Early years funding in England
An overview of funding for childcare providers in England since 2017-18.
In this briefing ‘childcare’ is used to refer to early education and childcare for children from infancy until they start school (around age five).
Free childcare entitlementsMost government support for childcare providers in England is delivered via funding for the following childcare entitlements:
- 15 hours a week universal entitlement for all three and four-year-olds.
- 15 hours a week entitlement for disadvantaged two-year-olds.
- Extended 30 hours a week entitlement for three and four-years-olds from eligible working families.
Following an announcement at the 2023 Spring Budget, the 30 hours entitlement is in the process of being extended to children aged from nine months to three years (with the same eligibility criteria):
- Since 1 April 2024, eligible families of two-year-olds have been able to access 15 hours a week.
- Since September 2024, eligible families of children aged nine months to two years have been able to access 15 hours a week.
- From September 2025, all eligible families with children aged nine months to three years will be able to access 30 hours a week.
The previous government estimated the childcare expansion would cost £4.1 billion a year by 2027/28. By this time, the government expected to be spending around £8 billion on the childcare entitlements in total, around double what was spent in 2023/24. The Institute for Fiscal Studies has suggested, however, that spending could end up £1 billion higher than the initial estimates due to high take-up rates.
At the Autumn Budget 2024, the government committed to the funding for the childcare expansion and said £1.8 billion would be provided in 2025/26.
However, it has been suggested that childcare providers may be particularly impacted by the changes to employer National Insurance contributions (NICs) and the increases to the National Living Wage announced at the Budget.
At the Spending Review 2025, the government said it would provide an additional £1.6 billion a year by 2028/29, compared to 2025/26, to continue the expansion.
Funding ratesFunding for the childcare entitlements is distributed to childcare providers in two stages:
- The Department for Education provides funding to local authorities in the ‘early years block’ of each authority’s dedicated schools grant.
- Local authorities then distribute funding to providers in their areas, within a framework set by the department.
The national average hourly funding rates for local authorities in 2025/26 are:
- Three and four-year-olds: £6.12 per hour. The rate has fallen by 3% in real terms (when adjusted for inflation) since 2017/18 (in 2025/26 prices).
- Two-year-olds: £8.53 per hour. The rate has increased by 19% in real terms since 2017/18.
- Children under two: £11.54 per hour, an increase from £11.22 per hour in 2024/25.
DfE analysis published in November 2024 suggested the median income-to-cost-ratio (total weekly income divided by total weekly cost) for early years providers in 2023 was £1 of income per £1 of cost, meaning half of providers reported income that did not fully cover their costs.
In its 2024 report on education spending, the Institute for Fiscal Studies think tank said that, while funding rates for children aged two and under in 2024/25 were “much more generous than current market rates”, funding rates for three and four-year-olds were much closer to market rates. It also estimated that core funding per hour for three and four-year-olds was 8% lower in real terms in 2024/25 than in 2016/17 once provider costs are taken into account.
The report added that for some providers cost increases caused by changes to NICs and the National Living Wage may outweigh the “modest increases to funding rates” in 2025/26.