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

Section 1: Characteristics of a sustainable rate

17. It is the responsibility of the local authority to set sustainable rates for the delivery of the funded ELC hours in their area each year.

18. In the context of this guidance the ‘rate’ is the sum of money paid to a funded provider in the private and third sector and to childminders for each hour of funded ELC they deliver to eligible children in particular age groups.

19. It is for private and third sector providers, including childminders, to determine whether the rates set are suitable for their business and whether they wish to enter into a contract on this basis.

20. The rate paid to funded providers for each age group should be sustainable and should meet the following criteria:

• 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; and

• it will enable payment of the real Living Wage for those childcare workers delivering the funded entitlement.

21. As highlighted above, the sustainable funding rates should cover the cost of running the service and allow for future investment and development. This differs from rates which only reflect short-term operational costs.

22. From a local authority perspective, the rates must be sustainable for authorities in terms of the budgets available. Local authorities will also need to consider the following points when setting sustainable rates:

• rates do 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, that are available to the funded provider as part of their contract with the local authority; and
• rates do not need to be cross-subsidised by parents and carers through charges for non-funded hours.