Guidance

Early years expansion grant 2025 to 2026: methodology

Published 27 February 2025

Applies to England

1. Overview

We are providing £75 million in additional funding to local authorities in 2025 to 2026 to support early years providers as they deliver the final phase of expansion to the working parent entitlements from September 2025. This funding will be distributed via the early years expansion grant which will be paid to local authorities, who will in turn pass funding on to providers based on the approaches set out in the early years expansion grant: conditions of grant.

This guide explains how we have distributed early years expansion grant funding to individual local authorities.

2. Eligibility for the grant

All local authorities in England that fund the government’s early years entitlements are eligible to receive the  early years expansion grant, and will be required to pay early years providers in accordance with the corresponding conditions of grant and operational guide.

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

3. Funding rates methodology

The early years expansion grant is intended to support the early years sector as it prepares to deliver the final phase of the childcare entitlements expansion from September 2025. To ensure this funding is focused on the 2-year-old and under 2s ‘expansion cohorts’, we have used the 2025 to 2026 2-year-old and under 2s early years national funding formulas to calculate stand-alone early years expansion grant hourly rates for each local authority. As with core funding arrangements, this approach seeks to reflect relative differences between local authorities in the cost of delivering the entitlements, as well as recognise the additional costs associated with higher levels of additional needs.

The method and data used to create the early years expansion grant rates are the same as those used to create the 2025 to 2026 early years national funding formulae hourly rates published in December 2024, with 2 key differences. The original method can be found in section 3 of the 2025 to 2026 early years national funding formulae technical note and the differences are detailed below.

Difference 1: total funding available for each age group.

We have apportioned the early years expansion grant funding between 2-year-olds and under 2s in the same proportions as used for 2025 to 2026 indicative allocations. This means that the early years expansion grant allocations total is £35.8 million for 2-year-olds and £39.2 million for under 2s.

As with core funding arrangements, only part-time equivalents (PTEs) relating to the first 15 hours of entitlements are used for rates calculations, with the resulting funding rates applied to all hours of childcare delivered through those entitlements. As such, for the purpose of rates calculations, we calculate the allocations totals for the first 15 hours of entitlements, which are then used to calculate the formula factor rates. One part-time equivalent (PTE) is defined as 570 hours of childcare, presented as 15 hours per week over 38 weeks.

Difference 2: formula factor rates

Using the early years expansion grant allocation totals, a new base rate and new additional needs factor rates were calculated for each age group, following the method outlined in section 3.5 of the 2025 to 2026 early years national funding formulae technical note. That is, reusing the factor weightings, area cost adjustment (ACA), and PTEs for each factor, we calculate each factor rate as:

national funding total for the factor

divided by

the national sum of each local authority’s PTEs for the factor x each local authority’s ACA x 15 x 38

The early years expansion grant factor rates are presented to the nearest penny in table 1. These factor rates are available to five decimal places in Annex A.

Table 1: 2-year-old and under 2s formula factor rates for the early years expansion grant

Funding factor	2-year-old hourly rate (£/hour)	Under 2s hourly rate (£/hour)
Universal base rate	£0.11	£0.15
Free school meals (FSM)	£0.02	£0.03
English as an additional language (EAL)	£0.01	£0.01
Disability living allowance (DLA)	£0.06	£0.08
Income deprivation affecting children index (IDACI) band A	£0.02	£0.03
IDACI band B	£0.02	£0.02
IDACI band C	£0.02	£0.02
IDACI band D	£0.01	£0.02
IDACI band E	£0.01	£0.01
IDACI band F	£0.01	£0.01

Local authority level early years expansion grant rates were then calculated following the method outlined in section 3.6 of the 2025 to 2026 early years national funding formulae technical note, again reusing the ACA and PTEs for each factor.

This means that, for each local authority, we first calculate local authority-level rates for each factor by multiplying the early years expansion grant formula factor hourly rates by the relevant 2025 to 2026 ACA.

Then, we calculate allocations for each factor, by multiplying the local authority-level factor rate by the local authority-level PTEs for the factor, then multiplying by 15 and then by 38 (to convert from PTEs to hours).

Next, we add together each factor allocation for the local authority and divide this total by the PTEs used for funding rate calculations, which are the PTEs relating to the first 15 hours of entitlements.

Finally, we round these rates to the nearest penny without applying protections, as these are stand-alone funding rates.

Further detail, including example calculations, are available in section 3.6 of the 2025 to 2026 early years national funding formulae technical note.

To support local authorities with their planning, in addition to the hourly rates, we have provided the early years expansion grant rates on a per-PTE basis in the allocations tables. See section 5 of this document for further details

4. Paying the grant

The early years expansion grant will be paid for the 2025 to 2026 financial year only.

Local authorities in England will receive allocations under the early years expansion grant in February 2025.

Local authorities will receive their funding in a single payment in July 2025.

5. Allocations

Allocations for the early years expansion grant will be paid based on PTE data used for the 2025 to 2026 early years dedicated schools grant (DSG) rates setting. That is:

• for the 2-year-old entitlement for families receiving additional support, we have used PTE data from the January 2024 early years, schools and alternative provision censuses
• for the 2-year-old and under 2s working parent entitlements, a national estimate of 2025 to 2026 PTEs (which account for the mid-year expansion of the entitlement from 15 to 30 hours) has been used, with the local authority level distribution based on the additional data collected through the summer term 2024 school census and local authority count data

Further detail on these PTEs is available in the 2025 to 2026 early years national funding formulae technical note.

The final allocations for the early years expansion grant are calculated separately for 2-year-olds and under 2s and are calculated as follows:

• the number of PTEs for each age cohort, as described above
• multiplied by 15 hours x 38 weeks x local authority’s early years expansion grant hourly funding rate

To support local authorities with their planning, the allocations table for the early years expansion grant also include per-PTE rates for each age group. These are equal to the hourly rates for each local authority, multiplied by 15 then by 38.

These allocations will be final, there will not be any further adjustment.

6. Local authority funding to providers

Local authorities should refer to the conditions of grant which set out the permitted use of the funding and detail how it should be passed on to providers.

7. Annex A: formula factor rates

We have provided the 2-year-old and under 2s formula factor rates to five decimal places in table 2 for transparency purposes. These have been included here, in absence of early years expansion grant step-by-step tables, to support users in following the methodology of the early years expansion grant.

Table 2: 2-year-old and under 2s formula factor rates for the early years expansion grant

Funding factor	2-year-old hourly rate (£/hour)	Under 2s hourly rate (£/hour)
Universal base rate	£0.11481	£0.15473
FSM	£0.02092	£0.02956
EAL	£0.00882	£0.01290
DLA	£0.06109	£0.08352
IDACI band A	£0.02128	£0.03157
IDACI band B	£0.01612	£0.02391
IDACI band C	£0.01518	£0.02252
IDACI band D	£0.01393	£0.02066
IDACI band E	£0.00892	£0.01323
IDACI band F	£0.00736	£0.01091