Lancashire County Council is ploughing the cash into the service to increase placement choice and reduce spending with agency providers.
The cash will allow the council to increase the level of fostering allowances to the national minimum recommended rate, pay enhancements to the allowances and make one-off payments to reward achievements.
It will also be used to fund a campaign to recruit more foster carers and establish a new fostering recruitment and assessment team to support this.
Helen Clarke, development worker at the Fostering Network, said: "Increasing allowances for their foster carers is a step in the right direction. But we would encourage the council to look at their fee structure and ensure that it enables all their foster carers to earn a living wage 52 weeks of the year."
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