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• 95% of providers set to increases fees if government fails to mitigate the combined impact of National Increases and minimum wage rises
   
• 40% of settings say permanent closure is likely if government doesn’t take urgent action 
   
• �°������ϲʹ������� also warned of plans to reduce early entitlement places or withdraw from the government schemes entirely
   
• The Early Years Alliance is calling for the government to either commit to funding the National Insurance rises in full or exempt early years providers from the changes – and to adequately fund minimum wage rises

Parents are set to face widespread increases in early years fees, restrictions on access to funded places and the permanent closure of early years settings unless the government takes urgent action to protect the sector from the impact of recent changes to employer National Insurance contributions (NICs) and minimum wage increases, a new survey of just over 1,000 early years providers from the Early Years Alliance has found.

As of April 2025, employer NICs will increase from 13.8% to 15%, with the per-employee threshold at which employers start to pay National Insurance reduced from £9,100 to £5,000 per year; while the national living wage will increase by 6.7% for employees ages 21 and over, and the national minimum wage will rise by 16.3% for 18-20 years olds, and 18% for under-18s and apprentices.

Based on the third of respondents who had already calculated the financial impact of NICs rises, the survey found that the changes will result, on average, in additional annual costs over £18,600 per setting per year on average.

As yet, however, the government has not committed to providing any financial support to ensure that providers can meet these additional costs. This is despite the fact that the Institute of Fiscal Studies estimates that government funding will account for 80% of the sector’s income by September 2025 as a result of the ongoing expansion of the early entitlement offer.

While the government has responded to concerns by pointing to the support that some businesses can get via Employment Allowance, under current guidance, non-charitable early years settings who receive more than 50% of their income via government funding are not eligible for this support.

The NICs changes are in addition to sharp increases in the national minimum and living wages, changes that have a particularly stark impact on the early years sector because such a high proportion of the workforce is paid at or near the minimum wage.

Although the government has said that minimum wage increases will be reflected in next year’s early years funding rates, there are widespread concerns in the sector that these increases will not be enough to enable settings to maintain differentials between the wages of more senior and more junior staff at a time when many are struggling to recruit and retain staff. In fact, just 18% of survey respondents said that increases in early years funding rates over the past two years have enabled them to maintain appropriate differentials in the wages of different employees.

In response to the survey findings, leading early years membership organisation the Early Years Alliance is calling on the government to either exempt early years providers from the National Insurance changes (an action supported by 89% of survey respondents) or to commit to funding the NICs rises in full.

The organisation is also urging the government to review the way it currently factors minimum wage increases into early years funding rate rises to ensure they reflect the need to maintain wage differentials.

According to the survey, if the combined cost pressures of the National Insurance increase and minimum wages increases are not adequately funded or addressed by government:

• 95% of early years providers are likely to increase fees for any non-government funded hours (80% very likely, 15% somewhat likely)

• 87% are likely to introduce or increase charges for optional extras (e.g. meals, consumables, trips) (69% very likely, 18% somewhat likely)

• 61% are likely to introduce or increase restrictions on when early entitlement funding can be claimed (38% very likely, 23% somewhat likely)

• 52% are likely to reduce the number of early entitlement places on offer at their setting (30% very likely, 22% somewhat likely)

• 40% are likely to close their entire setting permanently (14% very likely, 26% somewhat likely)

• 39% are likely to withdraw from some or all early entitlement offers entirely (17% very likely, 22% somewhat likely)

Commenting, Neil Leitch, CEO of the Early Years Alliance, said:

“There is no doubt that without urgent action from government, the changes announced at Budget could have a catastrophic impact on the early years sector.

“Years of underfunding have already left providers across the country struggling to stay afloat, with many faced with a stark choice between increasing parent fees or closing their doors permanently."

“With government funding now accounting for the majority of proportion of provider income, it has never been more critical for early years funding to reflect the true cost of delivering places.  

“The financial pressure created by the sharp increases in the minimum wage announced at Budget alone would have been cause for significant concern in the sector given that, despite government claims to the contrary, funding increases have never actually reflected the need for settings to maintain wage differentials between different staff when increasing wages.

“But add to this the huge rises in National Insurance costs – which ­the government doesn’t seem to have factored into next year’s early years funding rates at all – and you have a recipe for total disaster.

“We are in the middle of the biggest expansion in the history of the early years sector, one that the government says is key to supporting parents to work and in turn, boosting the economy. It makes absolutely no sense, therefore, for the Treasury to turn a blind eye to the potential impact of these changes on our sector when it knows full well that a failure to act will, at best, push up prices even further for parents and, at worst, push the sector to the brink of collapse. 

“It is absolutely critical, therefore, that the government either commits to funding the National Insurance rises in full for early years settings or exempt the sector from the changes entirely – and that it adequately funds minimum wage rises both now and in the future.

“Quality, affordable, reliable childcare and early education is a fundamental part of any successful economy – and yet for far too long, the early years sector has been left to struggle for survival. The new government has a chance to do things differently – but it must do it now. Inaction is simply not an option.”

Survey comments

“[It is] highly likely we will close within 21 - 24 months as this is a loss-making business model. Staff costs (minimum wage plus National Insurance) becomes too high, funding rates too low, business rates too high … The profit is too low or negative so no point staying open." 

“Many small businesses will have to reduce staff or close down. My [additional costs from] minimum wage and National Insurance increases are £37,000 from next April. I fear for what will happen.

“My costs will increase by £80k next year. My profit was £20k last year. Where do the government think I am finding £60k?” 

“We pay most people just above the national minimum wage or living wage. These rates all need to rise if national minimum wage is increased to maintain that differential. Next year, the national minimum wage and National Insurance increases will cost our nursery an extra £25,000. I'm scared. 

“As a group of five nurseries, we are looking at total salary bill going up by over £200,000 due to national minimum wage and National Insurance increases – this is simply not sustainable. We are very worried.” 

“Our collective increases are going to be in excess of £300,000 for the year over our 10 settings. We have 185 staff and care for 2,000 children per week. Where does Government think that £300,000 is going to come from? The parents, that’s where! We have no choice but to raise our fees.”

EDITOR NOTES

The survey was conducted online between 5 and 10 November and received 1,007 responses.

KEY FINDINGS

How would you best describe where you work in the early years?       

Nursery: 42%

Pre-school: 49%

Childminding professional: 4%

Maintained nursery school: 0%

Primary school nursery class: 0%

Out of hours club: 1%

Children’s centre; 0%

Specialist provision: 1%

Other 3%

How would you best describe your role within your setting?

Owner only: 13%

Both owner and manager: 30%

Manager only: 33%

Deputy manager: 3%

Trustee/committee member: 5%

Administrator: 7%

Other: 8%

Roughly how many members of staff do you employ in your setting?

Average = 15

Have you calculated how much additional cost this change to employer National Insurance contributions is likely to create for your setting?

Yes: 33%

No: 67%

Roughly how much additional cost will this create for your setting in total, per year. 

Average = £18,612

To what extent do you agree or disagree with the following statement: “Registered early years providers should be exempt from the recent increase employer National Insurance contributions and the lowering of the threshold at which businesses start paying National Insurance on a worker's earnings”?

Strongly agree: 81%

Somewhat agree: 8%

Neither agree nor disagree: 7%

Somewhat disagree: 2%

Strongly disagree: 1%

To what extent do you agree with the following statement: “Over the past two years, increases in my setting’s early years funding rates have enabled me/us to maintain appropriate differentials in the wages of different employees”.

Strongly agree: 7%

Somewhat agree: 11%

Neither agree nor disagree: 10%

Somewhat disagree: 18%

Strongly disagree: 55%

If the combined cost pressures of the National Insurance increase and minimum wages increases are not adequately funded or addressed by government, how likely is it that your setting will take the following actions?