Government “underestimating” impact of NI changes says Alliance

The government is likely to be underestimating the impact of National Insurance changes on the early years sector, according to the Early Years Alliance.

The government’s “mistaken” belief that many providers will be able to claim Employment Allowance has caused it to underestimate the effect of the increase, the Alliance said. It is calling for the government to exempt early years providers from the National Insurance changes, or to commit to funding the rises in full.

From April, employer National Insurance Contributions will increase from 13.8% to 15%. The threshold at which employers start to pay National Insurance has been reduced from £9,100 to £5,000 per year.

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000. The government has claimed that “it is likely that many childcare providers will be able to access” Employment Allowance, but the Alliance warned that in many cases this won’t be possible. Under current eligibility guidance, if more than half of an organisation’s work is considered to be “public work” and more than half of its income is public funding, it cannot claim Employment Allowance unless it is a charity.

The Alliance said this was likely to apply to a growing number of early years providers as government-funded places make up a growing proportion of the services that settings provide. 

In response to a recent Parliamentary question from shadow education secretary Laura Trott, Exchequer Secretary to the Treasury James Murray confirmed that the government currently has no estimate of how many early years providers will be eligible for Employment Allowance when the National Insurance changes are introduced in April.  

Neil Leitch, chief executive of the Early Years Alliance said: “Early years providers are stuck between a rock and a hard place. With the next phase of the entitlement expansion now just months away, we know that government-funded places are likely to account for the majority of many settings’ offerings to parents. It seems absurd, therefore, that as a result of this, many won’t be able to claim Employment Allowance because they will be deemed to be ‘public bodies’ – and yet, unlike public sectors, they will still be hit with the full force of the upcoming National Insurance changes in April.” 

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