A new report on education spending in England in 2024-25, from the Institute for Fiscal Studies (IFS), highlights that despite increases in funding, ongoing and upcoming cost pressures are likely to increase the financial strain on providers, including the rise to employer National Insurance contributions (NICs) and national minimum wage.
However, it says that the impacts are ‘somewhat offset’ by a more generous NIC employment allowance, which particularly helps providers with small numbers of employees, as they are unlikely to pay NICs. It goes on to reveal the providers who would stand to benefit, they are:
- A small provider with six employees (or fewer) each on median earnings of £33k
- A small provider with seven employees (or fewer) on the current minimum wage.
According to the IFS, providers employing more staff than in these examples would ‘lose out’ from the changes, ‘the bigger employer, the more so’.
It says that over the longer term, providers may be able to ‘pass on’ higher costs to workers. On average, around 60 per cent of the impact of the NICs tax rise will eventually be felt by workers, in the form of smaller pay rises and lower wages, it adds. But the adjustment will be more ‘challenging’ for providers with many employees at or near the minimum wage.
The report, which covers early years, schools and colleges, also considers the Government’s classroom nurseries policy, it argues that if there is a geographical mismatch between falls in primary school population and rises in demand for new early years provision, this could prove a challenge to delivering the new settings.
It concludes that the spending review could present an opportunity for the Government to consider a process for setting funding rates that are more responsive to changing financial pressures.
The Early Years Alliance said that the changes to National Insurance contributions along with continued underfunding will result in 'countless' settings struggling to meet demand this year and beyond.
Chief executive Neil Leitch commented, ‘The IFS is absolutely right to highlight that, despite increases in early years funding in recent years, ongoing and upcoming cost pressures – including changes to employer National Insurance contributions – are likely to increase the financial strain on early years providers. We’re clear that this, alongside the continued underfunding of three- and four-year-old places, will result in countless settings across the country struggling to meet demand this year and beyond.
‘Ultimately, if 2025 is truly going to be a year in which the early years is prioritised, Government must put in place meaningful action to address the continued financial pressures on providers as soon as possible. Without this, it simply won’t be possible for settings to keep the promise Government has made to families.’
On schools, the report finds that growth in funding per pupil in 2025-26 (2.8 per cent in cash terms) won’t be sufficient to cover the expected increases in school costs (3.6 per cent). It says the growth in school costs reflects the full effects of the 5.5 rise rise in teacher pay from September 2024, and the recommended pay offer of 2.8 per cent for September 2025.
Josh Hillman, director of Education at the Nuffield Foundation, said, ‘Amid a tough fiscal climate and competing priorities, the IFS’s annual report delivers essential, independent analysis of the winners and losers in education spending. The analysis outlines the complex web of factors influencing the government’s decision-making on funding for the early years, school pupils, and further and higher education students. It highlights a range of challenges suggesting that the spending squeeze for schools and colleges will continue, but some gains for the under-5s.’
