Parents face higher nursery fees as providers 'pushed to brink' by tax hike

The childcare sector could be pushed "to the brink", prompting providers to hike fees for parents or even shut down entirely, due to the impending rise in national insurance and minimum wage, a charity has warned.

According to the Early Years Alliance (EYA), if the Government doesn't intervene to mitigate the impacts outlined in the , parents will be hit with higher expenses. Last month's main Budget tax increase, a hike in employers' national insurance contributions, is set to generate upwards of £25bn.

A recent survey involving 1,007 senior early childhood staff across England discovered that 95% are likely to up their charges for hours not covered by government funding if the increased costs from national insurance and minimum wage rises were not funded or addressed by the Government.

Furthermore, around 87% are considering or planning to add on extra fees for additional services like meals, consumable items, and outings. Around 61% may put in place or enlarge limits on when parents can utilise early entitlement funds.

A total of 40% of those surveyed believe permanent shutdown of their early years establishment may happen. The charity Pregnant Then Screwed (PTS) said an increase in childcare costs might force some parents out of the job market or make them rethink plans to have more children.

The Government's expansion of funded childcare for working parents is currently being implemented across England. As part of the initiative, working parents with children over nine months old can now access 15 hours of funded childcare, with a full rollout of 30 hours per week for all eligible families set for September 2025.

However, a survey by the Early Years Alliance (EYA), conducted online from November 5-10, has revealed that 52% of staff may cut back on the number of early entitlement places they offer, and 39% are considering pulling out of some or all early entitlement offers without additional support from the Government. The recent Budget saw employer National Insurance (NI) rates climb from 13.8% to 15%, and the salary threshold for paying NI drop from £9,100 to £5,000 annually.

Chancellor also declared a 6.7% increase in the national living wage for workers aged 21 and above – rising from £11.44 to £12.21 an hour starting April. The EYA is urgently calling on the Government to either fully fund the NI increases for early years settings or exempt the sector entirely from these changes.

Neil Leitch, CEO of the EYA, commented on the situation, stating: "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 those surveyed 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 informed MPs in the that the Government would reveal if early years funding rates for different age groups will be adjusted to account for the national insurance increase. She stated: "We will be setting out more detail on funding rates in due course."

Ms Phillipson also mentioned that the Government is set to provide £8.1 billion for early years entitlements in 2025/26.

A separate survey by PTS, involving 3,847 parents with children currently in UK nurseries, indicated that a whopping 92% think childcare providers should not face NI hikes. Shockingly, nearly a quarter (24%) admitted they'd have to quit their jobs if childcare costs rose by 10%, as per the self-selecting poll conducted by PTS from November 8-11.

For those considering expanding their family, almost a third (30%) confessed that a 10% hike in childcare expenses would make having another child unfeasible. A government spokesperson declared: "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."

They added, "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."