Hourly funding rates for the childcare entitlements in 2025/26 will rise by 3.4% for under twos, 3.3% for two-year-olds, and 4.1% for three- and four-year olds compared to levels for 2024/25, the Department for Education has announced.
While funding levels will vary across local authority areas, on average rates will rise to £11.54 for under-twos; £8.53 for two-year-olds; and £6.12 for three- and four-year olds.
The government has created a £75 million “expansion grant” to help nurseries, childminders and other providers to deliver the 35,000 additional staff and 70,000 places required to meet rising demand linked to the expansion of the funded entitlements from next September.
However, Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said Treasury changes around national insurance contributions and salary increases will add £47,000 to the average annual costs of a nursery in England and 11% increase to overall staffing costs.
“These rates do not even cover the statutory wage increases,” she said. “Since 2019, minimum wages have shot up by 66-70% but average funding rates have only risen by 32%. On top of this the national insurance contributions increase is going to cripple providers and the only way they can cover these costs is by increasing parental fees.
“Public sector providers will get reimbursed for their national insurance contributions increase, but the private and voluntary sector – which delivers three quarters of funded places – will not be helped at all. There is a clear lack of equity between the private and public sector providers.”
Early Years Alliance chief executive, Neil Leitch added: “While any increase of funding is of course welcome, the fact is that today’s funding rates will fail to even come close to covering the cost of changes to national insurance contributions and wage increases.
“The Treasury may claim that the rates announced today takes into account the upcoming rises to the national and living wages, but we know it will do little – if anything at all – to support settings to meet these increases and ensure wage differentials between junior and senior staff. As such, not only will it place even more financial pressure on settings but it is likely to make the sector’s ongoing staffing crisis even worse.
“Today was an opportunity for the Treasury to show it recognises the catastrophic impact that the National Insurance and wage changes will have on the sector. Not only has it turned a blind eye to this, but it will have clear repercussions on families expecting to take advantage of the ongoing expansion."
It has also announced the early years pupil premium (EYPP) will be increasing by 45% next year to £570 per eligible child to support the government’s drive to improve the proportion of children who enter reception “school ready”.
Last week, Prime Minister Keir Starmer pledged to boost the proportion of school ready pupils from two thirds currently to three quarters by 2028.
Secretary of State for Education, Bridget Phillipson said: “High quality early education is the cornerstone of our promise to ensure tens of thousands of children are school ready every year, as part of the government’s Plan for Change.
“The early years has been my priority from day one, because by giving more children the chance to start school ready to go, we transform their life chances, and the life chances of every child in their classroom.”
Nick Harrison, chief executive of the Sutton Trust called the rise in EYPP “highly positive”.
“This brings funding support for disadvantaged young children closer to the level provided in schools and will help to incentivise early years settings to take in more children from poorer backgrounds, who stand to benefit the most from high quality early years education,” he said.
“This is a welcome first step towards tackling the early years attainment gap between disadvantaged children and their peers and reaching the government's new target to increase the proportion of children who are 'school ready'.”
Chris Paterson, co-chief executive of the Education Endowment Foundation, said: “We know that high-quality early childhood education has long-lasting and positive outcomes, particularly for disadvantaged children. Targeted funding on this specific goal is therefore crucial – and today’s uplift to the EYPP is a positive first step in this direction.
“To really see an impact, it will be crucial that the right support is in place to help settings make evidence-backed decisions about how best to spend this additional resource.”
