Parents face higher nursery fees due to national insurance hike, charity warns

Two in five senior staff in childcare settings have said changes in the Budget could lead to permanent closures unless the Government takes action.

The Government’s expansion of funded childcare for working parents is being rolled out in England (PA) (PA Wire)

Childcare providers could be forced to increase fees for parents or close as national insurance and minimum wage rises are set to push the sector “to the brink”, a charity has warned.

Parents will face higher costs if the Government fails to take action to help protect the sector from the impact of changes set out in the Budget, according to the Early Years Alliance (EYA).

The main tax rise in the Budget last month was a change to employers’ national insurance (NI) contributions, which is expected to raise more than £25 billion for the Treasury.

A poll – of 1,007 senior staff in nurseries, preschools and childminders in England – found that 95% said their setting was likely to raise fees for non-government funded hours if cost pressures from NI and minimum wage rises were not adequately funded or addressed by the Government.

Nearly nine in 10 (87%) said they were likely to introduce or increase charges for optional extras – such as meals, consumables and trips, and around three in five (61%) said they were likely to introduce or increase restrictions on when early entitlement funding can be claimed.

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

Neil Leitch, chief executive of the Early Years Alliance

Two in five (40%) said permanent closure of the early years setting was likely, the poll found.

Some parents will be forced to leave the workforce – or they will have to reconsider plans to have another child – if childcare costs rise, according to charity Pregnant Then Screwed (PTS).

The findings come as the Government’s expansion of funded childcare for working parents is being rolled out in England.

Working parents of children older than nine months are now able to access 15 hours of funded childcare, before the full rollout of 30 hours a week to all eligible families in September 2025.

But the EYA survey – carried out online between November 5-10 – found that 52% of staff are likely to reduce the number of early entitlement places on offer at their setting, and 39% are likely to withdraw from some or all early entitlement offers entirely without Government support.

In the Budget, the rate of NI for employers was raised from 13.8% to 15%, and the salary threshold at which employers start to pay the tax was lowered from £9,100 to £5,000 per year.

Chancellor Rachel Reeves also announced that the national living wage will increase by 6.7% for employees aged 21 or older – from £11.44 an hour to £12.21 – from April.

The charity is calling for the Government to either commit to funding the NI rises in full for early years settings or exempt the sector from the changes entirely as a matter of urgency.

Neil Leitch, chief executive of the EYA, said: “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.”

Among the third of survey respondents who calculated the impact of the NI hike on their provider, the poll suggested that the changes will result in additional costs of over £18,600 per setting per year on average.

One respondent said: “Our collective increases are going to be in excess of £300,000 for the year over our 10 settings. We have 185 staff and care for 2,000 children per week.

“Where does Government think that £300,000 is going to come from? The parents, that’s where. We have no choice but to raise our fees.”

Another survey respondent said: “[It is] highly likely we will close within 21 – 24 months as this is a loss-making business model.”

Costs were “too high” and funding rates were “too low” to  stay open, they said.

Mr Leitch added: “The financial pressure created by the sharp increases in the minimum wage announced at Budget alone would have been cause for significant concern in the sector given that, despite government claims to the contrary, funding increases have never actually reflected the need for settings to maintain wage differentials between different staff when increasing wages.

“But add to this the huge rises in National Insurance costs – which the government doesn’t seem to have factored into next year’s early years funding rates at all – and you have a recipe for total disaster.”

Last week, Education Secretary Bridget Phillipson told MPs in the House of Commons that the Government would announce whether early years funding rates for age groups would change to reflect the national insurance hike.

She said: “We will be setting out more detail on funding rates in due course.”

Ms Phillipson added that the Government will provide £8.1 billion for the early years entitlements in 2025/26.

A separate poll by PTS, of 3,847 parents who currently have a child in a nursery in the UK, suggested that 92% believe childcare providers should be exempt from NI increases.

Nearly a quarter (24%) said they will have to leave the workforce if costs increase by 10%, according to the self-selecting survey by PTS between November 8-11.

Of those who say they want another child, nearly a third (30%) said having another child would no longer be feasible if their childcare costs increased by 10%.

A government spokesperson said: “This government has a clear mission to break the unfair link between background and opportunity, which starts with a reformed and sustainable early years system that gives every child the best start in life.

“We have taken tough decisions to fix the foundations, so that next year total spending on childcare will reach over £8 billion.

“We also take the concerns of the sector seriously and will continue to work with them and across government to ensure that funding arrangements give as much certainty and confidence as possible to deliver on the promises made to parents.”