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

Section 7: Additional sources of evidence to inform local rate setting

75. The new national cost collection exercise, and any future iterations or updates, will provide robust and reliable evidence to support local authorities to set sustainable rates in line with this guidance.

76. The evidence for the cost collection exercise will be collected in Spring 2025 and analysed during Summer 2025. An anonymised dataset will be provided to the Scottish Government and COSLA by the Diffley Partnership following data cleansing and analysis. Findings from the cost collection exercise will be shared with the sector and will inform planning for 2026-27.

77. The cost collection exercise will reflect the most recent financial information on current costs of delivery available to funded providers at the time of the survey being undertaken. The approach to collecting the data will also allow for the underlying business models and cost structures of providers to be understood. This will enable the impact of future changes in different cost elements, for example, inflation and the real Living Wage, to be calculated and ensure that future sustainable rates reflect the most up-to-date information on the costs of delivering funded ELC.

78. The evidence will also allow for the impacts on the costs of delivery from policy changes, such as the recent changes to employer National Insurance Contributions, to be captured and reflected in the sustainable rate setting process in future years.

79. The updated guidance for 2026-27 will set out how local authorities can use the outputs of the cost collection exercise, alongside other data sources, to reflect these changes in future rate setting.

Local intelligence and provider engagement

80. The local rate setting process should reflect consideration of local childcare market conditions and ongoing consultation and engagement with local funded providers. Local authorities are encouraged to keep funded providers updated on timelines for information gathering and decision making, and to prioritise ongoing engagement with funded providers so that there is a local forum to discuss and resolve issues on an ongoing basis.

81. This local intelligence can complement the outputs from national cost collection exercises, and will remain a key aspect of the sustainable rate setting process from 2026-27 onwards.

82. For example, local authorities may wish to review local data on childcare prices, if available, to compare against the cost information available to them. It is assumed that providers set their prices with reference to their underlying costs of delivery plus an adjustment for profit / surplus. Changes in prices could give an indication of movements in cost pressures for providers; and could provide a local benchmark to inform sustainable rates.

83. Where any additional local data is collected the local authority should confirm the data protection arrangements in place, including assurance that no commercial information submitted will be shared with other funded providers.