Changes to the National Minimum Wage (MW) and Employer National Insurance Contributions (NIC) are adding substantial cost pressures for early years and childcare providers across England.
In April 2025, the MW rose by 6.2% for workers aged 21 and over. At the same time, increases in NICs were only partially offset by adjustments to the Employment Allowance (EA). For a sector employing a high proportion of low-paid staff, these changes pose significant financial challenges—especially for providers offering Government-funded places for preschool children.
To understand the potential impact of these changes, the Early Education and Childcare Coalition (EECC) commissioned Frontier Economics to analyse how increases in the MW and NICs might affect gross pay, employer costs, and overall delivery costs in early years and childcare settings.
Drawing on data from the nationally representative Survey of Childcare and Early Years Providers (SCEYP), our modelling suggests:
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The MW changes have increased gross pay by 4.7% on average across the sector, driven both by new legal minimums and the need to maintain wage differentials.
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Lower-qualified workers will see the largest gains—with pay increases of 8.4% for those qualified to Level 2 or below compared to 3.2% for those qualified to Level 6.
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Overall delivery costs are estimated to have increased by 4.7% because of the policy changes, with 3.8% attributable to MW changes and 1.0% from NICs/EA changes. These pressures come on top of broader cost inflation.
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One in ten settings have faced cost increases exceeding 7% because of the policy changes.
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Private providers and larger providers, especially those in chains, have had the sharpest rises in delivery costs.
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Settings serving disadvantaged two-year-olds are particularly exposed to higher cost increases.
These findings highlight the importance for Government funding of early years places to take into account the impacts of these recent policy changes, especially in relation to service provision in more disadvantaged areas.
Author
Senior Associate
09 June 2025
