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1. What are the early years funding rates?

The early years funding rates are the rates that the Department for Education (DfE) pays to each local authority to fund the early years entitlements. This includes:

• the 15 hours entitlement for eligible working parents of children from 9 months up to 2 years old (due to be extended to 30 hours from 1 September 2025)
• the 15 hours entitlement for eligible working parents of 2-year-old children (due to be extended to 30 hours from 1 September 2025)
• the 15 hours entitlement for families of 2-year-olds receiving additional support (formerly known as the 2-year-old disadvantaged entitlement)
• the universal 15 hours entitlement for all 3 and 4-year-olds
• the additional 15 hours entitlement for eligible working parents of 3 and 4-year-olds

We provide each local authority with three separate hourly funding rates for these entitlements as follows:

1. an hourly funding rate for children aged 9 months up to 2 years for the eligible working parent entitlement
2. an hourly funding rate for both 2-year-old entitlements (which is the same for families of 2-year-olds receiving additional support and eligible working parents of 2-year-olds)
3. an hourly funding rate for 3 and 4-year-olds for the universal and additional hours

Hourly funding rates vary by age and local authority, reflecting the differing costs of delivering provision across age groups and geographical locations.

Each autumn, we publish early years funding rates for the upcoming financial year. On 10 December 2024, we announced the local authority hourly funding rates for April 2025 to March 2026.

2. How is the early years budget determined?

To set rates for the upcoming financial year, we uplift the national average funding rates from the previous year for each entitlement taking account of the cost pressures facing the sector, including forecasts of average earnings and inflation, and the National Living Wage. The early years budget reflects the number of children we expect to take up the entitlements in the coming year and the average hourly rate for each entitlement.

3. How are the local authority hourly funding rates determined?

We use the early years national funding formulae (EYNFFs) to distribute the early years entitlements budget to local authorities. The EYNFFs determine local authority hourly funding rates that take into consideration the different costs of delivering early years provision in different parts of the country.

In each of the formulae, to calculate the hourly rate a local authority will see, we use a base rate, which is the same minimum amount for every PTE (a child taking 15 hours, across 38 weeks of the year), no matter where they live or whether they have additional needs.

On top of the base rate, we then provide funding to reflect the additional needs an area has - we do this through a set of additional needs ‘factors’. These factors are based on our estimate of the proportion of children in each area who are from disadvantaged backgrounds, those who have English as an additional language (EAL) and those who have more complex special educational needs and disabilities (SEND). This means that, on top of their base rate, each local authority will have an hourly rate for each additional needs factor. We do this to reflect the higher costs of meeting these children’s needs. These hourly rates (the base rate, and the additional needs factor rates) make up a local authority’s overall rate.

To make sure we can account for the differences in costs across the country, i.e. on staffing and premises costs, we also apply an area cost adjustment (ACA) for each area. This approach only increases funding; it never reduces the base rate or additional needs funding.

We use this approach, through the formulae, to ensure that funding is distributed fairly and transparently across the country, targeting areas where it is needed most. Each year, we publish step-by-step tables which show how we calculate the hourly rates given to each local authority, as well as an accompanying technical note that provides detailed information on calculations.

4. Are these the final funding rates for providers?

No, these are the final funding rates for local authorities, not providers.

We expect the overwhelming majority of the local authority hourly rate announced by the DfE to support providers with the core costs of providing entitlement hours, but there are several reasons why providers’ final rate differs from the DfE hourly rate.

Local authorities are best placed to determine how to use their total funding allocation to meet the needs of their communities. So, using DfE rates as a starting point, local authorities set their own provider hourly rates using their own local formulae. These formulae and the provider hourly rates are different to the rates announced by DfE and are decided at a local level.

As part of their local formulae, local authorities can make use of supplements for up to 12% of the total value of planned formula funding to providers for each of the entitlements. This means that local authorities can tilt part of the hourly rate to different providers in an area to reflect different needs and circumstances at provider level. The allowable supplements are deprivation (mandatory for 3- and 4-year-olds), rurality or sparsity, flexibility, and quality.

Local authorities can also hold back a small proportion of funding to support them to administer the entitlements locally, as well as to support central early years SEND services.

However, we are clear that the vast majority of funding must be passed on to providers. For 2025 to 2026 the pass-through rate, which is the minimum amount of funding local authorities pass through to providers, is being increased from 95% to 96%. Since local authorities can target their funding (they don’t have to pay the same rate per hour to every provider in their area), individual providers may receive more or less than 96% of the funding rate that DfE is providing to their local authority.

The 96% includes:

• the universal hourly base rate, which is paid to all providers
• supplements for deprivation, rurality or sparsity, flexibility, quality and EAL (although this extra money cannot be more than 12% of the total funding to providers). These are paid based on providers meeting certain eligibility criteria
• special educational needs inclusion fund (SENIF), which should be targeted at children with lower level or emerging special educational needs (SEN)
• contingency funding, which is extra money set aside for changes in the number of children taking up the entitlements throughout the year

Local authorities can keep up to 4% of their total funding for their own services, such as eligibility checking. In 2024 to 2025, local authorities had average funding pass-through rates of:

• 97.3% for the 3- and 4-year-old entitlement
• 98.8% for the families of 2-year-olds receiving additional support entitlement
• 97.2% for the eligible working parents of 2-year-olds entitlement
• 97.2% or children aged 9 months up to 2 years for the eligible working parent entitlement

Before finalising their local formulae, local authorities must consult with their providers and schools forum to agree any changes to the formulae from the previous year, as well as agree the proportion of funding that the local authority will retain centrally to administer the entitlements.

5. Why do the hourly funding rates vary so much by age?

The hourly funding rate for each entitlement varies to reflect the costs of delivering provision to different age groups. We know, from listening to the sector and from our own regular research, that the cost of delivery is highest for younger children due to tighter staffing ratios (for most settings, the statutory ratios are 1:3 for under 2s; 1:5 for 2-year-olds; 1:8 for 3- and 4-year-olds) and, consequently, higher staff costs, as staffing makes up the most significant proportion of provider costs.

Rates also vary between local authorities reflecting the different communities that local authorities serve. However, it is local authorities who are responsible for setting individual provider funding rates in consultation with their providers and schools forum, and fund providers using their own local funding formula.

The hourly funding rates can allow providers to achieve relatively balanced levels of income across the age range of children cared for. As an illustrative example, based on the average ratios reported in the most recent (SCEYP 2024), a provider could achieve an income per staff member of:

• £32.55/hour for children under 2 at an average 1:3 ratio (£10.85/hour per child)
• £31.80/hour for children aged 2 at an average 1:4 ratio (£7.95/hour per child)
• £38.08/hour for children aged 3 and 4 at an average 1:7 ratio (£5.44/hour per child).

Providers that deliver the full range of government offers can therefore expect to achieve relatively balanced levels of income across the age range of children cared for. Once funding reaches providers, funding is not ring-fenced by age, and we know many providers often look after children at a range of ages.

We know that are different for childminders, and they often look after children at a range of ages, often below and above age 3. Where this is the case, childminders can use all the funding they receive from their local authority to support with costs across all the children they look after - once funding reaches providers, it is not ring-fenced by age.

For example, alongside any older children they care for, a childminder could achieve an income per staff member of £24.24/hour – made up of one child under 2 (£10.85/hour), one child aged 2 (£7.95/hour), and one child aged 3 (£5.44/hour).

Overall, we know that the funding rates for younger children will often be significantly above previous parent paid rates and the childminding sector will benefit from the expanded entitlements for working parents. Childminders are not prohibited from using any surplus generated from funding for younger children to support older children.

6. What costs do the hourly funding rates cover?

The hourly funding rate for entitlement hours is intended to cover the core costs of providing 15 or 30 hours of childcare to parents. This includes costs associated with staffing such as salaries as well as non-staff costs such as rent, business rates and utilities costs associated with delivering the government funded hours.

The hourly funding rate does not fund the following costs:

• Consumables to be used by the child, such as nappies or sun cream
• Meals and snacks consumed by the child
• Extra optional activities such as events, celebrations, specialist tuition (e.g. music or foreign languages)

Providers can charge parents for these extra costs in connection with funded hours, but these charges must not be mandatory or a condition of accessing a funded place. Providers can also charge parents for any additional, private paid hours according to their usual terms and conditions provided taking up private paid hours is not a condition of accessing a funded place.

Providers are free to set their own rates for consumables and additional private paid hours as long as these charges are not mandatory, as set out above, and providers should be mindful of the impact of charges on families, particularly the most disadvantaged.