Guidance

Early years expansion grant 2025 to 2026: conditions of grant and operational guidance for local authorities

Published 27 February 2025

Applies to England

The Education and Skills Funding Agency (ESFA) closed on 31 March 2025. All activity has moved to the Department for Education (DfE). You should continue to follow this guidance.

1. Introduction

1.1 Legislation

The early years expansion grant is being paid by the Secretary of State 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 attaches the following terms to the grant payable, alongside guidance on how the early years expansion grant should be managed by local authorities locally. 

The early years expansion grant is subject to the Department for Education (DfE) standard grant funding agreement terms and conditions.

1.2 Purpose

In December 2024, we announced the early years expansion grant, which will provide an additional £75 million of funding to support the sector as it prepares to deliver the final phase of expansion of the working parent entitlement from September 2025.

This document contains guidance setting out details of the early years expansion grant, explaining how local authority level funding has been set, and how DfE expects local authorities to pass funding on to providers locally. It also includes the terms and conditions to which this grant is subject.

For full details of how funding rates and allocations have been calculated, this guidance should be read in conjunction with the early years expansion grant methodology and grant allocation tables.

1.3 Period

The guidance and conditions of grant in this document cover the financial year 2025 to 2026.

2. Eligibility 

2.1 Types of settings

The following settings are eligible to receive funding through the early years expansion grant:

• local authorities in England that fund the government’s free early years entitlements

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

3. Payments

3.1 Calculation

Local authority level allocations for this grant have been calculated using a standard methodology and have been published alongside this guidance.

To reflect the needs of providers as they deliver expansion of the new working parent entitlements, we have focussed this grant on the 2-year-old and under 2s cohort. Early years expansion grant funding rates have, therefore, been calculated using the early years national funding formulae (EYNFF) for 2-year-olds and under 2s, including the formulae weightings and factors used to calculate 2025 to 2026 funding rates for these age groups’ entitlements.

These calculations also make use of the same data sources used in the 2025 to 2026 early years funding rates, including on part time equivalent (PTE) numbers^{[footnote 1]},  that is, for the 2-years-old and under PTEs, we use the same national estimates, and for the PTEs of 2-year-olds from families receiving additional support (FRAS) we use actuals from January 2024 census. For more detail on PTEs used see the 2025 to 2026 early years funding formulae: technical note.

For this grant, local authorities will receive 2 funding rates: one in respect for 2-year-olds and one for the under 2s. These rates have been set out separately for the purposes of calculating local authority allocations. Local authorities have the flexibility in how they apportion their total early years expansion grant allocation, that is, they do not need to allocate the funding calculated through the 2-year-old and under 2s early years national funding formulas  (EYNFFs) only to 2-year-olds and under 2s respectively. For more information on how LAs should allocate this funding, please see section 3.4.2 below.

3.2 Payments table

	Local Authorities	Academies	FE and other settings
2025 to 2026 Allocation	July 2025	N/A	N/A

Final allocations for the early years expansion grant have been published alongside this document in February 2025. These allocations are final - there will not be any adjustment to the early years expansion grant allocations.

The calculations for these allocations are as follows:

• the estimated number of PTEs taking up the under 2s and both 2-year-old entitlements (working parent entitlement and FRAS entitlements) in 2025 to 2026, accounting for the mid-year increase to 30 hours for the working parent entitlements

• multiplied by 15 hours x 38 weeks x local authority’s hourly funding rate

We will pay the early years expansion grant to local authorities in a single payment in July, to cover the 2025 to 2026 financial year.

3.3 School closures

Not applicable.

3.4 Local authority duty in making payments

3.4.1 Allocation and payment to childcare providers

2025 is a significant year for the delivery of the expansion of the working parent entitlement. To help meet this milestone in a way that priorities speed of allocation and best suits their local needs, local authorities can distribute early years expansion grant funding as suggested by DfE, or they can develop a bespoke approach tailored to support specific growth needs in their area.

Whatever approach to distribution a local authority is using, it must notify providers of their allocations from the early years expansion grant within 6 weeks of local authority funding allocations being confirmed by DfE, that is by 10 April 2025.

Local authorities must ensure that the early years expansion grant is distributed 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.

3.4.2 DfE recommended approach for local distribution

For quick and straightforward allocation of the early years expansion grant to providers, it is recommended that local authorities take one of two approaches to allocating funding locally. They can either:

A) Distribute their total allocation between providers as a flat rate per-PTE, according to the number of 2-year-olds and under 2s taking up the early education entitlements in settings.

Or

B) Use their local 2-year-old and under 2s local funding formulae to determine provider-level funding.

In either scenario, in their count of 2-year-old PTEs, local authorities must include those taking up both the working parent, and FRAS entitlements to align with DfE’s commitment to reduce the disadvantage gap.

3.4.3 Creation of local authority-specific approach

Alternatively, if local authorities wish to target funding on specific growth needs in their area they can determine the most suitable way to allocate early years expansion grant funding, as long as the funding is used to support providers’ capacity to deliver government funded hours and meet the September 2025 expansion milestone. This bespoke approach may include, for example, directing funds to specifically support providers’ expansion plans, supporting providers address particular recruitment or workforce challenges, or providing additional support to providers delivering entitlement hours to 3 and-4-year-olds.

Any bespoke models adopted should reflect the crucial role that private, voluntary, and independent providers, including childminders, play in local expansion plans and take into account the full funding context for 2025 to 2026, including the funding delivered to school-based settings through the 2025 2026 National Insurance contributions grant.

Further, where any bespoke approach provides funding based on 2-year-old places, in their count of PTEs, local authorities must include those taking up the FRAS entitlements.  

3.4.4 Distribution timing

As above, we expect  local authorities to communicate provider funding rates within 6 weeks of DfE’s publication of rates, that is by 10 April 2025. Where appropriate, for example, if funding is being provided as a lump sum locally, local authorities should also confirm provider allocations within this timeframe. This gives providers certainty ahead of the September 2025 expansion.

Once they have notified providers of allocations, local authorities must pay providers before the end of August 2025, to give providers certainty once they start to incur costs ahead of the September 2025 expansion.

3.4.5 Budget designation and consultation requirement

While we have used the EYNFFs to calculate these funding rates, the early years expansion grant is a one-off grant and it is not part of an local authority’s schools budget for the purposes of section 45A(2) of the School Standards and Framework Act 1998 or regulation 6 of the School and Early Years Finance (England) Regulations 2025. As such, funding through this grant will not be included in local authorities’ future funding baselines.

Local authorities do not need to consult with their schools forum on passing on the early years expansion grant funding to early years providers. Nonetheless, 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.

4. Permitted use of funding

4.1 Eligible spend

Local authorities should note that all funding received via this early years expansion grant must be distributed to eligible early years providers and, regardless of distribution method, must not be used for contingency purposes or local authority central or administration costs.

Local authorities must ensure that early years expansion grant funding is only allocated to early years providers delivering the government’s childcare entitlements.

While use of this early years expansion grant funding will be diverse, reflecting different provider circumstances, it must be used for the purposes of supporting the delivery of the childcare entitlements.

As the public body allocating early years expansion grant funding, local authorities should ensure that they remain compliant with the Subsidy Control Act 2022. They should consider the detailed statutory guidance available and may also find this overview of the key requirements in the act helpful.

5. Assurance

5.1 Carry forward                    

Local authorities must not carry funds from this early years expansion grant forward past 31 March 2026 and any funding not spent for the purposes outlined in these terms and conditions by this date should be returned to DfE.

5.2 Records required

Local authorities are required to maintain and keep clear records of income and expenditure in relation to the early years expansion grant, including a record of allocations and evidence of the use of funds.

DfE  will work with local authorities to understand how the early years expansion grant has been used to support delivery of the September 2025 delivery milestone. This will include collecting information on the approach local authorities have taken to allocate funding to providers, including average amounts per provider and proportion of providers in each area receiving funding through the grant. We will also collect information from local authorities on how providers in their area have used early years expansion grant funding.

6. Further information

Books, other documents and records relating to the recipient’s accounts shall be open to inspection by the Secretary of State 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 shall provide information as may be required by the Secretary of State to determine whether they have complied with these conditions.

7. Variation

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

8. Recovery of funding

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

Recoveries will be made by invoice or by offsetting the amount against the 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.

9. Overpayments

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

10. Enquiries

For queries relating to these conditions you can contact us via our Customer Help Portal.

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