The government has announced an expansion grant to help early years settings deliver new places and to cover an uplift to the early years pupil premium (EYPP).
Total spend on early education will reach £8 billion this year, which the Department for Education has said is £2 billion more than last year.
The investment includes the uplift to the EYPP, the expansion of government-funded childcare and uplifts to funding rates for settings.
The funding injection is part of the Labour government’s plan to “ensure tens of thousands of children are school-ready every year,” said education secretary Bridget Phillipson.
It comes after prime minister Sir Keir Starmer announced a target for the government of five per cent of children reaching a good level of development when they start school by 2028.
Here is everything you need to know about the early years funding announcements.
How much will early years settings be funded?
For 2025-26, the DfE has announced the hourly funding rates will be on average:
- Under-twos: £11.54 - up from £11.16 in 2024-25
- Two-year-olds: £8.53 - up from £8.26
- Three- and four-year-olds: £6.12 - up from £5.88
Exact hourly funding rates will vary between local authorities. The minimum funding local authorities are required to pass on is increasing from 95 per cent in 2024-25 to 96 per cent for 2025-26.
Local authorities are expected to announce their funding rates to childcare providers by 28 February 2025.
- Background: Early years pupil premium rising by 45%
- Read more: Labour’s early years review findings revealed
- Long read: Don’t jump into early years ‘glassy-eyed’, primary leaders warned
Early Years Alliance chief executive officer Neil Leitch has warned the funding rates will “fail to even come close” to covering increased costs from rising national insurance contributions and wage increases.
Mr Leitch added that the funding gap will place “even more financial pressure” on early years providers and will likely make the sector’s “ongoing staffing crisis even worse”.
How is early years provision changing?
From 1 September 2025, working parents of all under-fives will be entitled to 30 hours of free childcare as the end result of a phased rollout.
Back in October, the DfE estimated around 70,000 new places would be needed overall to meet the increased offer in autumn 2025, and around 35,000 additional staff.
Some local authorities need to increase their capacity by 30 per cent or more to meet the requirement, a DfE analysis has found.
The government has announced a £75 million expansion grant to support settings to deliver extra places and staff. It will be allocated later this year.
When asked by Tes whether schools would be able to apply for the £75 million, the DfE said details on eligibility and distribution would be announced in due course.
The Budget in October included the announcement of £1.8 billion for the expansion of government-funded childcare in 2025-26. The money announced today to uplift the early years pupil premium and the expansion grant brings the total investment up to £2 billion.
The DfE has previously announced £15 million capital funding for schools to create 3,000 new or expanded nurseries.
How much is the early years pupil premium being uplifted?
The national funding rate for the early years pupil premium has been uplifted by 45 per cent to £1 per eligible child per hour.
For 2024-25, the EYPP rate was 68p.
In a technical note, the DfE said the EYPP has been uplifted to reflect additional investment in the early years budget and to support the most disadvantaged children.
Children are entitled to a maximum of 570 hours of early education - so the maximum EYPP rate is £570 a year.
Is it enough?
Early years experts across the sector have welcomed the uplift to the EYPP.
Tes revealed earlier this year that Sir David Bell had called for an increase to the EYPP in an unpublished letter setting out his early years review findings.
The Sutton Trust had previously called for the EYPP to be uplifted to the same level as primary schools to help children from disadvantaged backgrounds to access provision. It estimated this would cost around £200 million.
Primary-aged pupils eligible for free school meals within the past six years get £1,480 in funding through the pupil premium in 2024-25.
Sutton Trust’s chief executive said the 45 per cent increase would bring the EYPP “closer” to funding support provided in schools, and that it will help incentivise settings to take in more pupils from poorer backgrounds. However, he added “much more is needed to level the playing field”.
Felicity Gillespie, director of the early years charity Kindred Squared, said changes “won’t happen overnight, but by focusing funding on the most disadvantaged children the hope is that more providers will spring up in what are called ‘early education deserts’.”
Education Endowment Foundation co-CEO Chris Paterson said the right support would need to be in place to help settings to make evidence-backed decisions about how to spend extra EYPP money.
What is happening with funding for special educational needs and disabilities?
Funding rates through the disability access fund (DAF) have also been increased to reflect cost pressures. The uplift is in line with the average increase in funding rates at 3.02 per cent.
The yearly funding rate through the DAF is now £938 for 2025-26 - up from £910 in 2024-25.
The DAF supports eligible disabled children to access their early years entitlement.
All local authorities are also required to have a special educational needs inclusion fund (SENIF). These are intended for work between local authorities and providers to support children with special educational needs and disabilities (SEND).
Local authorities were required to establish a SENIF fund from 2024-25.
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