Government to invest ‘record’ £9.5bn on childcare as funding rates rise

The government will invest a record £9.5bn in childcare next year, increasing funding for nurseries and childminders by more than £1bn compared with this year.The Department for Education (DfE) said the funding would support the delivery of additional childcare places and help families manage rising living costs, as the rollout of 30 hours of funded childcare continues.

More than half a million families have been using the expanded entitlement since September. The government said the policy could save parents up to £7,500 a year for each child, depending on their circumstances.

Funding rates paid to childcare providers will rise across all age groups. Payments for children aged under two will increase by 4.3%, while rates for three- and four-year-olds will rise by just under 5%. The government said the increases were above inflation and designed to help providers cover costs and expand capacity.

On average, local authorities will receive funding increases of 4.95% for three- and four-year-olds, 4.4% for two-year-olds, and 4.3% for children aged nine months to two years.

To ensure more of the funding reaches frontline providers, councils will be restricted from retaining more than 3% of the total allocation for central services. The government said the measure was intended to channel additional money directly to nurseries and childminders delivering day-to-day care.

The announcement follows recent changes to childcare support for families receiving universal credit. The government has lifted the cap on childcare benefits alongside the two-child limit, meaning parents with more than two children can receive an additional £736.06 per child towards childcare costs.

Further reforms include plans to expand the number of school-based nurseries, with the aim of increasing access to funded childcare in areas where provision is limited. Ministers said the move would particularly benefit families facing affordability and availability pressures.

The government also confirmed continued support for free breakfast clubs in schools. These are expected to save parents up to £450 a year on average, while providing additional childcare time at the start of the school day.

Additional funding has also been announced for disadvantaged children through the Early Years Pupil Premium (EYPP). The premium will rise by 15% to £1.15 an hour in 2026–27, equivalent to up to £655 a year for each eligible child. The government said the increase was intended to ensure children from lower-income backgrounds benefit from high-quality early education.

The DfE said the combined measures were designed to create a more sustainable childcare system and address gaps in provision across different communities, as demand for funded places continues to grow.

Secretary of State for Education, Bridget Phillipson, said: “High-quality childcare is the first building block of national renewal, and central to how we get tens of thousands more children school ready by age five. It shapes children’s futures, it strengthens working families, and it supports communities across our country.

“That’s why we are delivering a record £9.5 billion investment in early years, with nurseries and childminders receiving higher hourly funding rates. This is more money going straight to the frontline, helping providers grow, improve and offer every child the best possible start.”

She added: “This is how we build a brighter future for our country – by investing in children, backing families and restoring opportunity from day one.”