The 2026/27 financial year marks a pivotal moment for early years providers. With the government’s confirmed investment of over £9.5 billion into early years entitlements, the focus has shifted from mere expansion to sustainable delivery. For managers, navigating these changes requires moving beyond the headlines to understand the practical impact on your monthly cash flow and staffing budgets.
The 2026/27 Funding Uplift: By the Numbers
The Department for Education (DfE) has confirmed "above-inflation" increases for hourly funding rates across all age groups. While these rates vary by local authority, the national average uplifts are as follows:
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Under-Twos: 4.28% increase (Average rate: £12.04).
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Two-Year-Olds: 4.36% increase (Average rate: £8.90).
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Three- and Four-Year-Olds: 4.95% increase (Average rate: £6.42).
The Strategic Takeaway: While these increases are welcome, they should be viewed against the backdrop of rising statutory wage costs. The gap between funding and the true cost of delivery remains a pressure point, particularly for childminding businesses and settings with younger workforce profiles.
Key Policy Shifts for Your Planning Calendar
1. The Early Years Pupil Premium (EYPP) Boost
To further support the most disadvantaged children, the EYPP is increasing by 15% to £1.15 per hour for the 2026–27 year. This builds on the significant 45% uplift from the previous year.
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Action for Managers: Ensure your data collection processes are robust. If you are not identifying every eligible child during your headcount tasks, you are leaving critical funding on the table that could be used for targeted interventions and resources.
2. The 97% Pass-Through Mandate
From April 2026, local authorities (LAs) are required to pass through a minimum of 97% of their early years funding allocation directly to providers—an increase of 1% from the previous requirement.
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Action for Managers: This is designed to reduce the amount LAs retain for "central services." Contact your LA funding team to ensure your base rate reflects this change. If you suspect your local rate is lower than expected, benchmark it against neighbouring authorities using resources from sector bodies like the NDNA or PACEY.
3. Transition to Termly Funding
The funding system is moving toward a more responsive, termly headcount model. This adjustment aims to ensure local authorities are funded accurately as children start or leave entitlements throughout the year.
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Action for Managers: Accuracy in your headcount submissions has never been more critical. Inaccurate data now has a more direct and immediate impact on your termly budget than it did under the previous annual census model.
Strategic Leadership Checklist
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[ ] Benchmark Your Rates: Have you cross-referenced your LA’s announced rates with regional averages?
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[ ] Audit EYPP Eligibility: Are your admin staff fully trained on identifying EYPP eligibility during onboarding to maximise this £1.15/hour stream?
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[ ] Review Pass-Through Transparency: Have you asked your LA for written confirmation of your base rate and the breakdown of any supplements to verify the 97% pass-through is being met?
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[ ] Plan for Monthly Payments: With LAs increasingly required to offer monthly payment schedules (as LAs move to accommodate provider cash flow needs), have you requested this to improve your setting’s financial stability?