Impacts of the Minimum Wage and Employer NI Changes in April 2025 on Delivery Costs for Early Years Providers
In April 2025, there were substantial increases in the National Minimum Wage and in Employer National Insurance Contributions. Given the significant proportions of low-paid staff working in the early years and childcare sector, these changes have potentially large impacts on settings’ delivery costs and ability to deliver government-funded places for preschool children.
In our latest report, Frontier Economics presents modelling that shows the likely impacts of these changes, in particular, the pressure on providers to maintain wage differentials which are not factored into the current funding formula. In their own words, providers tell us how these additional pressures are impacting their ability to deliver current and future entitlements.
The Snapshot
The MW changes have increased gross pay in the sector by an average 4.7%, with half of the impact due to a direct effect of bringing pay up to the new legal minimum and half due to the need to maintain pay differentials for workers paid above the MW.
The policy changes have increased settings’ delivery costs by an average 4.7%, with 3.8% due to the MW changes and 1.0% due to the NICs and Employment Allowance (EA) changes.
Some settings have experienced greater impacts: it is estimated that almost one in ten (8%) have experienced cost rises of over 7% due to the policy changes.
The average impact of the policy changes on delivery costs has been greater for private providers (4.9% increase) than for voluntary providers (4.6% increase) and school-based providers (4.5% increase).
Settings which serve disadvantaged two-year-olds are likely to have experienced greater increases in costs than other settings because of the policy changes.
“Due to the increase in costs, we are taking on less practitioners, therefore we can offer less early years places. We were thinking of potentially expanding our setting...however due to this rise in staffing costs we won’t expand as a bigger building would mean more staff.”
“The minimum wage and national insurance cost increases have forced us to reduce staff numbers, including our cleaner. Less staff is stretching ratios and causing increased pressures.”