Above inflation early years funding rates announced by Government

A girl raising her hands to the camera, which are covered in bright paint.

The Department for Education (DfE) has announced new early years funding rates for 2026/27, with average rates set to rise by 4.3 per cent for under 2s and to almost 5 per cent for three and four-year-olds. The Early Years Pupil Premium (EYPP) is also set to increase.

The Government have described it as a ‘’record £9.5 billion early years investment’’ and it has been broadly welcomed by most of the early education and childcare sector, although some concerns remain. For example, for childminders will still face difficulties as the funding rate for three- and four-year-olds remains below the true cost of delivery.

The early years funding rates that providers receive will continue to vary by age group and by local authority. The average hourly rates for 2026/27 will be:

£12.04 for under-twos (4.28% increase)
£8.90 for two-year-olds (4.36% increase)
£6.42 for three- and four-year-olds (4.95% increase)

In an effort to ensure more money reaches nurseries and childminders the DfE also announced a 97% “pass through” rate for local authorities from April 2026, an increase of 1% from the current rate of 96%. That means that local authorities will be barred from keeping back more than 3% of the early education budget for central services.

Secretary of State for Education Bridget Phillipson said:

‘’High-quality childcare is the first building block of national renewal, and central to how we get tens of thousands more children school ready by age five. It shapes children’s futures, it strengthens working families, and it supports communities across our country.

That’s why we are delivering a record £9.5 billion investment in early years, with nurseries and childminders receiving higher hourly funding rates. This is more money going straight to the frontline, helping providers grow, improve and offer every child the best possible start.’’

The government has also announced a further increase to the Early Years Pupil Premium (EYPP) to provide additional support for disadvantaged children, ensuring all children can benefit from high-quality early education regardless of their background. The EYPP will rise by 15% to £1.15 per hour in 2026–27, equivalent to up to £655 per eligible child per year.

Sarah Ronan, Executive Director, Early Education and Childcare Coalition, commented:

‘’Today's above-inflation funding increase recognises the exceptional strain the sector has been under and we are delighted that the collective research and advocacy efforts of our members have helped to secure today's £1bn investment.

We have consistently called for the Early Years Pupil Premium to be brought in line with the Primary Pupil Premium and are equally pleased to see the Government announce a further 15% increase building on last year's historic 45% increase.

Combined, today's measures represent a positive step in the right direction. Every pound that the Treasury has invested today will produce benefits that we will reap for years to come through improved child outcomes and increased parental employment.’’

Coram PACEY also broadly welcomed the announcement but repeated their concerns about the implications of the current funding model for childminders in England – particularly the significant drop in funding they face when a child turns three.

Ka Lai Brightley-Hodges, Head of Coram PACEY commented:

“We welcome the uplift to funding rates, which will go some way to provide relief for providers in the next financial year. However, the funding rate for three- and four-year-olds still remains below the true cost of delivery, and we know that many childminders have already withdrawn, or are planning to withdraw, places for this age group as a result of the financial cliff-edge that they face when a two-year-old turns three. This is especially disheartening as these are often children they have cared for from an early age, building strong bonds and a relationship with the family.’’

Local authorities are expected to announce their individual funding rates and other funding supplements by 28 February 2026 at the latest, and next year there will be a national funding formula consultation which will be an opportunity to see long-term reforms to the funding system.