Funded early learning and childcare 2025-2026: guidance for setting sustainable rates

Section 3: Reform of the sustainable rates setting process

24. This guidance further progresses the reforms to the sustainable rates setting process set out in the Sustainable Rates Review.

25. Whilst some of the actions to reform the sustainable rates setting process, such as the cost collection exercise, will take time to fully develop and implement, the Scottish Government and COSLA recognise the importance of also continuing to introduce changes quickly where possible.

26. For example, following publication of the Review, new guidance for 2024-25 was published in March 2024. This implemented an approach for 2024-25 rates setting that was significantly different from previous years, and which is also reflected in this guidance for 2025-26 rate setting.

27. The Review recommended that further evidence on how local authorities are supporting funded providers to meet the needs of children with Additional Support Needs is collected. Evidence in this area was collected as part of the 2022-23 Sustainable Rates for Funded Providers data collection exercise. The Scottish Government and COSLA are using the data to help determine if further consideration in this policy area would be beneficial.

28. The Scottish Government and COSLA recognise that it will be important to ensure regular and clear communications to the sector as this work progresses, and that where some aspects of reform require longer timescales we are clear on the reasons for this.

Sustainable Rates Review recommendations for guidance changes

29. The Review set out a series of actions to update the Sustainable Rates Guidance in order to:

• Enhance guidance on the approach to rates-setting, in order to provide a more standardised approach and minimise any unwarranted variation between the rates set by local authorities (recognising that a certain level of variation is expected), including how frequently they are set.
• Further develop guidance around the rates payable for eligible 2 year olds to help ensure these rates are sustainable and are reflective of the costs of delivery.
• Further develop the guidance in relation to meal rates, to help ensure these are set sustainably and are reflective of costs.
• Set clearer expectations around engagement and communications for both local authorities and funded providers in the private, third and childminding sectors regarding the rates setting process – including ensuring that providers have greater certainty and clarity on rates to support their financial planning.

• Ensure the guidance adequately supports local authorities when setting sustainable rates for, and engaging with, childminders.

30. These changes are initially set out in this updated guidance. Local authorities are expected to make progress towards reflecting them in the rates setting process during 2025-26, ahead of fully embedding within rate setting from 2026-27 onwards and reflecting the outputs of the new cost collection exercise.

Reliable and robust evidence to support sustainable rates setting

31. Collecting robust and reliable data on costs across different types of funded providers is critical to underpinning wider improvements to the rate-setting process, including updates to the sustainable rates setting guidance. It will also lay the foundation for any further future work in this area.

32. The Scottish Government has contracted an external delivery partner, the Diffley Partnership, to undertake a new cost collection exercise in Spring 2025.

33. This research will capture information from a wide range of funded providers across Scotland, about the costs of delivering funded ELC. It will improve our ability to calculate the impact of future changes, for example inflation and increases to the real Living Wage, on the costs of providing funded ELC. The evidence will also strengthen our ability to capture the impacts on the costs of delivery from policy changes, such as the changes to employer National Insurance Contributions that the UK Government announced will take effect from April 2025.

34. The exercise will also seek to obtain information which has not been gathered before to address evidence gaps. This includes information on levels of reinvestment/surplus across services, costs of delivering meals, and staff wage differentials within settings.

35. It is vital that the new cost collection exercise reflects the input of funded providers. To support this the Scottish Government, along with COSLA and the Improvement Service, hosted a series of Provider Reference Groups during October and November 2024. We are grateful to all those who took part in these constructive and insightful sessions which provided valuable information that will inform the development of the cost collection exercise and allowed us to capture views from a range of different types of providers. This included input to the design of the cost collection survey and feedback on previous experiences.

36. The information gathered from providers during these sessions will be considered by the Diffley Partnership and will be reflected in the overall approach to delivering the cost collection exercise in Spring 2025. The Scottish Government, COSLA and the Diffley Partnership will update the sector on further opportunities to support the design of the cost collection exercise in due course.

37. New sustainable rates guidance will be published in early 2026 to reflect the outputs of the cost collection exercise, and to support rates setting from 2026-27 onwards.