‘National living wage’ rise from April will lead to 'fear and worry' for nurseries

Catherine Gaunt
Monday, October 25, 2021

Early years organisations have warned that the rise to the ‘national living wage’ threatens to make the situation worse for early years and childcare providers, after ministers accepted the recommendation of a 6.6 per cent increase from the Low Pay Commission.

PHOTO Without a substantial increase in early years funding more settings could close, sector representatives warn Adobe Stock
PHOTO Without a substantial increase in early years funding more settings could close, sector representatives warn Adobe Stock

The UK ‘national living wage’, which applies to workers aged 23 and over, is to rise from £8.90 to £9.50 an hour from next April. For those aged 21 to 22, the minimum will go up from £8.36 to £9.18.

Chancellor Rishi Sunak is expected to confirm the rise in Wednesday’s budget.

Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA), said, ‘Workers across the board are facing a cost of living crisis and increasing the Living Wage will be good news for many of the dedicated staff in the early years sector.’

But she added that the rise would be ‘deeply worrying’ for nurseries and childcare settings who rely on Government funded places for a large part of their income. 

The NDNA said that over the last five years the hourly rates that the Government pays to local authorities for funded childcare places, grew by only 3.3 per cent. Over the same period, the National Living Wage had increased by 19 per cent and by next year that gap will be almost 27 per cent.

A recent survey by the NDNA found that 55 per cent of the average nursery’s income came from funded hours and this rises to 72 per cent in areas of deprivation.

While providers ‘want to be able to recognise and reward the incredible work their staff do’ without better funding, providers will struggle to be able to keep qualified and experienced staff and so risk losing them, she said.

‘The early years sector is facing a real recruitment crisis but without addressing chronic underfunding this announcement will only make that situation worse. The Low Pay Commission has repeatedly recognised that the childcare sector’s reliance on Government funding rates means it cannot pass the full cost of these changes on in the same way other businesses would.

‘The Chancellor must take these Government imposed increases into account, alongside factors like the burden of business rates, inflation and the rising costs of operating in a pandemic, into account when setting the funding rates for early years places. If not, the Government risks plunging the early education and childcare sector into a deeper crisis.’

Commenting, Neil Leitch, chief executive of the Early Years Alliance, said, While it is absolutely right that all staff receive fair pay for the work they do, news that the national living wage is set to rise to £9.50 next year - alongside other significant minimum wage increases for younger workers - is likely to cause fear and worry throughout the early years sector.

‘Over recent years, funding for the so-called “free childcare” offers has seen only marginal increases in the face of significant rises in the living and minimum wage. Given salary costs account for around three-quarters of provider costs, the increases confirmed today are likely to represent nothing short of an existential threat to many early years settings across the country.

‘This year alone, more than 3,000 early years providers have already been forced to close as the result of sustained financial pressure. With National Insurance rates are also set to increase, and without a substantial increase in early years funding, this trend will only continue.

‘It is therefore absolutely vital the upcoming Spending Review includes a significant increase in funding for early entitlements, if the government is to ensure its desire for better pay does not ultimately cripple the vital service our sector provides to children and families.’

Meanwhile, the Child Poverty Action Group said that the increase was welcome but doesn’t compensate for the universal credit cut, which has has hit both working families and those who cannot work, leaving millions horribly exposed to rising prices and higher National Insurance.  

Sara Ogilvie, director of policy, said, ‘The Chancellor’s Spending Review must build on the minimum wage rise by restoring the value of children’s benefits, boosting help with childcare costs and widening eligibility for free school meals.’  

In its response, the Federation of Small Businesses warned that small firms need extra support amid rising costs across the board.

National chair Mike Cherry said, ‘The Treasury must play its part to secure wage increases – the taxman will gain almost £500 for every worker whose pay increases to £9.50 an hour. Larger than expected increases in the Living Wage must be matched by support for those who will struggle to afford to maintain jobs – these are the smallest employers, up and down the country, who need to see the extension of the small business Employment Allowance, which covers the first £4,000 of Employer NICs.

‘Across the board, costs for small businesses are on rise, from energy bills, input and recruitment costs as well as taxes and shipping – small firms are well and truly under the cosh. The Government pledged to cut the burden of business rates and we need to hear this loud and clear in the Budget.’

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