Guidance

Inclusive early years fund for 2026 to 2027: conditions of grant and operational guidance for local authorities

Published 25 March 2026

Applies to England

Introduction

Legislation

The inclusive early years fund is being paid by the Secretary of State for Education to eligible local authorities in England under section 14 of the Education Act 2002. In accordance with section 16 of that Act, the Secretary of State for Education attaches the following conditions to the grant payable, alongside guidance on how the inclusive early years fund should be managed by local authorities locally.

Where this document uses ‘must’, the associated instruction is a condition of the grant. Otherwise, this is supporting guidance to help administer the grant in accordance with its objectives.

The inclusive early years fund is subject to the DfE standard grant funding agreement terms and conditions.

Purpose

In February 2026, we announced the inclusive mainstream fund, worth over £500 million per year. As part of this, the inclusive early years fund will provide £47 million of additional early years funding in 2026 to 2027 to support the early years sector to become more inclusive of children with special educational needs and disabilities (SEND).

This funding marks a first step towards a more coherent and inclusive early years SEND funding system. It is upfront funding intended to:

• help providers adopt setting-wide inclusive practices
• reduce reliance on individual child-based funding applications
• enable early intervention for children with SEND

In 2026 to 2027, the inclusive early years fund complements existing funding such as special educational needs inclusion fund (SENIF), disability access funding (DAF), and high needs funding, while signalling the direction of future reform to create a simpler, more consistent approach to supporting inclusion across all early years providers.

This document contains guidance setting out details of the inclusive early years fund, explaining how:

• local authority level funding has been set
• the Department for Education (DfE) expects local authorities to pass funding on to providers locally

It also includes the conditions to which this grant is subject.

For full details of how funding rates have been calculated, this guidance should be read in conjunction with the Inclusive early years fund for 2026 to 2027: methodology. 

Period

The guidance and conditions of grant in this document cover the financial year 2026 to 2027. We will consider opportunities in future years to simplify early years SEND funding and reduce bureaucracy.

Eligibility 

Types of local authorities

Local authorities that fund the government’s free early years entitlements are eligible to receive funding through the inclusive early years fund.

The Isles of Scilly and City of London are excluded from these allocations as their funding arrangements are managed separately.

Types of settings

Eligible local authorities must only fund early years providers that deliver the government’s free early years entitlements.

Payments

DfE national calculation of local authority allocations

Final allocations for the inclusive early years fund will be published in July 2026. These allocations will be final. There will not be any adjustment to the inclusive early years fund allocations.

The calculations for these allocations will be as follows:

• the number of part-time equivalents (PTEs) taking up the 3 and 4-year-olds universal 15 hours entitlement as recorded on the January 2026 schools, early years and alternative provision censuses
• multiplied by the local authority’s PTE rate as provided in the Inclusive early years fund for 2026 to 2027: methodology - this has been calculated using a standardised methodology provided

PTE is a standard measure of volumes, 1 PTE refers to 15 hours per week, 38 weeks of the year.

The Local authority inclusive early years funding (IEYF) calculator tool will help local authorities calculate their total funding allocation.

Payments table

Action	Local authorities
Local authority inclusive early years funding (IEYF) calculator tool	March 2026
Final allocations	July 2026
Payments	July 2026

DfE expects to pay the inclusive early years fund to local authorities in a single payment in July 2026, to cover the 2026 to 2027 financial year.

Local authority duties in making payments

Allocation and payment to childcare providers

In this section, we set out the principles that must be applied by local authorities to the distribution of the grant. Local authorities can distribute the inclusive early years fund to providers using the recommended formula set out in DfE recommended approach for local distribution, or they are permitted to develop a bespoke, formulaic approach to best target SEND need in their area, provided this approach meets the requirements in this section.

To support providers in adopting setting-wide inclusive practices and intervening early to support children with SEND, funding must be provided:

• upfront
• without requiring panel or application processes
• without being tied to individual children
• in a clear and transparent manner, so that providers understand how allocations have been determined locally, especially when they differ from DfE’s suggested route

Local authorities should ensure providers receiving an allocation from the IEYF receive an amount that is substantial enough to effect meaningful change in inclusive practice at setting level. We recommend this is in the region of £1,000 per setting. This is to ensure providers receiving the grant have a sufficient level of funding to develop mainstream inclusive practice. As such, local authorities are not required to fund all providers in their area and could apply a minimum funding threshold to achieve meaningful allocations.

We will be determining the final allocations based on local authorities’ January 2026 PTE data and there will be no adjustments to funding allocations from this point. When determining local distribution, local authorities are permitted to use their more up-to-date local PTE data (for example to account for setting closures or openings). However, they should consider what will be affordable within the January 2026 PTE-based allocation from DfE.

Local authorities should ensure that providers not receiving an inclusive early years fund allocation in 2026 to 2027 are able to access support to adopt setting-wide inclusive practices. This should be a consideration when prioritising their existing SEND support including special education needs (SEN) inclusion funding, and other local authority support for providers. Local authorities should take proactive steps to make providers fully aware of the support on offer and how to access it. Providers will also benefit from the wider support offer being introduced through SEND reforms. Our proposals are set out in the consultation document, SEND reform: putting children and young people first. 

The inclusive early years fund also provides funding for the 2027 to 2028 and 2028 to 2029 financial years. The approach to distributing this funding in future years will be confirmed alongside the early years (EY) funding arrangements for the respective years.

DfE recommended approach for local distribution

It is recommended that local authorities take the following approach to allocating funding locally.

Distribute the total allocation to providers based on a base rate plus an additional needs factor, (for example, using the same criteria as is used in their local early years funding formula deprivation supplement), paid in respect of 3- and 4-year-old universal hours PTEs. Local authorities can determine their own weightings but may choose to replicate the national inclusive early years fund formula which is weighted 75% base rate and 25% additional needs factors.

Local authorities could implement a de minimis threshold by redistributing from allocations falling below the chosen threshold, to ensure all providers receiving the grant receive a meaningful amount. For example, if using the recommended £1,000 de minimis, local authorities may choose to do this by either:

• excluding providers whose initial calculated allocation would fall below £1,000, and redistributing that funding across the remaining providers
• iteratively redistributing from the lowest calculated allocations to ensure that all providers receiving the grant receive at least £1000

As described in Allocation and payment to childcare providers, the purpose of the minimum funding threshold would be to support value for money by avoiding small allocations that would be insufficient to support the development of mainstream inclusive practice.

We recommend using deprivation as a proxy for SEND need because there is a correlation between SEND and deprivation in the early years and it is reliable, available data already used with local early years formulae. Using a proxy rather than reported SEND data helps avoid variation arising from different identification practices and supports the grant’s purpose of strengthening inclusive practice across providers, not just where needs have already been identified.

We also recommend allocating funding based on 3 and 4-year-old universal hours PTEs because, as a universal offer, this represents a full cohort of children and there is an increased likelihood of identifiable SEND needs emerging at this age. However, while we recommend the funding is distributed based on 3 and 4-year-old universal entitlement PTE numbers, the funding is intended to help providers adopt setting-wide inclusive practices and should be used to benefit children across the setting.

Creation of local authority-specific approach

Alternatively, if local authorities wish to design their own formulaic approach to target SEND need in their area, they are permitted to do so, as long as this follows the principles and requirements set out in Allocation and payment to childcare providers. This approach may include, for example:

• directing funds based on all entitlement age groups
• targeting funding to providers who have historically taken on more children with SEND

Where local authorities use reported SEND data rather than proxy factors, they should ensure there are appropriate assurance measures in place.

Distribution timing

We expect local authorities to:

• communicate details of the local approach to distribution and indicative allocations to DfE and providers before the end of May 2026
• confirm allocations before the end of August 2026

Notification to DfE will take place through a Microsoft form issued by regional leads in due course, requesting a summary of the chosen approach by the end of May 2026. Further detail will be requested at the end of the financial year, in accordance with records required.

Once they have notified providers of allocations, local authorities must pay providers before the end of September 2026. Payment should be made as a single lump-sum payment. 

Budget designation and consultation requirement

The inclusive early years fund is not part of a local authority’s schools budget for the purposes of section 45A(2) of the School Standards and Framework Act 1998 or regulation 7 of the School and Early Years Finance (England) Regulations 2026.

To allow local authorities to provide timely allocations to providers, they do not need to consult with their schools forum on passing on the inclusive early years fund funding to early years providers. We encourage local authorities to be clear with providers and engage with them early to share details of how and when they plan to allocate funding, where this is possible and does not create excessive delays in finalising allocations and making payments to providers.

Permitted use of funding - eligible spend

Local authorities should note that all funding received via this inclusive early years fund must be distributed to eligible early years providers as additional funding and, regardless of distribution method, must not be used:

• as a substitute for entitlements funding, early years pupil premium, disability access funding, SEN inclusion funding or high needs funding
• for contingency purposes
• for local authority central or administration costs

Local authorities are receiving separate funding through the inclusion and transformation grant to support the delivery of the necessary changes to their local systems in line with SEND reforms while continuing to deliver effective and efficient services to children and young people with SEND through transition.

The inclusive early years fund must be distributed to providers to help them become more inclusive of children with SEND. While the specific use of funding will vary between providers, it should support activities such as:

• strategic planning
• workforce development
• adaptations or resources to create an inclusive environment

We will publish further guidance on the use of the inclusive early years fund and how it complements other SEND funding for children in EY.

Assurance

Carry forward                   

Local authorities must not carry funds from the inclusive early years fund forward past 31 March 2027. Any funding not distributed by the local authority for the purposes outlined in these conditions by this date should be returned to DfE.

Records required

Local authorities must maintain and keep clear records of income and expenditure in relation to the inclusive early years fund, including a record of allocations and evidence of the use of funds by providers.  

Local authorities should ensure that providers are using the fund for its intended purpose and should expect early years providers to retain financial records (for example, a detailed spreadsheet or receipts if appropriate) showing how the funds have been spent. We expect local authorities to take a proportionate approach to oversight which may include:

• requesting a summary from providers of how they have used the funds
• using existing accountability mechanisms, such as review forms already used for SENIF applications
• sampling a range of provider types and sizes through existing engagement forums to understand the use of funding and any emerging trends

Approaches to monitoring SEND funding vary across local authorities, and we encourage local authorities to draw on their existing systems rather than introducing additional administrative processes. We do not expect local authorities to undertake detailed audits of all providers receiving the grant.

DfE will work with local authorities to understand how the inclusive early years fund has been spent and how it has supported improvements to mainstream inclusive practice. A short questionnaire will be issued by regional leads at the end of the 2026 to 2027 financial year.

The questionnaire will request high-level summaries from local authorities including:

• the approach taken to allocate funding, including average amounts per provider and the proportion of providers funded
• the typical ways in which providers have used the fund
• how the fund has contributed to mainstream inclusion in early years settings
• the mechanisms the local authority has used to ensure compliance.

Local authorities will be able to respond using evidence gathered through their existing monitoring processes or any proportionate approach they choose to adopt. Full details will be confirmed in the additional guidance to be issued later in 2026.

Local authorities should also consider this funding stream as part of their local SEND reform plan.

Further information

Books, other documents and records relating to the recipient’s accounts must be open to inspection by the Secretary of State for Education and by the Comptroller and Auditor General.

The Comptroller and Auditor General may, under section 6 of the National Audit Act 1983, carry out examinations into the economy, efficiency and effectiveness with which the recipient has used its resources.

Local authorities must provide information as may be required by the Secretary of State for Education to determine whether they have complied with these conditions.

Variation

The basis for allocation of grant may be varied by the Secretary of State for Education from that set out above.

Recovery of funding

If a local authority fails to comply with the conditions set out in this document, the Secretary of State for Education may recover some or all of the inclusive early years fund that has been paid to that local authority. Where the Secretary of State for Education determines any portion of inclusive early years fund funding is repayable by a local authority, the local authority will be notified in writing.  

Recoveries will be made by invoice or by offsetting the amount against subsequent payments due from DfE.

The recipient must notify DfE immediately through the customer help portal if it becomes aware of any instance of error, suspected fraud or financial irregularity in the use of the funds.

Overpayments

If a local authority identifies it has been overpaid, it must contact DfE to arrange repayment of the excess. Where DfE has identified an overpayment, it may seek to recover the excess. The local authority will be notified of this in writing.

Enquiries

For queries relating to these conditions use the customer help portal.