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

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

38. The Review recommends 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.

39. 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.

40. 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.

41. A key aspect of standardisation will be a more centralised approach to cost collection and analysis, that local authorities can draw on to inform local rates setting. The new cost collection exercise will be undertaken in Spring 2025, and will provide more robust and reliable cost data that accurately reflects funded providers’ costs of delivery and addresses evidence gaps from previous exercises.

42. The evidence from the cost collection exercise will also inform the full update of the sustainable rates guidance for 2026-27. This includes providing more accurate information on the various cost factors for different types of providers to inform future increases in rates to reflect inflation, changes in the real Living Wage and statutory wage rates, and other policy changes that may impact on delivery costs.

43. For rate setting from 2026-27 onwards, local authorities will be expected to draw on the outputs from the cost collection exercise to inform local rate setting. To ensure that the rates set reflect local circumstances, local authorities will consider these outputs alongside local ELC market conditions and ongoing consultation with their local funded providers.

44. Whilst some elements of standardisation will be dependent on the outputs of the cost collection exercise, local authorities are encouraged to make progress in 2025-26 across the following areas.

Timing of rate setting

45. 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

46. 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.

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

48. 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

49. 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. The 2023 Financial Sustainability Health Check, also reported that 72% of childminders across the whole childcare sector are not paying themselves the real Living Wage.

50. In the minority of areas where rates for childminding provision are currently set lower than other types of setting, local authorities are encouraged to work towards bringing rates for childminding provision in line with other types of provision from 2026-27. The cost collection exercise will include a tailored approach for collecting information from childminders, which will provide more robust and reliable evidence for future rate setting.

51. 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.

52. 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

53. 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, as previous cost collection exercises have not requested separate data for 2 year old provision, robust evidence on the extent of variations in the cost of delivery is not currently available. This will be addressed by the cost collection exercise to be undertaken in Spring 2025.

54. The majority of local authorities pay higher rates for 2 year olds, although some currently pay the same rate for 2 year olds and 3-5 year olds. There is also currently greater variation in the rates being paid to funded providers for 2 year old children across local authorities relative to the variation in rates paid to 3-5 year olds.

55. The cost collection exercise will provide more robust data on cost differentials for 2 year old and 3-5 year old provision, which will be reflected in the 2026-27 sustainable rates guidance.

56. In the minority of areas where a higher rate for 2 year old provision is not currently set, local authorities are encouraged to work towards a higher rate for 2 year old provision from 2026-27, recognising the different staffing ratio requirements for this age group.