National Insurance Contributions significant driver in nursery fee increases
Substantial statutory employment cost increases from April will force nurseries to raise fees for parents by an average of 10% as one in seven nursery businesses are at risk.
A survey of nurseries in England last month by National Day Nurseries Association (NDNA) discovered that nursery staffing costs will rise by an average of 15%. Respondents said that more than half of this rise is due to National Insurance Contribution (NIC) increases.
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.
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.
Parents will be left to pick up the shortfall. When asked how nurseries will deal with the additional costs associated with NICs, 96% of nurseries 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 CBE, NDNA’s Chief Executive said: “The alarming results of this survey come just months before the biggest phase of the Government’s funded childcare expansion, putting this policy at risk.
“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.
“From September, the Government will be paying for 80% of childcare places in England. Simply put, if the sector’s most significant customer is not paying their fair share, nurseries have to find this money from somewhere else or close their doors.
“Another straightforward action the Chancellor could take is exempting nurseries from paying business rates. The unfair system is under review and nurseries should be exempt for the hours of government-funded childcare they deliver.
“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.”
Nurseries on average will make a 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 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. This could hamper efforts to improve children’s outcomes.
NDNA also discovered that 85% of nurseries support a child with Special Education Needs or Disabilities (SEND) who are not properly funded by their local authority. This means that the nursery and parents have to find this money to pay for the support for to meet the individual needs of those children.
NDNA’s campaign Underfunded Childcare which raises awareness of the financial challenges facing nurseries currently, exacerbated by the rise in NICs, is holding a Week of Action from 10 February until 14 February. Nurseries are asked to share posters and other resources with their parents and local parliamentarians. On Valentine’s Day the message is – “love your nursery”. Find out more here
https://ndna.org.uk/underfundedchildcare/
Survey in numbers:
• Responses from 728 nurseries in total
• Average staffing cost increase from April 15%
• Average increase just from NIC rises from April 8%
• Average parent fees increase by 10%
Impact of NICs on nurseries:
• 96% will increase fees to parents
• 69% will reduce spending on nursery resources
• 48% will reduce spending on nursery premises
• 39% will offer fewer places
Funding – 3 and 4 year olds:
• 92% say current funding doesn’t cover their costs
• Shortfall from the current funding rate £2.13
• Shortfall from the new funding rate £2.25
• 85% of those who know their new funding rate say it doesn’t cover their costs
• 39% didn’t know their new funding rate (surveyed in January 2025)
Funding – 2 year olds:
• 53% say current funding doesn’t cover their costs
• Shortfall from the current funding rate £1.51
• Shortfall from the new funding rate £1.64
• 57% of those who know their new funding rate say it doesn’t cover their costs
• 42% don’t know their new funding rate
Business performance:
• 76% will not make a surplus:
• 45% break even
• 17% make a loss
• 14% business at risk
Breakdown of % of government-funded places per nursery:
• 17% of nurseries have fewer than 50% of their places government-funded
• 83% have more than 50% of their places government-funded
• 40% have more than 80% of their places government-funded
Special Educational Needs and Disabilities – 85% support children with SEND who are not properly funded.
- England
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