National Insurance changes and wage rises risk capacity fallout if we don’t address them, says Neil Leitch…
It’s fair to say that as October 2024’s Budget approached, the early years sector held its breath. With nurseries, preschools, and childminders struggling to meet demand for places against a backdrop of severe underfunding and a staffing crisis that was only getting worse, perhaps, this time, providers would finally receive the support they need.
After all, it was only a month earlier that the government stressed its steadfast commitment to the early years.
And yet, as the dust settled, it became increasingly clear that this Budget – like so many that had come before – wouldn’t make it easier for providers to deliver the early entitlement offers.
In fact, it would do the exact opposite, with record minimum and living wage increases announced alongside sharp rises in employer National Insurance contributions.
Of course, it doesn’t take an expert in the early years – or economics – to know that these changes would hit setting finances hard.
And yet, when we at the Alliance carried out a provider survey on the likely impact of these rises, we were still struck by just how severe the pressure on providers is likely to become.
95% of respondents warned that if the government didn’t properly address the impact of wages rises and National Insurance changes, they would have to increase parent fees. Two in five also said that they would be at risk of permanent closure.
If that wasn’t bad enough, half warned that they would have no choice but to reduce early entitlement places (50%), with 40% expecting to withdraw from some or all of the offers completely. Hardly a mark of confidence for the successful rollout of the expansion.
You would think that in light of these stark warning signs, the government would put in place meaningful measures to – at the very least – limit the impact of these changes.
But that couldn’t be further from the case. When local authority early years funding rates were confirmed at the end of 2024, the government repeatedly insisted that these rates took into account changes in the national minimum and living wage.
And yet, it didn’t say a word about factoring in the impact of National Insurance contribution rises. This was despite the fact that ministers have confirmed that they would compensate schools and maintained nurseries in full for the changes.
Given that providers have estimated the changes will cost them an additional £18,600 per year on average, it’s no exaggeration to say that turning a blind eye to the impact will likely sign the death warrant for countless settings.
That’s why we at the Alliance are clear that the government needs to take urgent action. At the very least, ministers must commit to fully funding the National Insurance changes or exempting the sector from the changes completely.
Without this, it simply won’t be possible for the government to keep the promise that it has made to parents.
And of course, overall sector funding simply must reflect the true cost of delivering high-quality early education. This includes supporting settings to pay their staff a wage that reflects the value of the vital work they do and, critically, maintain wage differentials between junior and senior staff members.
Ultimately, quality, affordable, and reliable care and early education is a cornerstone of both the economy and wider society. So the fact that our sector continues to battle against the odds to deliver it is entirely unacceptable.
Simply put, the government cannot expect the sector to deliver the biggest capacity expansion in years while not only failing to provide the proper infrastructure to deliver it but actually putting significant additional barriers in place.
As such, while there’s no doubt that the government’s commitment to put children – and in turn, the early years – at the heart of their plans is a positive and refreshing step, this must be translated into tangible action if there is any chance that there will be a sector left to make the government’s vision a reality.
And at the Alliance, we will do whatever we can to continue to push the government to do just that.
Neil Leitch is CEO of the Early Years Alliance.
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