-quality ELC experience for children and their families.
• The rates should be evidence-based, taking account of the cost of providing ELC in a local area based on parameters which are clear and transparent.
• Local authorities and funded providers should work together to be as transparent and open as commercially reasonable when discussing rates and costs.
• In the context of this guidance a ‘sustainable rate’, as set out in paragraph 21 should be read and understood by all parties before rate setting exercises are undertaken.
• Local authorities should clearly set out what is included (and not included) in the support package in addition to the hourly rate.
• Inflationary and real Living Wage increases should be reviewed annually, to understand any changes to these and their impact on costs.
• The sustainable rate setting process should consider return on investment or surplus, whilst recognising that funded hours will generally not represent all the hours a private, third sector, or childminding provider delivers.