Funding follows the child and the national standard for early learning and childcare providers: interim guidance - update March 2021

This update sets out the requirements on early learning and childcare (ELC) settings and local authorities from August 2021.

Payment of sustainable rates for the delivery of funded early learning and childcare

Update March 2021

This Annex has not currently been revised for this update to the interim guidance. An exercise to gather evidence of the impact of COVID-19 on the business sustainability of ELC and other childcare providers, and to assess the impact of financial support which has been available, will take place in spring 2021. This exercise in collaboration with the sector will inform future support and any updates to this guidance. 


The payment of sustainable rates to funded providers is vital to supporting financial sustainability, and is a key aspect of Funding Follows the Child.

In April 2019, guidance was published to support local authorities to set sustainable rates for funded providers in the private and third sectors, including childminders, from August 2020. This was produced based on feedback gathered from across the sector, and sets out the principles that should underpin any approach to setting sustainable rates; and options for taking forward the process.

The guidance highlights that the rate paid to funded providers should be sustainable and should meet the following:

  • the rate will support delivery of a high quality ELC experience for all children
  • it will be a rate that reflects the cost of delivery, including the delivery of national policy objectives
  • the rate will allow for investment in the setting – staff, resources and physical environment
  • it will enable payment of the real Living Wage for those childcare workers delivering the funded entitlement

The guidance also highlights that from a local authority perspective the rate must be sustainable for authorities in terms of the budgets available, and that the following points are also important to consider when setting a sustainable rate:

  • the rate does not have a detrimental effect on the local authority’s ability to continue to pay for the service in the long-term
  • the wider package of ‘in-kind benefits’, which are separate to the sustainable rate, available to the funded provider as part of their contract with the local authority
  • the rate does not need to be cross-subsidised by parents and carers through charges for non-funded hours

When setting sustainable rates local authorities are expected to continue to use Funding follows the child and the national standard for early learning and childcare providers: guidance for setting sustainable rates from August 2020 as the main source of guidance for this.

Reflecting additional COVID-19 costs in the sustainable rate

The guidance sets out that the sustainable rate should reflect the costs of delivering early learning and childcare. However, ensuring a sustainable rate in the current economic climate is challenging. COVID-19, and the resulting public health guidance for the sector to allow for the safe operation of settings, will have impacted on the costs of delivering funded ELC.

It is expected that, whilst the public health guidance remains in place, the costs of delivering funded ELC will be higher than under business as usual.

Local authorities, in line with the principles for setting sustainable rates, will work with their funded providers to understand the extent to which the costs of delivering funded ELC have changed due to COVID-19.

The impact of COVID-19 on delivery costs may not be uniform across different types of settings and may, for example, reflect differences in the layout of settings, size of settings, and access to outdoor space. Local authorities may wish to consider how best to reflect these differences.

Drawing on the information from providers, and ensuring that they capture all the elements of a sustainable rate as set out earlier in this guidance, local authorities will determine whether additional payments are required to settings for the period whilst the public health guidance still applies to ensure that rates are sustainable.

Where there are additional costs for settings as a result of COVID-19 related measures, there are a number of approaches that local authorities may wish to consider in order to ensure that these additional costs are reflected in payments to funded providers. For example, a temporary top-up could be applied to the sustainable rate, or one-off (or less frequent) payments could be made to cover the costs.

Regardless of the approach applied, local authorities should ensure that there is clear and transparent communication to settings.

Local authorities should also consider the impact that the continuation of contracted, or expected, revenue streams to funded providers will have on supporting sustainability, and how these relate to the overall costs of delivering funded ELC in settings. In particular, it is important to note that many funded providers in the private and third sector will have restructured their business models, and invested in their settings, in the anticipation of delivering an expanded ELC entitlement from August 2020. Lower volumes of payments for the funded hours than had been expected will have implications for the sustainability of these settings.

Payments for delivery of the free meal commitment

As highlighted in section 2 above of this guidance on sustainable rates, local authorities and providers should continue to work towards delivering the commitment that every child receiving a funded ELC session will receive a free meal.

Funding to deliver the free meal commitment will be additional to the sustainable rate for funded providers.

Local authorities must continue to ensure that they are transparent as to the funding being provided to private and third sector providers for the delivery of the free meal commitment.

To ease the administrative burden on providers, a local authority may decide to include these elements in the same payment as the sustainable rate or a local authority may account for it separately. The local authority must make sure, particularly where all elements are reflected in one payment, that there is transparency for providers regarding the separate elements of funding being received.



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