Parents face nursery fee increases of up to 20 per cent in the next year due to the tax hikes and wage rises included in Rachel Reeves’s Budget,the i has been told.
Nursery leaders have warned that the hike in employer national insurance contributions and the minimum wage has added tens of thousands of pounds onto their costs.
They said they would be left with no choice but to impose “above-inflation” fee rises if the Government fails to mitigate the Budget measures. There are also fears that some areas will be left with “childcare deserts” because nurseries will be forced to close and expansions to provide extra places cancelled.
State-owned institutions such as hospitals will have their funding increased to make up for the impact of the higher national insurance costs, but ministers have privately ruled out offering any further exemptions from the levy to bodies which sit outside the public sector.
Fee hikes could come as soon as January, nurseries groups told i, months before the Government’s funded childcare support is extended to 30 hours for working parents of children under the age of five to help with costs, which is due in September.
The Early Years Alliance, the largest and most representative early years organisation in England with 14,000 members, warned parents to expect fee increases of between 15 and 20 per cent as well as a major shortfall in nursery places.
Parents can still get government-funded childcare hours but fee rises would apply to those who do not qualify or who pay for additional hours for wraparound care – ie for early drop off or late pick up. The cost of optional extras such as meals, consumables, nappies and trips are also set to increase, the sector has warned.
Neil Leitch, CEO of the Early Years Alliance, said the organisation has been “inundated” with nursery providers concerned about closure since Reeves announced plans to raise the minimum wage and increase employer NICs.
“We’ve had some hits in our time but this feels like it has pushed many in the sector to the cliff edge,” he said.
The Early Years Alliance, which itself runs 40 nurseries in areas of deprivation, said its own costs will increase by £461,000 due to NI employer contribution increases. Leitch said this will “inevitably lead to closures” as parents will not be able to pay the additional costs.
He said the policy is “completely at odds” with the Government’s plan for the largest ever early years expansion programme, as well as its mission statement to give every child “a fair start in life”.
“I’m already being told by many, many organisations that they will cut their capital expenditure. They will stop investing in building new premises and extending their premises – that will jeopardise the new expansion program,” he said.
Calculating the cost: What will parents pay?
i has analysed data from Coram Family and Childcare’s comprehensive 2024 survey, which was published in March, to determine how much fees might go up on average for part-time nursery care.
Part-time care was analysed as the majority of working parents receive at least 15 hours of government-funded childcare a week. This applies to babies from the age of nine months, with 30 funded hours available for children aged three and four.
A 20 per cent increase in fees could mean that the average costs of a part-time (25 hours a week) nursery place for a child under two would increase by £1,643 to £9,859 per year.
Parents are paying an average of £8,216 a year, or £158 per week, for a part-time place, according to the charity. Bills have already climbed 7 per cent in the past year.
In London, parents pay £218 per week for one part-time place, or £11,336 per year. A 20 per cent rise would mean fees reaching £13,603 per year in the capital – a jump of £2,267.
In September next year, government-funded childcare is being expanded so that parents can get 30 funded hours for all children under five.
Eligibility for funded support depends on whether parents work, their income, their child’s age and circumstances and their immigration status. Parents cannot access government-funded childcare if one person in the household individually earns £100,000 or more.
Early years funding increases annually. The Government is expected to announce the rate by which the funding – to pay for the “free” childcare hours – will increase by in the coming weeks.
Industry sources predict it will be around 3.5 to 4 per cent, factoring in inflation, average wage growth and minimum wage increases. However, it is understood that the Government has not said it will factor in NI contribution increases for employers.
Last year, the Department for Education (DfE) increased funding rates by 4.6 per cent.
i understands that the sector is calling for an uplift of around 15 per cent for nine-month-olds to two-year-olds and a 40 per cent increase for children aged three to four, blaming years of underfunding.
Jonathan Broadbery, director of policy and communications at the National Day Nurseries Association (NDNA), said the sector needs a “bigger increase” than last year to fulfil Labour’s mission to expand childcare.
“It’s a very staff-heavy sector, and so when three-quarters of the operating costs of a nursery are staffing, anything that puts that up – whether national minimum and living wage or National Insurance – has a disproportionately high impact,” he told i.
“If nurseries are made to pay the National Insurance increases with no extra income to cover them, then it does make it more difficult to ensure that the growth of places is available for parents,” he added.
Broadbery said many providers are currently looking at “above-inflation increases” on parent fees, which will be confirmed once the Government has announced the 2025/26 funding rate – but “the lower the increase in Government fund, the higher the increase in parental fees”.
He added that the sector could see hundreds of closures in the next year if providers are not adequately funded as it will not be sustainable for many to pass cost increases onto parents, particularly in “areas of deprivation”.
“It’s areas where parents are more reliant solely on government-funded places where they could go out of business, and that will create childcare deserts,” Broadbery said.
The number of nursery settings run by the Early Years Alliance has already dropped from 132 to 40 in the last five years due to costs, Leitch said.
A Government spokesman said: “The 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.
“We have taken tough decisions to fix the foundations, so that next year total spending on childcare will reach over £8bn – testament to the Education Secretary’s commitment to reforming early years as her number one priority. We 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.”
‘NIC and wage rises will cost us £38,000’
Nicci Knight, who runs Zizus Day Care nursery, said they are being forced to raise fees next year
Nicci Knight, operations director at Zizus Day Care in Middlesbrough, said she is considering closure as the changes to NICs and wages will cost an extra £38,000 next year.
It is “unaffordable” for the nursery, which cares for 72 children, she said.
On top of this, Zizus is being hit with higher energy bills and business rates.
About 85 to 90 per cent of the nursery’s income is government-funded, so Knight has very little “wiggle room” to increase fees for non-funded hours to compensate, she said.
She will be increasing fees for parents by 12 to 15 per cent in April – but it will not be enough.
“We might have to shut our doors, and if we do, I’ve got 23 members of staff – 24 including me – unemployed, I’ve got 72 families that are then left without childcare,” she said.
“If we shut, most of the other nurseries in this area are going to be closing too, so you’re going to have thousands of working parents who can’t go to work because there is no childcare available for them.”
She said the nursery needs a Government funding increase of at least 10 per cent to stay afloat.
Lou Simmons, the owner and co-founder of Abbotswood Pre-School and Day Nursery in Hampshire, said the NIC and minimum wage changes mean fees for parents will have to rise by 10 per cent.
The nursery, with 55 staff, has been asked by the local authority to expand its provision by September 2025. She has been offered a grant to support the expansion but it means the staff roll will be up to 70 by December 2025 – costing an additional £68,000 in NICs.
“We’re now contracted to deliver a lot of work on behalf of the government for funded childcare – but we’re picking up the bill,” she told i. “People are saying it’s going to close nurseries. It might – but it’s just going to increase the fees for parents even more.”
Rob Fox, owner of Happy Bunnies Nursery in Shepreth, south Cambridgeshire, said he is expecting to increase fees by 18 per cent over the next year in increments, with the first rise coming in January.
But he added that he needs to “look at the whole business model and see if it’s actually viable”.
“If parents don’t pay then more and more nurseries are going to have to shut their doors,” he said, adding: “It’s scary.”
A survey of 1,007 nurseries conducted by the Early Years Alliance after the Budget found that 95 per cent of providers are likely to increase fees for any non-government funded hours while 87 per cent are likely to introduce or increase charges for optional extras such as meals, nappies and trips.
52 per cent of providers said they are likely to reduce the number of “free” government-funded places on offer at their setting, while 39 per cent said they are likely to withdraw from some or all government-funded offers entirely.
The poll – carried out between 5 and 10 November – found that 40 per cent said they are likely to close their setting permanently without support from the Government.
