Rises to hourly funding rates do not come close to covering “crippling” and “catastrophic” rises in wages and National Insurance contributions, according to the early years sector.

The government has announced an increase in funding rates, which will rise to an average of £11.54 for under twos; £8.53 for two-year-olds; and £6.12 for three- and four-year olds. Hourly funding rates vary across local authorities, reflecting local circumstances.

The government has announced a new £75 million expansion grant, to be allocated later this year, to support nurseries, childminders and other providers to deliver the 35,000 additional staff and 70,000 places required to meet demand for the roll-out of funded places next September.

It has also unveiled the largest ever uplift to the early years pupil premium (EYPP), increasing rates by over 45% to up to £570 per eligible child per year. 

Secretary of State for Education Bridget Phillipson said: “The early years has been my priority from day one, because by giving more children the chance to start school ready to go, we transform their life chances, and the life chances of every child in their classroom.”

However, Neil Leitch, chief executive of the Early Years Alliance, said: “While any increase of funding is of course welcome, the fact is that today’s funding rates will fail to even come close to covering the cost of changes to National Insurance Contributions and wage increases.  

“With our own research showing the National Insurance changes will cost settings more than £18,000 a year what providers needed was a commitment to mitigate the impact of these changes. Yet in reality, by not accounting for these changes in next year’s rates countless nurseries, pre-schools and childminders will be left with no option but to raise costs, reduce places or simply close their doors completely.”

He added: “Today was an opportunity for the Treasury to show it recognises the catastrophic impact that the National Insurance and wage changes will have on the sector. Not only has it turned a blind eye to this, but it will have clear repercussions on families expecting to take advantage of the ongoing expansion.” 

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA) said: “These rates do not even cover the statutory wage increases. Since 2019 minimum wages have shot up by 66 to 70% but average funding rates have only risen by 32%. On top of this the National Insurance Contributions increase is going to cripple providers and the only way they can cover these costs is by increasing parental fees.”

She called for equity with the public sector: “Public sector providers will get reimbursed for their National Insurance Contributions increase, but the private and voluntary sector – which delivers three quarters of funded places – will not be helped at all. There is a clear lack of equity between the private and public sector providers.  Public sector providers are also reimbursed for unfair business rates while private providers on average pay £21,000 per year.”

The sector welcomed the increase in the EYPP, but called for it to be increased to the same level as the Primary School Pupil Premium.

“It is good to see this uplift, but it is still not at the level of primary school Pupil Premium which is currently £1,455,” said Tanuku. “The government’s rhetoric about early years must match their investment which saves millions in a child’s later years. We welcome today’s uplift in the EYPP as a clear sign of the government’s commitment to ensuring that all children get a fair start in life.”

Sarah Ronan, director of the Early Education and Childcare Coalition, said: “A reformed early education and childcare system won’t happen overnight but decisive action on educational disadvantage must be the starting point for that work.”

The sector also welcomed the £75 million expansion grant but called for more information on how it would be allocated.