A survey of nurseries in England last month by the National Day Nurseries Association (NDNA) discovered that nursery staffing costs will rise by an average of 15%.
The survey found that “substantial statutory employment cost increases” from April will force nurseries to raise fees for parents by an average of 10%, with one in seven nursery businesses put at risk.
Respondents said more than half of this rise is due to NIC increases.
Chancellor Rachel Reeves confirmed in the Autumn Budget that employers’ NICs will rise to 15% from April 2026. In addition, the salary threshold per employee for when they pay it will reduce from £9,100 to £5,000 per year.
Funding for childcare places
The NDNA warned that while the funding rates that the Government pays providers for childcare places will increase, they will not account for NIC changes. These funding rates are due to rise by an average of 4%, although two-fifths of respondents didn’t know their new rates.
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The study found that a total of 92% of nurseries – up from 83% last year – said their current rates did not cover their costs. For those respondents who do know their new rates for 2025/26, 85% said they will make a loss on each place.
When asked how nurseries will deal with the additional costs associated with NICs, 96% of them said they will have no choice but to put up their fees. As a result of rising costs, more than three-quarters of nurseries expect to make a loss or only break even.
Purnima Tanuku, NDNA’s chief executive, said: “Nurseries do not want to be in this awful situation where they are forced to either significantly increase their fees to parents or face an uncertain future, with 14% of nurseries saying their business is at risk.
“We support any efforts to improve outcomes for children, particularly in areas of deprivation through the increase in early-years pupil premium. This begins with making sure they have access to high-quality early education and care. Giving them this boost in their early years really does make all the difference to their later education and future life chances.
“High quality comes at a cost and unfortunately the Government appears to be unwilling to pay that price. Instead, we are left with a situation where they are increasing statutory employment costs, which impact hugely on nurseries because staffing makes up 75% of their expenditure – but not taking these increases into consideration when paying for childcare places.”
The NDNA suggested that one solution could be for the Chancellor to make nurseries exempt from paying business rates for the hours of Government-funded childcare they deliver.
From September 2025, all eligible working parents of children aged from nine months up to when they start school will be entitled to 30 hours of free childcare per week.
Tanuku added: “Before the 30-hour policy for all those aged over nine months comes in from September, we urge the Government to reconsider decisions made that could cost families, children and providers. They must treat nurseries equally to other education providers by reimbursing the NIC increases on publicly funded places.”
Making a loss
The NDNA calculated that nurseries will make an average loss of £2.25 per hour on each three- and four-year-old place, and £1.64 on two-year-old places. This equates to £2,565 for a 30-hour place for three- and four-year-olds and £935 for a 15-hour place for two-year-olds for one year.
The NDNA’s nursery sustainability survey also asked nurseries what the impact of the NIC increase would be on their business. As well as 96% having to increase their fees to parents, 39% said they would consider offering fewer places to reduce their losses. A further 69% would reduce spending on their resources for children and 48% would reduce spending on their premises.
Repeated warnings
The NDNA predictions echo a warning issued by accountancy firm Blick Rothenberg in November. Analysts told parents to expect a “dramatic” increase in childcare fees from April 2025 due to the new minimum wage and the rise in employers’ NIC rates.
The firm warned that the changes will lead to parents dropping out of the workforce, with women disproportionately affected.
