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

Next steps

93. The Scottish Government will provide local authorities with an additional £9.7 million in year in 2025-26 to fund the estimated additional costs associated with enabling childcare workers delivering funded ELC in private and third sector services to be paid at least the real Living Wage from April 2025.

94. This additional funding will be distributed to local authorities using the distribution methodology recommended by the Settlement and Distribution Group and agreed by COSLA Leaders. Final funding allocations to local authorities will be confirmed via a funding allocation letter issued by the Scottish Government.

95. Funded providers will then receive the funding to enable them to deliver the real Living Wage increase through the sustainable rates setting process in 2025-26 in line with the approach set out in this guidance (and summarised in Box 1).

96. The Scottish Government will shortly publish the latest annual sustainable rates report. This will set out information on the rates set by local authorities in 2024-25. The report also provides an update on the additional support, over and above the funded rate, that each authority made available to their funded providers.

97. The Scottish Government and COSLA will continue to work with the sector to progress the longer term reforms to the sustainable rates setting process, and deliver the actions from the Sustainable Rates Review.

98. Key to supporting these reforms is the collection of more robust and reliable data through the new national cost collection exercise. The development of this exercise is being informed by input from providers. The Scottish Government and COSLA are very grateful to the providers who were able to give up their time to participate in the Provider Reference Groups in Autumn 2024.

99. Providers will continue to have opportunities to input into this process, and inform the overall approach to delivering the cost collection exercise.

100. The Scottish Government and COSLA would also be very grateful for providers’ participation in the cost collection exercise in Spring 2025. This will ensure a shared and thorough understanding of the costs of providing funded ELC.

101. Alongside this the Improvement Service will continue to provide a range of support, as set out in Sustainable Rates Review, to local authorities with the sustainable rate setting process.

102. A further update to the Sustainable Rates setting guidance will be published in early 2026 to reflect the outputs of the cost collection exercise, and to support rate setting from 2026-27 onwards.

103. There will also be regular and clear communications to the sector as this work progresses to ensure that providers are aware of developments and where they can input to the process.