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

Section 4: A framework for a more standardised approach to rates setting

32. The Sustainable Rates Review recommended a more standardised and simplified approach to rates setting. This is with the aim of minimising any unwarranted variation between the rates set by local authorities (recognising that a certain level of variation is expected in order to reflect differences in local circumstances and costs), including how frequently they are set.

33. This guidance sets out an approach to standardisation which is intended to simplify the rates setting process for local authorities, and to give clarity and greater certainty to funded providers.

34. Whilst there will be greater standardisation and consistency in the approach to rate setting, this is balanced with the need for local authorities to retain discretion and ownership of determining the final rates. This will allow local authorities to, in particular, reflect local circumstances in the final rates being set.

35. A key aspect of standardisation is a more centralised approach to cost collection and analysis, that local authorities can draw on to inform future local rates setting.

36. Local authorities are expected to fully embed the changes outlined in the 2025-26 guidance within the rate setting process from 2026-27 onwards, as set out below.

Timing of rate setting

37. Local authorities are encouraged to build on the trend of recent years towards earlier rate setting, to support financial planning by funded providers. An increasing number of local authorities have moved to setting rates from April to align with wider budget setting processes and when the new real Living Wage rate is expected to be paid from each year.

Communication and engagement

38. Local authorities are encouraged to provide clear and timely communications to funded providers with regards to the rate setting process to ensure that providers have greater certainty and clarity on rates to support their financial planning.

39. This should include setting out the local timeline for decisions regarding the rate setting process, and highlighting the opportunities for provider engagement.

40. Consideration should also be given as to where the approach to communication and engagement needs to be adjusted for different types of providers, in particular childminders.

Approach to setting rates for childminders delivering funded ELC

41. Currently, in the majority of local authorities, childminders receive the same rate as private and third sector funded providers. However, in a small number of authorities, childminders receive a lower rate than private and third sector funded providers.

42. In the minority of areas where rates for childminding provision are currently set lower than other types of setting, local authorities are expected to bring rates for childminding provision in line with other types of provision from 2026-27.

43. In addition the Review identified some specific challenges for childminders regarding rate setting and delivery of funded ELC. This includes the need for an adequately supported, blended model of provision in all local authorities; the term time model of paying sustainable rates can be problematic for some childminders; and childminders are often unable to attend meetings or respond to communications during the day.

44. To support childminders local authorities are encouraged to incorporate good practice in commissioning funded ELC from childminders. This includes:

• making payments on a monthly basis;
• supporting blended placements where there is demand from parents and carers for this delivery model;
• providing parents and carers with information on the availability of childminders in the same way that they do for other ELC provision, and;
• seeking childminders’ input on the scheduling of events and meetings to maximise their involvement.

Setting sustainable rates for delivering funded ELC to eligible 2 year olds

45. The cost of delivering funded ELC to eligible 2 year olds is higher than for 3-5 year olds, reflecting the differences in staff ratio requirements, however evidence on the extent of variation has been limited to date. In addition to staffing, other cost drivers that account for higher costs for 2 year olds include: consumables cost with younger children typically requiring nappies, wipes, and more frequent cleaning, adding to operational costs; space and layout constraints, with physical limitations preventing settings them from maximising staff efficiency, especially when caring for younger children; and more specifically specialist support, with greater intensity of care required for 2-year-olds, including personal care and supervision, which can require additional staff beyond mandated ratios.

46. The majority of local authorities pay higher rates for 2 year olds, and local authorities have made significant progress in this area. For example, in 2020-21, 16 Local Authorities paid a higher rate to settings delivering funded childcare services for eligible 2 year olds. That number has increased to 30 local authorities in 2025-26 who now pay a higher rate for settings providing childcare for eligible 2 year olds.

47. In the minority of areas where a higher rate for 2 year old provision is not currently set, local authorities are expected to set a higher rate for 2 year old provision from 2026-27, recognising the higher costs involved in delivery to this age group.