After weeks of speculation, Chancellor Rachel Reeves has delivered her first Budget to the House of Commons.

The Budget was the first from a Labour government in 14 years and the first one ever by a female Chancellor. She announced that there will be a £6.7bn capital investment for the Department for Education for 2025/26.

Key announcements

SEND funding

The Chancellor confirmed that the Department for Education will receive £1bn for special educational needs and disabilities (SEND) services. Documents released by the Treasury state that the funding, which will also be used to improve alternative education for provision (AP) for children not in mainstream school, will be “an important step in realising the government’s ambition to reform the system”.

On this issue she stated:

This government is committed to improving SEND provision,” Reeves told the House of Commons.

Breakfast Clubs

The Chancellor has tripled the funding for free breakfast clubs in schools. Announcing £33 million of funding, parents can drop kids off earlier safe in the knowledge they are getting a healthy breakfast.

An additional £1.8 billion will be used to continue the expansion of government funded childcare. This will kick off in April 2025 and the national roll out will be in September 2025.

National Living Wage

The Chancellor confirmed that in April 2025, the National Living Wage will increase by 6.7% to £12.21 an hour for adults over 21, which could be worth an extra £1,400 a year for a full-time worker. It was previously £11.44 an hour.

For 18 to 20-year-olds, the minimum wage will rise from £8.60 to £10.

VAT on private school fees

As predicted, the Chancellor stood firm on her stance that the standard 20% VAT rate will be added to private school fees from next year.

Neil Leitch, chief executive of the Early Years Alliance, said: “At the Alliance, we wholeheartedly believe that early educators should be paid fairly for the vital work they do – and so, in theory, confirmation of significant rises to the national living and minimum wages should be positive news for the sector.

“And yet, given that staffing costs account for around three-quarters of setting outgoings, the reality is that the combination of wage increases and rises to employer national insurance contributions will make it increasingly difficult for early years providers to remain viable unless these rises are matched by increases in early years funding – particularly given the government’s plans to move towards a single minimum wage for all adults.

“As such, it’s absolutely vital that early years funding rates for the next financial year accurately reflect these increased cost pressures if we are to avoid sharp fee increases for parents and, in the worst cases, settings forced to close altogether.

“Given the government’s previous emphasis on the importance of the early years, it is both frustrating and disappointing that today’s Budget made no mention whatsoever of our sector, despite announcements of additional funding for schools and further education. Looking to the future, the government must make clear its long-term plan for the sector and how it will ensure that funding consistently reflects the cost of delivering high-quality care and early education. We look forward to working with ministers to make this both a priority and a reality.”

Purnima Tanuku OBE, chief executive of National Day Nurseries Association (NDNA) said: “It’s disappointing that the Chancellor who said she wanted every child to have the best start in life failed to announce any support for early education and care providers.

“As nurseries and other providers are gearing up to the final phase of the childcare expansion next year, they will have to pay much larger wage bills and higher National Insurance Contributions. We need these uplifts to be built into next year’s childcare funding rates. As the Government will be paying for 80% of childcare hours in England, the amount it pays is fundamental to the sustainability of the sector.

“Despite our ongoing campaigning, the Chancellor announced no business rates relief for nurseries who care for and educate our youngest children day in day out. Instead, pubs, restaurants and gyms will benefit from a 40% rates relief with the promise of a lower rate permanently following a review. Nurseries pay an average of £21,000 in business rates, money which could be invested in training and quality for our children.

“The government will boost funding to schools, further education and special educational needs provision but with no mention of additional investment in early education places. Early years practitioners are best placed to identify children’s developmental needs so investment for support for those with additional needs must be made at the earlier opportunity, not left until school or beyond.

“We need to know that the will be fully supporting the early years sector to expand so they are able to meet demand for places for the final phase of the childcare expansion next year.”

David Eaves, director – Childcare & Education, Christie & Co, commented: “The Budget began with the promise of economic growth as Labour’s mission. The expected rises in Capital Gains Tax (CGT), National Insurance, and National Living Wage will hit childcare and education businesses throughout the UK. Against the backdrop of the expansion of funded hours to include children under two years, the announcement that minimum wage for 18–20-year-olds will increase by 16%, Living Wage for those 21 and over will increase by 6.7%, and apprentice wages by 18% will immediately offset a significant proportion of the benefit afforded by the funded rate being paid by local authorities for those youngest children. Given the number of young and apprentice-age staff employed in day nurseries, these wage rate increases will potentially have a significant impact if these cost increases cannot be passed on through fee increases. As with any increase to the National Living Wage, it is not only those lowest-paid members of staff that have to be considered but also the knock-on effect this has on wage increases for Nursery Practitioners, Room Leaders, Deputies and Managers to maintain a pay differential reflective of their role and responsibilities. In what is becoming a common theme, settings only offering care and education for preschool-age children will likely be hardest hit as they are unable to benefit from the increased funding provided to younger children. 

“Also announced today were further changes to employers’ costs through the increase of Employers’ National Insurance contributions by 1.2% to 15%, while also lowering the threshold at which employers pay NI from £9,100 to £5,000. This, coupled with the announced Living Wage changes, represents potentially significant increases in staffing costs. Some relief was offered to the smallest of settings however, through the increase in the employers’ allowance to £10,500. 

“While we saw a surge in transactional activity pre-budget, with operators looking to exit before any announcements that may affect the value of their business, many childcare providers that had been considering delaying exit plans while realising the benefit of the full funding roll out may now look to bring forward their plans due to increasing employment costs and tax reforms eradicating much of the benefit they would have been expecting to see over the next 12-18 months.  Given the headline rate of CGT is to be increased from 20% to 24% with immediate effect, the next milestone in terms of changes will occur in April 2025 when the Business Asset Disposal Relief (BADR) rate increases from 10% to 14% for the first £1m of taxable gain, and providers that had been contemplating an exit will clearly have an eye toward this date in order to minimise their tax burden as far as possible.”