Early Years in 2026: What the Sector Is Navigating Right Now
The early years sector enters 2026 in a state of transition. The expansion of funded childcare has brought new families through nursery doors — but also new pressures: staffing demand, funding rate adequacy, and administrative complexity that many settings weren't built to handle.
Here's our view of the landscape and what it means for how settings need to operate this year.
The funded childcare expansion continues to bed in
The rollout of government-funded childcare to younger age groups has generated genuine demand for nursery places that didn't previously exist. Settings in areas of high employment have largely seen strong uptake. Settings in areas with more complex parental employment patterns have found the picture more variable.
What most settings have found is that the administration burden has grown considerably. More eligible children means more eligibility codes to track, more reconfirmation deadlines to manage, and more complex headcount submissions. Many settings that managed funded admin manually in previous years are finding that approach unsustainable.
Staffing remains the defining constraint
Recruitment and retention of qualified early years practitioners remains the most commonly cited operational challenge for nursery managers. The workforce is ageing, newly qualified practitioners are in short supply, and wage competition from retail, hospitality, and other sectors means that early years pay — even at Level 3 — often isn't competitive in the open market.
For many settings, the structural response to this is to reduce admin overhead on existing practitioners, so that their time is spent with children rather than on paperwork. This is not a complete answer to the staffing challenge, but it is a meaningful one.
Tools that cut the time required to write observations, record attendance, compile reports, and manage communications give practitioners back minutes in every session. Across a team and a year, that compounds into something significant.
The cost pressures haven't eased
Energy, food, insurance, and rent costs remain elevated. The funding rate that local authorities pass on to settings doesn't always cover the full cost of delivering care — particularly for under-twos, where ratios are highest. Many settings are effectively cross-subsidising funded places from fee-paying income.
Understanding your actual cost per funded hour — and being clear-eyed about whether the funding rate covers it — is more important than ever. If you haven't done this calculation for your current cost base, it's worth doing now.
Ofsted is changing its approach
Ofsted's shift away from single-word judgements for schools hasn't yet fully played out for early years settings, but the direction of travel is clear: inspectors are being asked to engage more deeply with the curriculum, the intent behind it, and the impact on children's learning. This means settings need to be able to articulate their pedagogical approach, not just evidence their outcomes.
For managers, this reinforces the importance of having clear documentation of your curriculum intent — and of making sure your team can speak to it confidently.
The technology gap is widening
There is a widening gap between settings using modern, integrated management software and those still relying on paper, spreadsheets, or ageing platforms. The former have faster funding claims, more complete observation records, better parent communication, and cleaner audit trails. The latter are spending more time on admin and accumulating more risk.
This isn't a criticism — many settings are on older systems because switching is disruptive and the decision has never felt urgent enough. But the cost of not switching is increasing as the compliance requirements and administrative demands of the sector grow.
2026 feels like the year this gap will start to matter more.
What we're watching
A few specific things we'll be watching closely over the coming months:
- Funding rate uplifts: Whether the rates local authorities receive from central government, and pass on to settings, move meaningfully toward the stated goal of covering the actual cost of provision
- Workforce strategy: The sector has been calling for a coherent early years workforce strategy for years; whether meaningful action follows the consultation activity of recent years
- Ofsted framework evolution: How the new inspection approach develops in practice for EY settings, and what it means for how settings document and communicate their work
We'll be writing about all of these as they develop. If there's a topic you'd like us to cover, let us know.