UK Nurseries Grapple with Funding Crisis as National Insurance Costs Soar

Introduction: A Critical Challenge for Early Years Education

The UK nursery sector is facing an unprecedented financial crisis as National Insurance contribution increases are driving nursery fees up by an average of 10 per cent. This comes at a crucial time when the government is attempting to expand funded childcare provision for working families. The situation threatens not only the sustainability of many nursery businesses but also the accessibility of early years education for thousands of families across the country.

The Financial Squeeze on Nurseries

From 6 April 2025, employer national insurance contributions increased to 15%, with the per-employee threshold at which employers start to pay National Insurance reduced from £9,100 to £5,000 per year. For nurseries, where staffing typically represents 75 per cent of total expenditure, this change has had a devastating impact. National Insurance Contributions and salary increases will add £2,600 a year per employee, £47,000 on average per nursery and 11% increase to overall staffing costs.

A survey of nurseries in England discovered that nursery staffing costs will rise by an average of 15%, with respondents saying that more than half of this rise is due to National Insurance Contribution increases. The problem is compounded by the fact that funding rates for April 2025-26 won’t include an uplift to account for the increase in National Insurance Contributions announced in the October Budget.

Unequal Treatment Sparks Outrage

Perhaps most controversially, schools and maintained nurseries will receive additional government funding to manage the National Insurance changes, however, no additional support or funding has been confirmed for private, independent and voluntary early years settings. This disparity has caused considerable anger within the sector, with the PVI sector delivering the vast majority of early years places, particularly for younger age groups.

Impact on Parents and Provision

The consequences for parents are significant. 96 per cent of nurseries will have no choice but to put up their fees to cover the increased costs. Beyond fee increases, 39 per cent will consider offering fewer places, while 69 per cent will reduce spending on resources and close to half will reduce spending on their premises. Most worrying, 14 per cent of nurseries say their business is at risk.

Conclusion: A Policy Under Threat

The nursery funding crisis presents a serious threat to the government’s ambitious childcare expansion plans. 85 per cent of nurseries will make a loss on each funded place, with nurseries on average making a loss of £2.25 per hour on each three and four-year-old place and £1.64 on two-year-old places. Without urgent intervention to address the funding gap and provide equitable support across all sectors, the promise of affordable, accessible childcare for working families may remain unfulfilled. As the September 2025 expansion approaches, the sector watches anxiously to see whether policymakers will take the necessary action to secure the future of early years education in the UK.