Guidance

Early years entitlements: local authority funding operational guide 2024 to 2025

Updated 24 January 2024

Applies to England

© Crown copyright 2024

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1. Introduction

1.1 Who is this publication for?

This guide is for:

  • local authorities

  • early years providers

  • other early years stakeholders who may find it useful

Local authorities should follow this guidance when funding childcare providers to deliver the early years entitlements in the financial year 2024 to 2025.

The early years entitlements are:

  • the 15 hours entitlement for eligible working parents of children from 9 months to 2 years old (new entitlement from 1 September 2024)

  • the 15 hours entitlement for eligible working parents of 2-year-old children (new entitlement from 1 April 2024)

  • the 15 hours entitlement for disadvantaged 2-year-olds

  • the universal 15 hours entitlement for all 3 and 4-year-olds

  • the additional 15 hours entitlement for eligible working parents of 3 and 4-year-olds

The entitlement hours are up to 15 hours of childcare a week over 38 weeks of the year (equivalent to a maximum of 570 hours a year), or, for 3 and 4-year-olds, up to 30 hours of childcare a week over 38 weeks of the year for qualifying children of working parents (equivalent to a maximum 1,140 hours a year).

From September 2025, eligible working parents of children aged 9 months and above will be able to access 30 hours (over 38 weeks a year) from the term following their child turning 9 months to when they start school (please note, the rollout of this entitlement is not covered by this guidance).

The guide also covers the additional funding available through:

  • maintained nursery school (MNS) supplementary funding for 3 and 4-year-olds

  • the disability access fund (DAF) for eligible children accessing the early years entitlements

  • the early years pupil premium (EYPP) for each hour an eligible child takes up any of the early years entitlements, up to a maximum of 570 hours (15 hours per week)

Some of the rules and principles described in this guide will be set out in secondary legislation and legal duties are indicated by the word ‘must’.

This guide is intended to help local authorities to fund early years providers to deliver the early years entitlements. It is not intended to cover the way in which the Department for Education (DfE) funds local authorities themselves, as this is set out separately in the technical note accompanying this guide, and also in the dedicated schools grant (DSG) technical guide and the DSG: conditions of grant published in December 2023.

Funding for the early years entitlements and other funding streams listed above form the early years block of the DSG. Details of local authority indicative funding allocations for the early years funding block in 2024 to 2025 were published in December 2023.

We have provided further guidance relevant to the funding of the early years entitlements.

Early education and childcare: statutory guidance

Early education and childcare: operational guidance

High needs operational guidance

Schools forums operational and good practice guide

1.2 Monitoring and compliance

We will use the planned budget information provided by local authorities in their annual section 251 (s251) early years proforma to monitor compliance with all the policies set out in this guide and the underpinning regulations.

We will use the early years funding benchmarking tool to publish information about local authority compliance.

2. Changes for 2024 to 2025

Over summer 2023 we consulted on proposals to ensure the funding system supports the delivery of the new working parent entitlements for children aged 9 months up to and including 2 years old from 2024, which were announced at the Spring Budget in March 2023.

The government’s response to the consultation was published on 29 November 2023 and this edition of the operational guide for 2024 to 2025 incorporates significant changes necessary to implement the proposals we set out in that response.

The main changes to the guidance are:

  • introduction of a new national funding formula (NFF) covering both the existing 2-year-old entitlement for disadvantaged children and new working parent entitlements to be introduced in 2024 to 2025 for 2-year-olds and children aged 9 months to 2 years

  • new methodology for funding allocations for the new working parent entitlements for 2-year-old children and children aged 9 months to 2 years old for 2024 to 2025

  • extending the 95% pass-through requirement to the disadvantaged 2-year-old entitlement and the new working parent entitlements

  • extending local funding rules to the disadvantaged 2-year-old entitlement and the new working parent entitlements

  • a requirement for local authorities to have a disadvantaged 2-year-old rate that is at least equal to their rate for 2-year-old children of working parents

  • new deprivation supplement arrangements for the disadvantaged 2-year-old entitlement and the new working parent entitlements

  • confirming the expectation that local authorities have special educational needs inclusion funds (SENIFs) for all children with special educational needs (SEN) eligible for or taking up the new and existing entitlements, regardless of the number of hours taken

  • extending eligibility for EYPP and DAF to eligible children aged 2 years old and under accessing the entitlements from 2024 to 2025, and increases to the value of both funding streams

  • extending the facility to apply for a disapplication from the 95% pass through rule to the disadvantaged 2-year-old entitlement and the new working parent entitlements, and changes to the criteria against which a disapplication will be considered

3. National funding to local authorities

3.1 Funding rates

The early years national funding formulae (EYNFF) are used to determine the hourly funding rates to fund individual local authorities for the early years entitlements.

With the introduction of the new working parent entitlements for 2024 to 2025, we will be providing each local authority with 3 separate hourly funding rates as follows:

  • an hourly funding rate for 9-months-olds up to 2-years for the new working parent entitlement (from 1 September 2024)

  • an hourly funding rate for 2-year-olds which will be the same for both the disadvantaged and the working parent entitlements (from 1 April 2024)

  • an hourly funding rate for 3 and 4-year-olds for the universal and additional hours entitlements

To note: local authorities’ hourly funding rate for 3 and 4-year-olds in 2024 to 2025 includes funding for teachers’ pay and pensions. In 2023 to 2024 we mainstreamed the funding previously distributed through the teachers’ pay grant (TPG) and the teachers’ pension employer contribution grant (TPECG). In 2024 to 2025, we have also mainstreamed the funding being provided in respect of the September 2023 teachers’ pay award, as well as the additional funding to support providers with the costs of employer contributions to the teachers’ pension scheme which are due to increase from April 2024. See funding for quality supplements in permissible supplements section for further information.

3.2 Funding formula for 2-year-olds and children aged 9 months up to 2 years old

For 2024 to 2025, we are introducing a new NFF for the existing entitlement for disadvantaged 2-year-olds and for the new working parent entitlements for children aged 9 months up to and including 2 years old. The funding formula will follow the shape of the existing national funding formula for the 3 and 4-year-old entitlements. Like the 3 and 4-year-old formula, the new formula will feature:

  • a universal base rate of funding for each child (89.5% of funding)

  • an additional needs factor (10.5% of funding)

  • an area cost adjustment (ACA) to reflect variations in costs across England

Although the new formula will follow the same structure as the existing 3 and 4-year-old formula, we are taking a slightly different approach to deprivation in the additional needs factor. We will be taking a ‘basket of measures’ approach, using a combination of free school meals (FSM) data and a measure based on the income deprivation affecting children index (IDACI) as proxies for deprivation, rather than FSM only. This is in line with the proposal set out in the consultation.

Although the structure of the formula that we will use to calculate rates for the entitlements for 2-year-olds and under will be the same, the rates themselves will vary by age, with higher rates for the younger age group to reflect the difference in costs of delivering these entitlements, particularly due to differences in staffing ratio requirements.

3.3 Funding formula for 3 and 4-year-olds

Since its introduction in April 2017, the 3 and 4-year-old formula has set the hourly funding rates that each local authority is paid to deliver the universal and additional entitlements for 3 and 4-year-olds. There is no change to the existing 3 and 4-year-old formula, other than an annual update to some of the underlying data.

You can read more about the funding rates for all local authorities for 2024 to 2025, together with a technical note that contains more details on the new formula, at early years funding: 2024 to 2025.

3.4 Funding allocations

Local authorities will continue to be funded for early years provision through the early years block in the DSG. There will continue to be a mid-year adjustment to the early years block of the DSG, based on data from the early years, school, and alternative provision censuses.

Please note: since publishing the early years indicative funding allocations in December 2023, we have confirmed that we will increase indicative allocations to local authorities in respect of the under 2s entitlement and the under 2s EYPP. This is to ensure that local authorities are fully supported in delivering the new entitlements and are able to fund up to 26 weeks of provision in 2024 to 2025 across the 2024 autumn and 2025 spring terms.

We will update the early years block of the DSG allocations table ahead of the first DSG payment in April 2024. The update will reflect the increase in the number of funded weeks for both the under 2s entitlement and the under 2s EYPP.

You can approximate your revised allocation by taking your under 2s indicative funding allocation published on 19 December 2023, dividing it by 22 (38 weeks × 7 ÷ 12) and multiplying the result by 26. (As a guide, this should increase your December allocation by approximately 18%).

To illustrate:

a. Take an indicative allocation of £4,300,000 (the average local authority indicative allocation).

b. Divide £4,300,000 by 22 = £195,455 per week.

c. Multiply £194,455 by 26 = £5,081,818.

d. £5,081,818 would be your revised allocation accounting for 26 weeks delivery.

e. Sense check your calculation by multiplying £4,300,000 by 1.18. The result should be similar to step d. above. Please note: the calculations above include rounding.

3.5 Methodology for funding allocations for children of working parents aged 9 months up to and including 2-year-olds.

The earliest point at which we can collect data via the census for the 2 new working parent entitlements is January 2025. Therefore, to make the allocations for local authorities as accurate as possible, the basis for funding allocations for these new working parent entitlements in 2024 to 2025 will be as follows:

  • indicative allocations will be based on DfE’s estimated take-up numbers for the new working parent entitlements

  • final allocations will be adjusted on the basis of actual take-up for each term, collected through 2 additional headcounts we will ask local authorities to undertake in the 2024 summer and autumn terms and through the January 2025 census

The same method will also be used for allocating EYPP funding for children accessing the new working parent entitlements in 2024 to 2025.

Whilst these 2 additional headcounts could mean extra administration for local authorities, this will be offset by the reassurance that they will be fully funded for the hours they deliver. It will also provide an incentive to increase take-up during the first year of roll-out for the new working parent entitlements.

We will provide further information about the termly collections in early 2024.

3.6 Methodology for funding allocations for disadvantaged 2-year-olds and 3 and 4-year-olds

The allocation methodology for the existing entitlements will remain the same. As such, the final funding allocations for 2024 to 2025 for the 2-year-old disadvantaged entitlement and the 3 and 4-year-old entitlements will continue to be based on five-twelfths of January 2024 child numbers (to cover the April 2024 to August 2024 period) and seven-twelfths of the January 2025 child numbers (to cover the September 2024 to March 2025 period), to acknowledge any in-year growth in child numbers.

Local authority indicative funding allocations for all the early years funding streams will be published as part of the DSG allocations in December. The early years block allocations table will separately show the allocation amounts for each of the early years funding streams individually.

4. Local authority funding of the entitlements - 95% pass-through requirement

4.1 Overview

For 2024 to 2025, the 95% pass-through requirement will apply separately to the entitlements for:

  • 9-months-old children up to 2-year-olds of working parents

  • 2-year-old children of working parents

  • 2-year-old children from disadvantaged families

  • 3 and 4-year-olds (universal and additional hours)

For 3 and 4-year-olds, there is no change, and the pass-through requirement will apply to the universal and additional hours in combination. But for 2-year-olds and under, the requirement will apply to each of the entitlements individually.

This means that, unless the department approves a disapplication request (see disapplications from the 95% pass-through requirement section), local authorities must plan to pass through at least 95% of their funding from the government to early years providers for each of the above entitlements, separately. This pass-through requirement ensures that most of the government funding reaches providers so that they can deliver the government’s entitlement offers. Local authorities should consider changing pressures on local markets when determining their pass-through rate.

4.2 What is included within 95% pass-through

The 95% includes the following budget lines for each of the above entitlements separately:

  • base rate funding for all providers

  • supplements for all providers

  • lump sum funding for MNS (this only applies to 3 and 4-year-olds, please note any funding from DfE’s MNS supplementary allocation will be excluded - see below)

  • the funding paid directly to providers from the special educational needs inclusion fund (SENIF)

  • contingency funding

For 3 and 4-year-olds, please note that the 95% is calculated with reference to the 3 and 4-year-old hourly funding rate and therefore does not take account of any MNS supplementary funding allocation a local authority receives from the government. As such, the MNS lump sum funding referred to above only applies to any further funding for MNS paid from a local authority’s 3 and 4-year-old universal and additional hours allocation.

4.3 Remaining 5% expenditure

The remaining 5% expenditure could include the following:

  • centrally retained funding (for central services or services in-kind, including special educational needs and disability (SEND) services)

  • transfer of funding to any of the other early years entitlements

  • any extra hours that local authorities choose to fund in addition to the government’s entitlement hours

  • any funding movement out of the early years block

4.4 What is not included within pass-through

The following DSG early years block funding streams are not included in the 95% pass-through calculation:

  • payments to MNS from DfE’s MNS supplementary funding allocation

  • DAF

  • EYPP

4.5 Monitoring compliance with the 95% pass-through requirement

As in previous years, we will monitor compliance with the 95% pass-through requirement via the early years proforma in the annual s251 budget returns. We may consider collecting s251 outturn data to monitor compliance with the pass-through.

4.6 Pass-through rate calculation explained

There is one formula for calculating the pass-through rate for each of the entitlements. The calculation to determine compliance is as follows:

(A − B) ÷ C is no less than 95% of D

Where:

  • ‘A’ is the total of:

    • all budget shares and allocations in respect of the entitlement stream being calculated, this includes funding for base rate, supplements, EYPP and DAF for the entitlement stream being calculated

    • contingency funding nominally allocated to the entitlement stream being calculated, out of the schools budget

    • the amount of special educational needs inclusion funding for the entitlement stream being calculated, excluding any amount of SENIF which may be centrally retained by the local authority

  • ‘B’ is the total of:

    • for the 3 and 4-year-old entitlements, the maintained nursery school supplementary funding allocation the local authority receives from the DfE, and

    • in all cases:

      1. Any amount relating to the early years pupil premium in relation to the entitlement being calculated.

      2. Any amount relating to the disability access fund in relation to the entitlement being calculated.

To note: we have referred to EYPP and DAF in the description to be consistent with the way the pass-through calculation is described in regulations. However, you do not need to include EYPP and DAF in your actual calculation as they are not in scope for the pass-through requirement.

A local authority will be meeting the requirement if ‘(A – B) ÷ C’ is equal to or greater than 95% of D.

4.7 Example of calculation

The calculation steps for all the entitlements are the same, except for 3 and 4-year-olds. This is because, since some local authorities receive additional MNS supplementary funding for 3 and 4-year-olds, the calculation for determining the pass-through rate for 3 and 4-year-olds differs from the other entitlements. The pass-through rate is only measured against the 3 and 4-year-old hourly rate, therefore the MNS supplementary funding DfE provides to local authorities is not considered in the determination of the 95% pass-through. For simplicity, a worked exampled for 3 and 4-year-olds is shown below:

Table 1: example of 3 and 4-year-olds calculations

Calculation Line Description Amount
A 1 Anticipated budget for base rate (including funding to MNS) for 3 and 4-year-olds for universal 15 and additional 15 hours £13,650,000
A 2 Anticipated budget for MNS lump sums for 3 and 4-year-olds £700,000
A 3 Anticipated budget for supplements for 3 and 4-year-olds: deprivation (including funding to MNS) £800,000
A 4 Anticipated budget for supplements for 3 and 4-year-olds: quality (including funding to MNS) £300,000
A 5 Anticipated budget for supplements for 3 and 4-year-olds: flexibility (including funding to MNS) £200,000
A 6 Anticipated budget for supplements for 3 and 4-year-olds: rurality (including funding to MNS) £200,000
A 7 Anticipated budget for supplements for 3 and 4-year-olds: English as an additional language (EAL) (including funding to MNS) £100,000
A 8 Anticipated budget for 3 and 4-year-old SEN inclusion fund (top up grant element) £400,000
A 9 Anticipated budget for 3 and 4-year-old contingency £1,000,000
    Subtotal £17,350,000
B 10 DfE initial quantum allocation to local authority of MNS supplementary funding £98,000
C 11 Planned hours for universal 15 and additional 15 hours for 3 and 4-year-olds as reported in s251 budget early years proforma, under the ‘base rate hours’ 2,950,000 hours
  12 Equivalent average rate to providers for entitlement hours for 3 and 4-year-olds = (A – B) ÷ C = (lines 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 – 10) ÷ line 11 £5.85 per hour
D 13 Local authority’s hourly rate for 3 and 4-year-olds (as published alongside this document, or in DSG tables in future) £6.00 per hour
    Test of meeting requirements is ((A (sum of lines 1 to 9) - B (line 10)) ÷ C (line 11)) ÷ D (line 13) × 100 97.5%

In this example, since the local authority is passing on 97.5% of the EYNFF hourly rate they received from central government for 3 and 4-year-olds to their providers, the local authority will meet the policy requirement.

To be compliant, the calculated pass-through rate must be more than or equal to 95.0%. Rounding up 94.9% will not be considered as meeting the requirement.

4.8 Disapplications from the 95% pass-through requirement

We do not expect that many local authorities will need to request a disapplication of the regulation which sets out the 95% pass-through requirement. However, in exceptional circumstances, DfE will consider individual requests to disapply this requirement from any of the early years entitlements.

We have amended the criteria under which a disapplication will be considered in 2024 to 2025. In order to consider requests for a disapplication from the pass-through rate, DfE expects local authorities to present evidence that one or more of the following conditions are met:

a. Disapplication is essential to avoid a significant overall reduction in the level of specialist early years SEND services offered to providers free, or on a subsidised basis.

Such evidence should include:

  • a description and costing of current services

  • an assessment of how these might need to be constrained were the local authority to comply with the 95% pass-through requirement, and the impact this might have

  • why it is not possible for local authorities to offer such services on a ‘buy-back’ model

b. Disapplication is essential for the local authority to meet its statutory early years duties, for example delivering the entitlement for disadvantaged 2-year-olds.

Such evidence should include:

  • a description and costing of meeting the statutory duties in question

  • an assessment of how these duties might need to be constrained were the local authority to comply with the 95% pass-through requirement, and the impact this might have

  • an explanation of why it is not possible to implement a more efficient operating model

For all disapplications, local authorities will also be expected to present strong evidence that, if the disapplication were to be allowed, delivery of the childcare entitlements would not be jeopardised. Such evidence will need to include:

  • the pass-through percentage the local authority has applied for and the calculation that shows its derivation

  • the impact of the proposed lower pass-through threshold (if disapplication were to be allowed) on the average funding rate paid to providers in 2024 to 2025

  • evidence that providers will be willing to deliver enough places to meet demand for the early years entitlement from which the pass-through rate would be disapplied in 2024 to 2025 at the proposed new funding rate

For all disapplications, local authorities are additionally expected to provide evidence of any potential impact of the proposal on protected characteristics, for the purposes of the public sector equality duty (section 149 of the Equality Act 2010).

We may validate local authorities’ evidence against other data and intelligence and may request further information from local authorities where appropriate.

Requests for disapplications for the pass-through rate for 2024 to 2025 should be submitted to DfE as soon as possible, and by 30 January 2024 at the latest. This will help to ensure local authorities receive a decision ahead of finalising their local business planning.

Local authorities who wish to submit a disapplication request should refer to the guidance for completing the disapplication forms. Local authorities should consult with their schools forum prior to submitting a disapplication request (though the final decision on whether to make a request rests with the local authority). A failure to provide sufficient information with your disapplication request, or to comply with any requests for additional information, may lead to delays and, in some cases, the request being rejected.

5. Setting a local formula

For 2024 to 2025, the majority of the existing local funding rules are extended to the 2 new working parent entitlements for 2-year-olds and under.

Local authorities must determine their funding formulae before the beginning of the financial year. Where a local authority proposes to make changes to the funding formulae it used during the previous financial year that will affect early years providers, it must first consult its schools forum, maintained schools, and early years providers. It must also first consult its schools forum, maintained schools and early years providers on its formulae for the new working parent entitlements. The final decision on the funding formulae, following any consultation, rests with the local authority. Local authorities are not permitted to amend their funding formulae after the financial year has started.

Local authorities should ensure their early years providers are sufficiently represented at schools forum meetings to cover votes on specific changes to the formula. Each forum should have at least one representative of the private, voluntary, and independent (PVI) sector among its non-school members. More information can be found in the schools forums operational and good practice guide.

Whether or not their local formulae have changed, local authorities must deduct any central expenditure by 29 February 2024 and calculate and notify initial budgets to providers by 31 March 2024 for all the early years entitlements, including the hourly rate for the 9 months up to 2-year-olds entitlement which is starting from September 2024, taking into account the 95% pass-through requirement (see section 4: local authority funding of the entitlements - 95% pass-through requirement). We encourage local authorities to complete this process as far ahead of the deadline as possible, to give providers sufficient time for business planning. Initial budgets should use an estimate of the number of hours for the financial year.

Regulations require local authorities to review and redetermine provider budgets during the year when further information about actual hours of attendance becomes available. Local authorities are expected to obtain at least termly updates on hours of attendance. When updating provider budgets, local authorities must either use the actual total number of hours for the relevant review period, or the predicted total number of hours based on the actual hours of attendance in at least 3 different sample weeks. Local authorities must notify providers within 28 days of redetermining budgets and must inform them from when the re-determined budget takes effect.

Local authorities can only redetermine provider budgets without making a disapplication request in limited circumstances, including accounting for actual hours of attendance. If a local authority wishes to redetermine provider budgets for other reasons, they must submit a disapplication request to DfE using the digital disapplication request proforma.

5.1 Setting a local funding rate for 2-year-old entitlements and children aged 9 months up to 2 years

The introduction of the new working parent entitlements for 2-year-old children and children aged 9 months up to 2 years old in 2024 to 2025 means that, for the first time, there will be 2 separate 2-year-old entitlements.

Supporting children from disadvantaged backgrounds remains a priority. For this reason, we will require local authorities, through regulations, to ensure that the final hourly funding rate (that is the base rate, plus supplements if applicable) they pay to providers for the disadvantaged 2-year-old entitlement is at least equal to the final hourly funding rate for the 2-year-old working parent entitlement at individual provider level.

This means local authorities must ensure that no individual provider attracts a final hourly funding rate for a child on the disadvantaged 2-year-old entitlement that is lower than that provider’s rate for a child taking up the 2-year-old working parent entitlement. However, it is permissible for local authorities to set a higher final hourly funding rate for the 2-year-old disadvantaged entitlement. There are different ways in which a local authority can achieve this. For example, local authorities could either:

  • set a single local funding formula for both the 2-year-old disadvantaged and working parent entitlements. In this scenario, we expect local authorities would set the same base rate for both the 2-year-old entitlements and then apply supplements deemed necessary locally

or

  • set 2 separate local funding formulae for the 2-year-old entitlements. In this scenario, local authorities may choose to retain their existing local formula for the 2-year-old disadvantaged entitlement and develop a new formula for the 2-year-old working parent entitlement

We recognise that in a small number of cases, a local authority might find that there are some providers which attract a higher final hourly funding rate than others (due to the use of supplements). So a child taking up the disadvantaged 2-year-old entitlement in one provider may attract a slightly lower final hourly funding rate than a child taking up the working parent 2-year-old entitlement in another provider within the local authority. This would be permissible. But it remains the case that, the disadvantaged 2-year-old entitlement final hourly funding rate must be at least equal to the working parent 2-year-old final hourly funding rate within the same provider within the local authority.

Local authorities will need to consider the way in which they construct their local 2-year-old formula or formulae to achieve this. Local authorities have the flexibility to determine how best to structure their approach.

See section 5.3: funding factors on setting the base rate and supplements for the 2-year-old entitlements.

For the entitlement for working parents of children aged 9 months up to 2 years, local authorities can use the same formula structure as the 2-year-old working parent entitlement or set a different formula. However, higher funding rates for these younger children should be reflected.   

Under limited circumstances, local authorities may make a disapplication request to the Secretary of State for Education to disregard this requirement, for example if there are sufficiency issues in their area for the 2-year-old entitlement for working parents.

5.2 Single funding rate for both entitlements for 3 and 4-year-olds

For 2024 to 2025, there are no changes to the entitlements for 3 and 4-year-olds in this respect. DfE funds local authorities on the same basis for both the universal 15 hours entitlement and the additional 15 hours entitlement for working parents. This is because the statutory framework and the quality requirements for the 2 entitlements are the same.

We expect local authorities to fund their providers in the same way for both sets of hours and not to distinguish between the two. This means using the same hourly base rate and same supplements for both entitlements.

5.3 Funding factors

Universal base rate

All local authorities must pay a universal hourly base rate for all their childcare providers in each of their local early years funding formulae for all the early years entitlements. The universal base rate must, in all cases, be multiplied by the number of estimated hours of attendance of children.

For 2-year-old entitlements, given that the funding rate for the disadvantaged 2-year-old entitlement needs to be equivalent to or higher than the 2-year-old working parent entitlement, if local authorities choose to have separate  funding formulae for each entitlement, the base rate for the 2-year-old disadvantaged formula for all providers must be at least equivalent to and not be less than the base rate for the 2-year-old working parent formula.  However, local authorities are permitted to set a higher base rate in their disadvantaged 2-year-old formula if they wish.

Funding supplements

Funding supplements are amounts of funding paid to providers in addition to the universal hourly base rate to reflect local needs or policy objectives. Local authorities may apply a supplement to the base rate for any of the entitlements. When using supplements, local authorities should adhere to the following principles:

  • the use of supplements should be transparent and fair and should be open to all providers that meet the eligibility criteria

  • for the 3 and 4-year-old entitlements, local authorities should not distinguish between the universal 15 hours entitlement and the additional 15 hours for working parents; any supplement should apply equally to both entitlements

For the 3 and 4-year-old entitlements, it is mandatory for local authorities to include a deprivation supplement in their local funding formula.

For the 2-year-old entitlements and the entitlement for children aged 9 months up to 2 years old, we expect local authorities to ensure funding for deprivation is reflected in their approach to funding for these entitlements, recognising the additional costs associated with supporting children from disadvantaged backgrounds. This could be achieved through a deprivation supplement, particularly where local authorities are using a single 2-year-old formula locally. However, this is not a mandatory requirement for the 2-year-old entitlements. This is to avoid the necessity to include a deprivation supplement within the 2-year-old disadvantaged formula if local authorities choose to have separate formulae for the 2-year-old entitlements and recognising that the new working parent entitlements are for a different cohort to the 3 and 4-year-old entitlements.

For the 2-year-old entitlements, if after setting their local formulae, a local authority finds there is an individual provider for whom the hourly funding rate for a disadvantaged 2-year-old is lower than the working parent 2-year-old rate, and the local authority determines it is either unaffordable or undesirable to adjust their overall local formulae, they are permitted to address the issue for the affected providers only. They could do this by providing an additional amount in their disadvantaged 2-year-old formula, which would provide a top up to the hourly rate for disadvantaged 2-year-olds for the provider in question, so that the final hourly funding rate is at least equal to (or more than), that provider’s final hourly rate for working parent 2-year-olds.

This is one particular approach that local authorities could, but are not obliged, to take. Local authorities are, however, required to ensure that, through whichever approach they take, the final hourly funding rate paid to each provider in their area for disadvantaged 2-year-olds is at least equal to (or more than) that provider’s final hourly rate for working parent 2-year-olds.

For consistency with the 2-year-old working parent entitlement, a deprivation supplement is not mandatory for the 9 months up to 2-year-old entitlement, given the similarity between the cohorts.

Local authorities are permitted to use other funding supplements provided they fall within the categories specified in permissible supplements section below. For all supplements, local authorities have the freedom to choose the appropriate metric for allocating funding but should be transparent about the metric chosen.

Permissible supplements

The allowable supplements are:

Deprivation

This supplement recognises deprivation in local authorities’ areas and supports children in those areas in taking up the early years entitlements.

Use of the deprivation supplement is mandatory for 3 and 4-year-olds and discretionary for 2-year-olds and children aged 9 months up to 2 years. You can find more information on this in the funding supplements section.

Rurality or sparsity

This is a discretionary supplement for all entitlements.

To enable local authorities to support providers serving rural areas less likely to benefit from economies of scale.

Flexibility

This is a discretionary supplement for all entitlements.

To enable local authorities to support providers in offering flexible provision for parents; this could, for example, be providers offering wraparound care, out-of-hours provision, or on-call type provision to support parents’ working patterns and needs.

Quality

This is a discretionary supplement for all entitlements.

To support workforce qualifications, or system leadership (supporting high quality providers leading other providers in the local area).

We encourage local authorities to consider using the quality supplement to distribute the additional funding they receive in respect of teachers’ pay and pensions, though we acknowledge the varied approaches that local authorities have adopted to date in distributing this funding locally.

In 2024 to 2025, we have included £22.5 million provided in respect of the September 2023 teachers’ pay award, as well as £34.7 million additional funding to support providers with the costs of employer contributions to the teachers’ pension scheme, which are due to increase from April 2024. This funding has been included in the hourly rates for 3 and 4-year-olds and MNS supplementary funding and is in addition to that previously distributed through the teachers’ pay grant and the teachers’ pension employer contribution grant, which was mainstreamed in 2023 to 2024. More information about how this funding has been rolled-in to local authorities’ hourly rates in 2024 to 2025 can be found in the technical note accompanying this guide.

We continue to encourage local authorities to consider the purpose for which this funding has been provided when designing their approach to local distribution. They could continue to target the funding to take account of additional pressures that some providers might face, from, for example, the need to pay employer contributions to the teachers’ pension scheme.

As with all other supplements, it is for local authorities to determine the appropriate metric for allocating funding, so long as their approach is in line with the principles set out above.

Local authorities are reminded that the maintained nursery school portion of the teachers’ pay and pensions funding has been rolled in to MNS supplementary funding, and they should avoid double-funding maintained nursery schools (MNSs) through this supplement.

Any system leadership supplement should be open and transparent in terms of the process for choosing the ‘leaders’, the funding arrangements, and the support to be provided.

Local authorities must not impose training requirements on providers registered with a childminder agency. Providers registered with Ofsted must not be required to attend training unless they have achieved less than ‘good’ in an Ofsted inspection report and the training has been identified in the Ofsted report. This is prohibited by The Local Authority Duty to Secure Early Years Provision Free of Charge Regulations 2014 (regulation 8)(2)(a)(ii)) and The Childcare (Free of Charge for Working Parents) (England) Regulations 2022 (regulation 48(a). Further details can be found at section A4b of the early education and childcare: statutory guidance.

The supplement can only be used to cover the cost of providing the system leadership; no one should benefit financially outside of it, either those supporting or those being supported. Only costs of service provision should be met.

English as an additional language (EAL)

This is a discretionary supplement for all entitlements.

To recognise differences in attainment in the early years foundation stage between children whose first language is English and those who have EAL.

Supplements cap

In 2024 to 2025, the total planned value of funding supplements must not be more than 12% of the total value of planned formula funding to providers for the respective entitlements:

  • the 15 hours entitlement for eligible working parents of children from 9 months old (from 1 September 2024)

  • the 15 hours entitlement for eligible working parents of children from 2-years-old (from 1 April 2024)

  • the 15 hours entitlement for disadvantaged 2-year-olds

  • the universal 15 hours entitlement for all 3 and 4-year-olds

  • the additional 15 hours entitlement for eligible working parents of 3 and 4-year-olds

As set out in funding supplements subsection above, some local authorities may also need to include additional funding in their disadvantaged 2-year-old formula to top up certain providers to comply with the requirement that each provider’s final hourly funding rate for disadvantaged 2-year-olds is at least equal to their rate for working parent 2-year-olds. This additional funding will not be included in the calculation of the 12% cap. However, it will be included within the pass-through rate calculation for the disadvantaged 2-year-old entitlement.

As before, this cap on supplements should not be considered a target for local authorities to meet. Compliance with the 12% ‘supplement cap’ will be based on s251 budget data and calculated as shown below. Please note: the calculation methodology will be the same for each of the respective entitlements mentioned above. For simplicity, we have used the 3 and 4-year-old entitlements in the example below:

Z = (X ÷ Y) × 100

where,

X = supplements quantum for universal 15 and additional 15 hours for 3 and 4-year-olds from planned s251 budget.

Y = total base rate quantum for universal 15 and additional 15 hours for 3 and 4-year-olds + supplements quantum from planned s251 budget.

If Z is less than or equal to 12.0% then the requirement has been met (please note rounding down 12.1% will not be considered as meeting the requirement).

Therefore, a local authority with a base rate quantum of £11 million would be able to grant supplements up to a total of £1.5 million; that is, £1.5 million ÷ by (£11 million + £1.5 million) × 100.

5.4 Special educational needs inclusion fund (SENIF)

With the introduction of the new working parent entitlements for 2024 to 2025, local authorities should establish SENIFs for all children with SEN eligible for or taking up the entitlements, regardless of the number of hours taken. These funds are intended to support local authorities to work with providers to address the needs of individual children with SEN who are taking up the entitlements. This fund will also support local authorities to undertake their responsibilities to strategically commission SEN services as required under the Children and Families Act 2014.

Eligibility

Local authorities should target SENIFs at children with lower level or emerging SEN. Children with more complex needs and with an education, health and care plan (EHC) plan continue to be eligible to receive funding via the high needs block of the DSG. Further information on the high needs funding system can be found in the high needs funding arrangements: 2024 to 2025. As with other elements of early years funding, SENIFs should apply to children attending settings in the relevant local authority area, regardless of where they live.

Value

The value of the fund should consider the number of children with SEN in the local area, their level of need, and the overall capacity of the local childcare market to support these children. Local authorities should consult with early years providers to set the value of their local SENIF.

Sources of funding

Local authorities should establish their SENIFs using funding from the early years block and/or the high needs block of their DSG allocation.

Allocation of funding

As part of the preparation and review of their ‘SEND local offer’, local authorities must consult with various bodies including early years providers, parents and SEN specialists on the services and provision available to support children and young people with SEN and disabilities, and their families. As part of this ‘SEND local offer’, local authorities should publish details on how their SENIF will be used to support their early years SEN cohort. These details should include the eligibility criteria for the fund, the planned value of the fund at the start of the financial year, and the process for allocating the fund to providers.

Local authorities should pass the majority of their SENIF to providers in the form of top-up grants on a case-by-case basis. Local authorities can also support specialist SEN services in their local area. Funding used for these local authority-wide support services will not count towards the 95% pass-through; they will be counted within the 5% centrally retained funding.

Eligible providers

All early years providers that are eligible to receive funding for the entitlements are eligible to receive funding from the SENIF to support children with SEN attending their settings.

Compliance

Local authorities must record the planned value of their SENIFs in their early years proforma of the s251 budget returns.

6. Additional funding for maintained nursery schools (MNS)

Local authorities with MNS will receive supplementary funding for the 2024 to 2025 financial year for universal 3 and 4-year-old entitlement hours only. This funding was introduced to enable local authorities to protect their 2016 to 2017 funding rates for the universal 15-hour entitlement for MNS (that is, the rates that existed before the EYNFF) and the government expects it to be used in this way.

In 2024 to 2025, the minimum hourly rate is £4.64 and the cap has been set at £10 per hour with some transitional arrangements in place for the most affected local authority.  

In 2024 to 2025, local authorities’ MNS supplementary funding rates include a notional allocation to acknowledge the additional pressures that their MNSs may face in respect of increases to teachers pay and employer pension contributions.

As mentioned in the universal base rate section, all providers must be paid the same hourly base rate; this also applies to MNS. However, local authorities may continue to use ‘lump sums’ to distribute additional funding to MNS for 3 and 4-year-olds which may be different for individual MNSs.

The technical note sets out how the MNS supplementary funding rate for each local authority will be calculated, including how the minimum funding floor and cap have been applied, and how the additional funding for teachers’ pay and pensions has been distributed.

7. Disability access fund (DAF)

The Equality Act 2010 prohibits local authorities and settings from unlawfully discriminating, harassing or victimising disabled children, and requires them to make adjustments for disabled children where it is reasonable to do so. Local authorities must comply with the provisions of the Act in finding suitable provision for eligible disabled children.

The DAF was introduced to support disabled children’s access to the entitlements for 3 and 4-year-olds. For 2024 to 2025, DAF eligibility will be extended to eligible 2-year-olds and under, accessing the entitlements.

The funds can be used, for example, to support providers in making reasonable adjustments to their settings and/or helping with building capacity, be that for the child in question or for the benefit of children attending the setting.

7.1 Eligibility

A child will be eligible for the DAF if:

and the child receives one of the following:

  • the universal 15 hours entitlement for 3 and 4-year-olds

or

  • the 15 hours entitlement for disadvantaged 2-year-olds

or

  • from April 2024, the 15 hours entitlement for children aged 2 years of working parents

or

  • from September 2024, the 15 hours entitlement for children aged 9 months to 2 years of working parents

Please note that children do not have to take up the full 570 hours of early education that they are entitled to, in order to receive the DAF. Children will be eligible where they take up any period of free entitlement and receive DLA.

Four-year-olds in primary school reception classes are not eligible for DAF funding.

7.2 Identifying eligible children

Early years providers are responsible for identifying eligible children and are encouraged to use the DfE’s parent declaration template, which is included in the model agreement.

7.3 Eligibility checking

Local authorities are responsible for checking that the DAF eligibility criteria are met. They should be satisfied that the child in question is receiving DLA and may wish to see evidence of the child’s DLA award letter. Local authorities should keep a copy of this evidence on file.

7.4 Distributing DAF to early years providers

All early years providers delivering early years entitlements to children eligible for DAF are eligible to receive DAF payments.

Local authorities must fund all settings providing a place for DAF-eligible children at the annual rate of £910 per child. Annual funding allocations for DAF are based on DLA receipt data. It may be the case that local authorities receive more DAF funding from government than they distribute. In such circumstances, local authorities are expected to spend any additional funding in line with the principles and aims of the fund. The DAF is payable as a lump sum and should not be pro-rated according to hours taken up.

Local authorities should distribute individual DAF funding payments in their entirety to providers, and this funding should not be offset against any other funding which the local authority may ordinarily be providing for children eligible for the DAF.

If a child eligible for the DAF is splitting their free entitlement across 2 or more providers, local authorities should ask parents to nominate the main setting. Local authorities should pay the DAF for the child to that nominated main setting.

If a child receiving DAF moves from one setting to another, the new setting is not eligible to receive DAF funding for this child until the anniversary of the first payment has passed. DAF funding received by the original setting will not be recouped.

7.5 Timing of payments

The DAF is intended to aid access to the free entitlements for disabled children. Therefore, when the child takes up the relevant entitlement for children aged 9 months up to 4 years, local authorities must issue DAF payments to providers as soon as possible. So, for example, if a child turns 9 months, 2, 3 or 4 in the summer term, they will be able to take up their entitlement in the autumn term and local authorities should issue the first DAF payment as quickly as possible in that term. Where children are still eligible for the DAF, providers should receive successive payments annually until the child starts school.

8. Early years pupil premium (EYPP)

The EYPP gives providers additional funding to support disadvantaged children accessing an entitlement place.

For 2024 to 2025, EYPP will be extended to all 2-year-olds and under accessing the entitlements and meeting the eligibility criteria detailed below.

8.1 Eligibility

A child will be eligible for EYPP if the child receives either:

  • the universal 15 hours entitlement for 3 and 4-year-olds

or

  • the 15 hours entitlement for disadvantaged 2-year-olds

or

  • from April 2024, the 15 hours entitlement for children aged 2 years of working parents

or

  • from September 2024, the 15 hours entitlement for children aged 9 months to 2-years-old of working parents

and they meet any of the following criteria:

If a child qualifies for EYPP under more than one set of criteria, they will only attract the funding once.

EYPP is not payable on the additional 15 hours entitlement for 3 and 4-year-old children of working parents.

8.2 Identifying eligible children

Early years providers are ultimately responsible for identifying eligible children, so that local authorities can provide the appropriate funding. Providers should be encouraged to speak to parents of all children aged 9 months up to 4 years taking up one of the entitlements, to find out who is eligible for EYPP funding, especially to the parents of children who took up the early education entitlement for 2-year-olds as many of these children will attract EYPP when they turn 3. Providers are encouraged to use DfE’s parent declaration template, which is included in the model agreement.

It is the responsibility of the local authority’s virtual school head to identify children eligible for EYPP who are currently in local authority care.

8.3 Eligibility checking

Local authorities must check EYPP eligibility when a parent or provider tells them the child may be eligible. An EYPP eligibility check should not be made more than a term in advance of the child taking up their free entitlement in case the family’s circumstances change. Once a provider starts receiving EYPP funding in respect of a particular child, they will not lose it while the child is taking up the early years free entitlement.

The department’s eligibility checking system (ECS) provides a mechanism for local authorities to verify whether children meet the eligibility criteria.

Local authorities can only share the outcome of eligibility checks with:

  • the child’s parent(s) or legal carer(s), and

  • the provider, or providers, of the child’s early years education

Once the child enters reception, they will no longer be eligible for the EYPP, but may become eligible for the pupil premium. Eligibility for EYPP does not lead automatically to eligibility for pupil premium when the child starts school.

Local authorities should follow a different process for checking the eligibility of children who:

  • have been adopted from local authority care

  • have left care through a special guardianship order

  • have left care through a child arrangements order

Local authorities cannot check such eligibility through the ECS. Instead, the parents, adoptive parents or guardians of these children should show authorities evidence of the court order that proves that the child was in local authority care in either England or Wales.

8.4 Assessing eligibility for parents in receipt of universal credit

A parent who is entitled to universal credit will be subject to an earned income threshold detailed in the free school lunches and milk, and school and early years finance (amendments relating to universal credit) (England) regulations 2018. Eligibility must be checked through an assessment of the parent’s net earned income across up to 3 of the universal credit assessment periods immediately preceding the date of the request for the EYPP. Checking earnings over up to 3 universal credit assessment periods will consider families with fluctuating earnings.

The date of EYPP request is the date on which the parent submits their information (name, national insurance number, date of birth) and gives permission for their eligibility to be checked. The local authority should ensure that the date of request is recorded, and that eligibility is checked as soon as possible after the date of request.

The date of request provides the reference point from which the parent’s most recent 3 universal credit assessment periods must be determined. Therefore, when carrying out a manual check using evidence provided by the parent, the 3 relevant universal credit assessment periods would be the 3 complete assessment periods which immediately preceded the date of request.

Eligibility is assessed as follows:

  • if the parent’s net earned income in their first assessment period (period 1) does not exceed threshold 1, (£616.67) detailed in the free school lunches and milk, and school and early years finance (amendments relating to universal credit) (England) regulations 2018 the child is eligible.

  • if the parent’s net earned income exceeds threshold 1, then the sum of the parent’s net earned income in the assessment period immediately preceding period 1 (period 2) and period 1 is compared to threshold 2 (£1,233.34). If that total net earned income does not exceed threshold 2, the child is eligible.

  • if the parent’s net earned income exceeds threshold 2, then the sum of parent’s net earned income in the assessment period immediately preceding period 2 (period 3) and period 1 and period 2 is compared to threshold 3 (£1,850). If that total net earned income does not exceed threshold 3, the child is eligible.

Please note that:

  • period 2 or 3 cannot be assessed on their own independently of period 1. Likewise, period 3 cannot be assessed with period 1 unless period 2 is included

  • where the parent has completed fewer than 3 assessment periods, the steps above will apply up to, but not including, the step when there is no complete assessment period preceding period 1 or 2

This process is summarised below:

Table 2: eligibility assessment checks

Check 1 is earned income in period 1 less than threshold 1 (£616.67) if yes, eligible. If no proceed to check 2 (if there is a period 2
Check 2 is earned income in period 1 + earned income in period 2 less than threshold 2 (£1,233.34) if yes, eligible. If no proceed to check 3 (if there is a period 3)
Check 3 is earned income in period 1 + earned income in period 2 + earned income in period 3 less than £1,850) if yes, eligible. If no, not eligible

Local authorities should use DfE’s eligibility checking system to verify whether children meet the eligibility criteria under universal credit above.

8.5 Paying EYPP to early years providers

All early years providers who provide early years entitlements provision to children eligible for EYPP are eligible to receive the EYPP.

Local authorities must fund all eligible early years providers in their area at the national rate of 68 pence per hour per eligible child up to a maximum of 570 hours (£388 per year). Where a 3 and 4-year-old child is also eligible for the additional 15 hours entitlement for working parents, EYPP is paid on the universal 15 hours only, up to a total of 570 hours in the year.

As with the entitlements for children aged 9 months up to 4 years, EYPP becomes payable from the beginning of the term after an eligible child turns 9 months old, or the beginning of the term following their second or third birthday which is detailed in paragraph A1.7 of the early education and childcare: statutory guidance.

We fund local authorities for the funded places taken-up in the local authority in which a setting is based. Therefore, in cases where a child who lives in one local authority attends a setting in another local authority, funding the EYPP for the child is the responsibility of the local authority in which the setting is based.

Likewise, for children in local authority care, it is the responsibility of the local authority in which the setting is based to fund the EYPP.

Virtual school heads are responsible for managing the overall process of ensuring that providers which educate looked-after children who are taking up the free early education entitlement for children aged 9 months up to 4 years, receive EYPP for those children. However, in those circumstances, the payment of EYPP is made to settings by the local authority. You can read the guidance on pupil premium: virtual school heads’ responsibilities in managing EYPP for children in local authority care. That guidance will be updated to reflect the above clarification in due course.

9. Additional and further information

9.1 Cross-local authority funding

We fund local authorities for the funded places taken up in the local authority in which a setting is based. Therefore, in cases where a child who lives in one local authority attends a setting in another local authority, funding for the child is the responsibility of the local authority in which the setting is based. This applies to all the entitlement funding streams.

9.2 Payment of funding to childminders and childminder agencies

Local authorities should discuss and agree locally with childminder agencies and each childminder registered with each agency, whether funding (early years entitlements, early years pupil premium and disability access fund) is paid direct to the childminder or is passed on to the childminder through the agency.

For any questions relating to this guide, please contact us using the ESFA enquiry form.

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