Families face rising early years costs for families and setting closures as providers warns of the impact of National Insurance and minimum wage rises, Alliance survey finds

Nov 12, 2024

by Shannon Pite

Parents are set to face rising early years costs and setting closures as the early years sector grapples with the impact of increases in employer National Insurance contributions (NICs) and minimum wages, a new Early Years Alliance survey of just over 1,000 early years providers has warned.

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

Based on the one-third of respondents who had already calculated the financial impact of NICs rises, the survey found that the changes will result in additional annual costs averaging over £18,600 per setting, per year. However, the government has not committed to providing any financial support to ensure that providers can meet these additional costs.

While the Department for Education has said that increases to the national and living wages will be factored into next year's early years funding rates, the Alliance is warning that the measures used by the government to do so do not take into account the need to maintain wage differentials between more senior and more junior staff members.

According to the Alliance’s survey, just 18% of providers say that increases in funding rates over the past two years (which have used these same measures) have allowed them to maintain appropriate wage differentials.

The survey also found that if the combined cost pressures are not adequately funded or addressed by government:

95% of early years providers are likely to increase fees for any non-government funded hours.

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

60% are likely to introduce or increase restrictions on when early entitlement funding can be claimed.

52% are likely to reduce the number of early entitlement places on offer at their setting.

40% are likely to close their entire setting permanently.

39% are likely to withdraw from some or all early entitlement offers entirely.

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 facing 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.”

Join our call on government to protect early years providers from the impact of National Insurance and minimum wage increases

We at the Alliance are calling on the government to:

either exempt early years providers from the National Insurance changes or commit to funding the rises in full
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

We need as many early years providers as possible to write to their local MPs on this issue – and to make it as quick and easy as possible for you, we’ve created a virtual template letter for you to use:

We've also created a template letter for you to share with families at your setting:

�°��ϲʹ��

Text size