The Budget Will Cost Some Nurseries £50,000 A Year, Early Years Sector Warns

Keir Starmer during a visit to Nursery Hill Primary School

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The sector has accused the Treasury of “turning a blind eye” to the “catastrophic impact” of the Government decision to increase the minimum wage and employers’ National Insurance contributions, warning that “countless nurseries, pre-schools and childminders will be left with no option but to raise costs, reduce places or simply close their doors completely”.

Prime Minister Keir Starmer last week pledged to improve “school readiness” as part of the “milestones” he wants his Labour Government to achieve during this Parliament. 

While ministers said that the public sector would be given additional funding to mitigate the impact of the National Insurance rise, private, voluntary and independent (PVI) nurseries — which make up the majority of the sector — will not receive the additional help.

Sector leaders were reacting to the publication of 2025-26 early years funding rates on Tuesday morning.

The sector had hoped that the rates would include extra money to combat the National Insurance and minimum wage rises announced by Chancellor Rachel Reeves.

The National Day Nurseries Association (NDNA) estimated that for PVI nurseries in England, even after rates rises are factored in, the measures announced in the late-October Budget would cost the average nursery an additional £2,600 a year per employee, £47,000 a year for the average nursery and an overall increase to staff costs of 11 per cent. 

The chief executive of NDNA Purnima Tanuku said that this would be “the last straw” for some nurseries “which will result in more settings closing rather than expanding to meet expected demand”.

The NDNA estimated that Government announcements today meant that the average funding rate for three and four-year-olds would increase by 4.1 per cent in 2025.

“These rates do not even cover the statutory wage increases,” Tanuku said.

“Since 2019 minimum wages have shot up by 66–70 per cent but average funding rates have only risen by 32.7 per cent.

“On top of this, the National Insurance contributions increase is going to cripple providers and the only way they can cover these costs is by increasing parental fees,” she said. 

Early Years Alliance CEO Neil Leitch said the increases would “fail to even come close to covering the cost of changes to National Insurance Contributions and wage increases”.  

Leitch added that many nurseries, pre-schools and childminders would “be left with no option but to raise costs, reduce places or simply close their doors completely”. 

He added that the lack of mitigation is also likely to make the sector’s ongoing staffing crisis “even worse”.   

Munira Wilson MP, Liberal Democrat Education Spokesperson, told PoliticsHome: “Of course, we Liberal Democrats will welcome any additional funding for our overstretched early years sector. However, this grant will be wiped out by the Chancellor’s national insurance tax hike — leaving parents and providers alike still facing the nightmare of price rises and closures.

“After a decade of Conservative underfunding, now this Government is turning a blind eye to the damage that their NICs policy will wreak on early years provision.”

The Department for Education today announced a 45 per cent uplift to Early Years Pupil Premium as well as a £75m expansion grant.

While the sector welcomed the additional spending, Leitch said that the increase in pupil premium needed to be the first step towards bringing the Early Years Pupil Premium in line with primary levels.

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