A survey of early years providers by the Early Years Alliance (EYA) suggests the measures announced in the Budget to increase employer National Insurance contributions (NICs) and boost the national minimum wage will ‘push the sector to the brink’ if funding rates do not take into account the extra costs faced by businesses.
As of April 2025, employer NICs will increase from 13.8 per cent to 15 per cent, with the per-employee threshold at which employers start to pay National Insurance reduced from £9,100 to £5,000 per year. The national living wage will increase by 6.7 per cent for employees ages 21 and over, and the national minimum wage will rise by 16.3 per cent for 18-20 years olds, and 18 per cent for under-18s and apprentices.
The Government has previously said that minimum wage increases will be reflected in next year’s early years funding rates, however there is concern that these increases will not be enough.
Last week in the House of Commons, the education secretary Bridget Phillipson said they are looking in more detail into what the tax changes mean for early years providers, and will have more to say ‘shortly’, in response to concerns raised by parties of the opposition on behalf of their constituents.
The EYA’s survey of 1,007 providers reveals:
- 95 per cent are set to increase their fees if the Government fails to mitigate the combined impact of the NI and minimum wage rises
- 87 per cent are likely to introduce or increase charges for optional extras.
- 61 per cent are likely to introduce or increase restrictions on when the 15 and 30 funded hours can be taken.
- 52 per cent are likely to reduce the number of early entitlement places.
- 39 per cent are likely to withdraw from some or all the funded hour offers.
- 40 per cent are likely to close their setting permanently.
'The profit is too low or negative so no point staying open.’
One survey respondent said, ‘[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.’
Based upon a third of respondents who have already calculated the financial impact of NICs rises, the survey found that the changes to NICs and the national minimum wage will result in additional average annual costs of over £18,600 per setting, per year on average.
'Where do the Government think I am finding £60k?'
Another provider who took part in the survey said, ‘My costs will increase by £80k next year. My profit was £20k last year. Where do the Government think I am finding £60k?'
'It makes absolutely no sense for the Treasury to turn a blind eye to the potential impact of these changes on our sector'.
Neil Leitch, chief executive 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.
‘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.’
