This month, the Government announced the NMW for adults will rise to £6.50 an hour in October - up 19p on the current rate. Nursery managers have questioned why it is adding costs to delivering early years care without increasing funding for free childcare entitlements for two-, threeand four-year-olds.
Wrens Pre-school Nursery owner Sally George said three years of consecutive NMW rises would cost an additional £1,500 in wages by October. She employs six members of staff who care for up to 20 children in each session. Her local authority, Essex County Council, froze its 15-hour entitlement rate for threeand four-year-olds in 2012 to £3.82 per child.
'Full daycare nurseries can probably make up some of that extra cost by increasing fees,' she said. 'But sessional pre-schools will only use their 15 free hours and we've got no way of making up that money. The only way I can keep costs down is to cut down on equipment.'
Immanuel Pre-school Playgroup chair Andrea Green said her setting would lose a member of staff as a result of NMW increases. The daycare provider is based in a Birmingham church and offers care to 25 children a session. Ms Green said reducing staff from five to four was the only way to recoup costs added by the 2013 and this year's NMW hikes.
'We can't increase our fees because they're already at a ridiculous amount,' she said. 'Although it's harder on the staff, it's better for our own finances that we don't employ someone else.'
Ms Green said the setting had turned down the opportunity to offer free childcare for disadvantaged two-year-olds because she feared it would put the organisation under further financial pressure.
'Although the fees for twos are quite good at the moment, there will come a point in time where that won't increase,' she said. 'At the moment we can charge what we want for our two-year-olds. We don't want to charge more than we are now, but at least we've always got that possibility of putting fees up, which we can't for threes and fours.'
A survey published last month by the National Day Nurseries Association (NDNA) found the Government is underfunding 15-hour nursery places by an average £900 per child each year. NDNA policy director Claire Schofield said nursery owners' concerns about this shortfall were being aggravated by NMW increases.
'We think the NMW is a good thing in principle and we would like pay in the early years sector as a whole to be much higher so it reflects the commitment, qualifications and training of staff,'
she said. 'But staff costs are one of the biggest costs going up and funding isn't keeping pace.'
Ms Schofield warned that payroll costs would increase further in the coming years when providers are required to offer staff pensions. She said the Government's extensions of its tax-free childcare schemes and Pupil Premium funding were helpful, but would not solve the problem.
'We need a more radical overhaul of early years funding and that funding needs to be ring-fenced,' she said. 'The Government needs to look more at how we bring together all the different funding schemes and put childcare funding into one pot so it is more efficient.'
In October, the NMW rate will also change for apprentices, rising by 5p an hour to £2.73. At the London Early Years Foundation (LEYF), this will cost an extra £96 per apprentice over 12 months. But LEYF director of HR and organisational design Neil King said the increase would not affect the organisation's capacity to take on 20 trainees a year. 'Some providers use apprentices instead of hiring permanent staff, so the rise in rate could affect smaller providers with tighter profit margins,' he said. 'We can absorb the costs as it's not a big change.'
Kids Allowed's Jennie Johnson agreed the rate increase for apprentices would not affect her organisation's ability to hire and train apprentices, despite some being too young to be counted in settings' ratios. She added that increases to other NMW rates were a bigger issue. 'It's a valid thing for the Government to do, but it will be challenging for the sector,' said Ms Johnson.
Not all early years providers are concerned about the NMW rise. Fiveways Playcentre treasurer Keith Appleyard said the NMW increase is still too low. He claims his organisation was the first early years setting to pay its 36 employees a living wage rate. Appleyard pays his staff more than £8 an hour, which is above the national living wage rate for outside London, £7.65. He says this recognises the high cost of living in Brighton, where the provision is located. He added that by paying more the organisation stayed ahead of additional costs incurred by changes in Government policy.
'I look at the way my own staff are living on the living wage and I know how they struggle,' said Appleyard. 'Some of them run out of money before the end of the month and might ask to borrow £20 from petty cash. They're living from hand to mouth that closely even on the living wage.'
He urged nursery owners concerned about paying the higher NMW rate to plan ahead and increase wages further in anticipation of future hikes, adding, 'People who do nursery care deserve to be treated better, but I appreciate it can be difficult in poorer areas to put up rates.'
A spokeswoman from the Department for Education responded to providers' concerns about the NMW. She said that overall early years funding was increasing. 'Total funding for early education and early intervention has risen from around £4.2bn in 2011-12 to £4.5bn in 2014-15,' she said.
'We expect local authorities to ensure that the majority of this money is given to the frontline. We are boosting funding by introducing the early years pupil premium, spending £50m to help early years providers give more support to those children from the most disadvantaged backgrounds,' she added.