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

Summary of 2025-26 sustainable rates setting process

• This guidance sets out the approach for local authorities to set sustainable rates for the delivery of funded early learning and childcare (ELC) for 2025-26. It replaces all previous iterations of the sustainable rates setting guidance.
• The Scottish Government is providing local authorities with additional funding of £9.7 million in 2025-26 to enable childcare workers delivering funded ELC in private and third sector services to be paid at least the new real Living Wage rate of £12.60 per hour from April 2025.
• Local authorities will pass this additional funding to funded providers through a minimum 3.75% uplift to all 2024-25 sustainable rates. The uplift reflects the estimated increase in the average staff cost element of the sustainable rate required to meet the real Living Wage uplift from April 2025. This reflects staffing costs accounting for, on average, 75% of the sustainable rate.
• The minimum 3.75% uplift will also be applied to all sustainable rates paid to childminders delivering funded ELC.
• The remainder of the sustainable rate, covering non-staffing costs (estimated to account for, on average, 25% of the sustainable rate) will be set in-line with the requirements of this guidance. The overall rates set must also be affordable for local authorities in terms of the budgets available.
• Where sustainable rates for 2025-26 are confirmed after April 2025 local authorities should ensure that any payments to funded providers to support delivery of the real Living Wage uplift are backdated to 1 April 2025.
• The Scottish Government and COSLA continue to progress the reforms to the sustainable rates setting process set out in the Sustainable Rates Review. This updated guidance reflects the recommendations of the Review – in particular to introduce greater standardisation in the rate setting process.
• Full implementation of these changes requires more robust and reliable data to improve the sustainable rate setting process. To support this a new national cost collection exercise will be undertaken in Spring 2025, with the outputs of this exercise informing rate setting from 2026-27.
• Local authorities are expected to make progress towards reflecting the changes outlined in this guidance during 2025-26, ahead of fully embedding within the rate setting process from 2026-27 onwards, including:
  • bringing rates paid to childminders in line with other types of provision;
  • a higher rate for 2 year old provision, recognising the different staffing ratio requirements for this age group; and
  • a separate payment rate for the free meal commitment to improve clarity and transparency for funded providers.
• To support this a further update to the sustainable rates setting guidance will be published in early 2026 to reflect the outputs of the cost collection exercise.