Ministers have accepted the Low Pay Commission’s recommendation for a 6.6% increase from £8.91, which applies to workers aged 23 and over. For those aged 21 to 22, the minimum will increase from £8.36 to £9.18.

Commenting, Neil Leitch, chief exec of the Early Years Alliance, said:

“While it is absolutely right that all staff receive fair pay for the work they do, news that the national living wage is set to rise to £9.50 next year – alongside other significant minimum wage increases for younger workers – is likely to cause fear and worry throughout the early years sector.

“Over recent years, funding for the so-called ‘free childcare’ offers has seen only marginal increases in the face of significant rises in the living and minimum wage. Given salary costs account for around three-quarters of provider costs, the increases confirmed today are likely to represent nothing short of an existential threat to many early years settings across the country.

“This year alone, more than 3,000 early years providers have already been forced to close as the result of sustained financial pressure. With National Insurance rates are also set to increase, and without a substantial increase in early years funding, this trend will only continue.

“It is therefore absolutely vital the upcoming Spending Review includes a significant increase in funding for early entitlements, if the government is to ensure its desire for better pay does not ultimately cripple the vital service our sector provides to children and families.”

Purnima Tanuku OBE, chief exec of National Day Nurseries Association (NDNA), said:

“Workers across the board are facing a cost of living crisis and increasing the Living Wage will be good news for many of the dedicated staff in the early years sector. However, reports of a 6.6% increase in the National Living Wage will be deeply worrying for nurseries and childcare settings who rely on government funded places for a large part of their income.

“Over the last five years the hourly rates, that the government pays to local authorities for funded childcare places, grew by only 3.3%. Over the same period, the National Living Wage had increased by 19% and by next year that gap will be almost 27% if the rate of £9.50 per hour is approved.

“The early years sector is facing a real recruitment crisis but without addressing chronic underfunding this announcement will only make that situation worse. The Low Pay Commission has repeatedly recognised that the childcare sector’s reliance on government funding rates means it cannot pass the full cost of these changes on in the same way other businesses would. Our recent survey showed that 55% of the average nursery’s income came from funded hours and this rises to 72% in areas of deprivation.

“Nurseries and childcare providers want to be able to recognise and reward the incredible work their staff do, nurturing and supporting the development of our youngest children. However, without better funding, providers will struggle to be able to keep qualified and experienced staff and so risk losing them.

“The Chancellor must take these government imposed increases into account, alongside factors like the burden of business rates, inflation and the rising costs of operating in a pandemic, into account when setting the funding rates for early years places. If not, the government risks plunging the early education and childcare sector into a deeper crisis.”