In the Budget, Chancellor Rachel Reeves revealed employer’s NICs will rise by 1.2 percentage points to 15 per cent from April next year.
Many early years providers have warned that any increases which are not covered by a rise in funding rates for the expanded childcare offer will lead to them having no choice but to raise fees for parents in order to keep their businesses from closure.
Moreover, findings from a Nursery World survey published this week suggest Budget measures could deepen the sector’s longstanding recruitment and retention crisis, affecting settings’ ability to take part in the expanded hours offer and putting the policy at risk.
Early years providers also revealed they will be forced to cut staff and make cuts to employee benefits due to NICs and minimum wage rises.
Speaking in Tuesday's debate, Liz Jarvis, Liberal Democrat MP for Eastleigh said she had been contacted by ‘many owners of small businesses who are hugely concerned about the impact that changes to employer national insurance contributions will have on their businesses. That includes the early years sector, which plays a crucial role in supporting working families and the wider economy. Providers who operate on tight margins and with a limited ability to adjust income face unique challenges. For a sector that is already under immense financial pressure, this added burden feels short-sighted and risks undermining the stability of a service that families rely on so heavily.’
She gave examples in her own constituency of pre-schools and nurseries that had raised concerns including Crestwood Pre-school, a voluntary sector provider, and Forest Footsteps Childcare in Chandler’s Ford, whose owner Erin has ‘calculated that the new national insurance plans for employers’ contributions along with the rise in the national minimum wage will cost her approximately £13,000 a year more.’
The YMCA Eastleigh nursery and community centre said it will cost them an extra £95,000 a year.
Jarvis added, ‘These stories are not unique. Across the country, nurseries, pre-schools and childminders are warning that rising employer national insurance contributions coupled with inadequate Government funding will lead to higher fees for parents, reductions in staff pay and closures in those essential early years settings, which would not only harm working families but risk deepening the staffing crisis in the sector.’
Adam Dance, Liberal Democrat MP for Yoevil said, ‘The Government have made funding and supporting access to nurseries a priority, which I welcome, but raising the national insurance rate for employers could worsen the shortfall of nursery funding, with parents having to pay.’
The National Day Nurseries Association said early years providers will be badly impacted because staffing costs make up 75 per cent of their overall expenditure. NDNA’s calculations show that nurseries on average will have to find an extra 11 per cent on top of their usual staffing bills from April 2025.
Commenting after the debate, Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA) said, ‘Ahead of the Parliamentary debate yesterday we briefed all MPs on the challenges that early years providers will face regarding increased employer National Insurance Contributions. We appreciate all the MPs who raised this issue in Parliament, that nurseries should be considered as an exception because they support children’s early development and enable parents to work.
Tanuku added, ‘If this additional amount is not included in the funding rates due to be announced this month, then nurseries will have no choice but to pass this extra burden onto parents in the form of fees, reduce the number of places they offer or go out of business. With the final phase of the childcare expansion only a few months away, it’s vital that the Government supports nurseries to be able to meet this increased demand.
‘But the Government must recognise that by increasing the number of hours of funded childcare available to parents, they will disadvantage nurseries in England: they won’t be eligible to apply for the employer allowance because more than half of their income will be public funding.’
The National Insurance Contributions (Secondary Class 1 Contributions) Bill was read for a second time and now moves to the Committee stage where detailed examination of the Bill takes place.
