The Early Years Alliance (EYA) is calling for the government to commit to funding National Insurance rises in full or exempt early years providers from the changes, as research shows 95% of providers are set to increase fees in response.

The EYA survey of more than 1,000 providers found the changes will result, on average, in additional annual costs over £18,600 per setting per year.

Almost all (95%) said they would increase their fees if the government fails to mitigate the combined impact of National Insurance increases and minimum wage rises. Two in five settings said they were likely to close permanently if the government did not take urgent action. Providers also warned of plans to reduce the number of government-funded places they offered or withdraw from the government scheme entirely.

As of April 2025, employer National Insurance contributions (NIC) will increase from 13.8% to 15%, with the per-employee threshold at which employers start to pay National Insurance reduced from £9,100 to £5,000 per year. The National Living Wage will increase by 6.7% for employees ages 21 and over, and the National Minimum Wage will rise by 16.3% for 18-20 years olds, and 18% for under-18s and apprentices.

The government has not committed to providing any financial support to ensure that providers can meet these additional costs, despite the fact that the Institute of Fiscal Studies estimates that government funding will account for 80% of the sector’s income by September 2025 as a result of the ongoing expansion of the early entitlement offer.

While some businesses can obtain support through Employment Allowance, non-charitable early years settings who receive more than 50% of their income via government funding are not eligible for this support.

The EYA survey of more than 1,000 settings found:

• 87% are likely to introduce or increase charges for optional extras (e.g. meals, consumables, trips) (69% very likely, 18% somewhat likely)
• 61% are likely to introduce or increase restrictions on when early entitlement funding can be claimed (38% very likely, 23% somewhat likely)
• 52% are likely to reduce the number of early entitlement places on offer at their setting (30% very likely, 22% somewhat likely)
• 40% are likely to close their entire setting permanently (14% very likely, 26% somewhat likely)
• 39% are likely to withdraw from some or all early entitlement offers entirely (17% very likely, 22% somewhat likely)

Neil Leitch, chief executive of the Early Years Alliance, said the changes announced at the recent Budget could have a “catastrophic impact” on the early years sector.

“The financial pressure created by the sharp increases in the minimum wage announced at Budget alone would have been cause for significant concern in the sector given that, despite government claims to the contrary, funding increases have never actually reflected the need for settings to maintain wage differentials between different staff when increasing wages,” he said. “But add to this the huge rises in National Insurance costs – which ­the government doesn’t seem to have factored into next year’s early years funding rates at all – and you have a recipe for total disaster.”

Leitch said it was “absolutely critical” that the government “either commits to funding the National Insurance rises in full for early years settings or exempt the sector from the changes entirely – and that it adequately funds minimum wage rises both now and in the future.”