Nurseries warn they face closure as National Insurance hike impacts costs

Neil Leitch, CEO of the EYA, described the situation as a "recipe for disaster," stating, "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."

What’s driving the crisis?

The financial strain is being fuelled by two key factors announced in the Budget:

• Higher National Insurance contributions: The rate for employers is set to rise from 13.8% to 15%, with a lower threshold for contributions starting at £5,000 per year instead of £9,100.
  An increase in the national living wage: From April 2024, wages for staff aged 21 and over will increase by 6.7%, rising to £12.21 an hour.
• Childcare settings, which already operate on razor-thin margins, say these changes will add an average of £18,600 in annual costs per provider. Larger organisations face even steeper bills – one operator with 10 nurseries estimated an extra £300,000 in annual costs, a burden that will likely fall on parents.

How will this impact parents?

For families, the consequences of this financial crunch could be devastating. A separate survey by the charity Pregnant Then Screwed (PTS) highlights the knock-on effect on parents:

• 24% of respondents said they would need to leave the workforce if nursery fees increased by 10%.
• Nearly a third (30%) of parents planning another child said rising fees would make this financially unfeasible.
• Some nurseries are already passing on the costs. Others are scaling back their services, such as limiting government-funded hours or introducing charges for meals, consumables, and trips.

What’s at stake for the sector?

Despite the Government’s expansion of funded childcare hours, which promises 30 hours a week for working parents by September 2025, many providers argue that the funding rates do not cover the actual costs of delivering care. More than half of early years staff surveyed (52%) said they are likely to reduce the number of funded places they offer, while 39% are considering withdrawing from these schemes entirely.

Mr Leitch criticised the Treasury’s handling of the situation, saying, "It makes absolutely no sense... to turn a blind eye to the potential impact of these changes when it knows full well the damage they could do."

Calls for urgent action

Both the EYA and PTS are calling on the Government to provide immediate support for the early years sector. Their proposals include either exempting childcare providers from the National Insurance increases or fully funding the additional costs through higher rates of government funding.

Parents, too, are adding their voices to the campaign. According to PTS, 92% of parents believe nurseries should be exempt from the NIC hikes, recognising the critical role these providers play in enabling parents to work and supporting early childhood development.

The Government’s response

Education Secretary Bridget Phillipson has acknowledged the sector's concerns, stating that more details on funding rates will be announced in due course. The Government has pledged £8.1 billion for early years entitlements by 2025/26, but many providers argue this will not be enough to address the immediate pressures.

A Government spokesperson said: “We have a clear mission to break the unfair link between background and opportunity... We also take the concerns of the sector seriously and will continue to work with them to ensure funding arrangements provide confidence to deliver on promises made to parents.”

What can parents do now?

As the crisis unfolds, parents may need to prepare for fee increases or explore alternative childcare arrangements. Joining advocacy groups or contacting local MPs to express concerns could help push for more government support.

Ultimately, the sustainability of the early years sector – and the accessibility of affordable childcare – depends on decisive action to address the mounting financial pressures. Parents and providers alike are hoping the Government will step in before it’s too late.

Read more:

• Disadvantaged children risk being left out of free childcare, say UK charities
• Government to address nursery staff shortages before expanding childcare services
• Ministers scrap ‘free childcare’ label as frustration grows over soaring nursery fees