Interview: Conor D'Arcy, Policy analyst at the Resolution Foundation

The Government plans to introduce a 'national living wage' of £7.20 an hour from next April for people over the age of 25. What do you think will be the impact on early years settings and what could they do to make paying it more affordable?

Raising pay will clearly be a challenge in the childcare sector so nurseries will need to continue to find ways to make their business more efficient. Higher wages should help to reduce staff turnover, which can reduce recruitment and induction training costs.

Claiming the Employment Allowance - a £3,000 deduction in an employer's National Insurance contributions - should go some way to offsetting the higher wage bill. It's worth noting that part of the childcare workforce are under 25 and will therefore not be affected by the new 'national living wage'.

Can you explain more about how the Employment Allowance works?

The previous Government introduced an 'Employment Allowance' that allows employers to reduce the National Insurance contributions they make on behalf of their employees.

Initially set at £2,000, it will increase to £3,000 next year. Whether or not it offsets the cost of the higher minimum wage will depend on how many employees a nursery has and what they're earning, but it will certainly be welcomed.

The rate of the 'national living wage' doesn't compare to that of the Living Wage. How much difference do you believe it will make to employees?

The UK has been a low pay blackspot for decades, so action to get to grips with this issue is welcome.

But it's worth remembering that this top-up for those on the minimum wage aged 25 and up will still be well below the existing Living Wage Foundation's rates (£7.85 nationally and £9.15 in London), calculated to reflect how much is needed for a decent standard of living. In tandem with cuts to tax credits and other benefits for people in work, many low-income households will find themselves worse off as a result of the total impact of the Budget.

Do you think the 'national living wage' is realistic for all sectors?

The size of the increase will take the minimum wage into new territory, so no one knows what the exact impact will be. Sectors with a large share of low-paid workers will inevitably feel the pinch more than others. That's why it's important that the Low Pay Commission, the body which has guided the minimum wage since its introduction, continues to play a central role in its delivery so it is able to flag up any problems andidentify potential solutions.