Financial pressures will force childcare providers across England to limit the number of Government-funded places on offer to parents and increase prices, Early Years Alliance (EYA) has warned.
The charity said early years settings face a “perfect storm of challenges” citing national insurance and minimum wage rises as key factors that “many will not be able to survive”.
A survey of 1,155 senior staff in nurseries, preschools and childminders in England paints a stark picture of the sector's struggles.
It found 59 per cent of providers are likely to either reduce the number of funded places they offer for three and four-year-olds or they could opt out of offering funded places for this age group entirely.
More than nine in 10 (94 per cent) said their setting is likely to increase fees for non-Government funded hours over the next year, while more than three in four (77 per cent) said they are likely to introduce or increase charges for optional extras – such as nappies, meals and trips.
Nearly three in 10 (28 per cent) said they are likely to permanently close the entire setting over the next year, the poll suggested.
The findings come as the Government’s expansion of funded childcare for working parents is being rolled out in England.
Working parents of children older than nine months are now able to access 15 hours of funded childcare, before the full rollout of 30 hours a week to all eligible families in September.
Among the survey respondents currently offering funded places for two-year-olds, 18 per cent said they are likely to reduce the number of funded places they offer, while a further 5 per cent said they could opt out of the scheme entirely.
The EYA survey – carried out online between March 4 and 11 – found that only around a third (36 per cent) of providers currently offering funded two-year-old places for working families are planning to extend all these places from 15 hours to 30 hours a week from September.
Of the settings currently offering funded under-twos places, only 41 per cent are planning to increase all 15-hour places to 30-hour places, according to the poll.
National insurance rises, minimum wage increases and updated rules on additional charges were the main reasons cited by senior staff in settings for considering reducing or opting out of funded places.
Last month, the Department for Education (DfE) updated its statutory guidance for local authorities in England to protect parents from paying additional charges on top of the Government’s funded childcare offer.
It said parents should not face “mandatory” charges for extras as a condition of accessing a funded childcare place and a local authority “should intervene” if a childcare provider does this.
Councils should ensure settings are aware they can charge parents for extras, but these charges “must be voluntary” for families, it added.
One provider who took part in the survey said: “Currently, we are struggling to stay afloat.
“The funding we receive from our local authority isn’t enough and with the parents only taking their eligible hours and not being able to charge extras, it’s looking likely we may close.”
Another said: “We cannot run at a loss year on year. The increases this year in staffing costs (NI and living wage) plus the increases in energy, rent, food and resources mean the setting is no longer sustainable unless we reduce funded places and increase our fees.”
The EYA is calling on the Government to increase investment into the early years to ensure providers are able to meet rising cost pressures while keeping parent fees as low as possible.
It has said early years providers should be exempt from the national insurance changes, or they should be compensated in full for the increases.
Neil Leitch, chief executive of the EYA, said: “These survey findings should set alarm bells ringing across Government.
“At a time when ministers are looking to significantly expand the early entitlement scheme, we have a huge proportion of providers warning that the exact opposite is likely, with many forced to limit funded places or opt out of the offers entirely due to unsustainable financial pressures.
“While we of course recognise the need to ensure clarity and transparency for parents when it comes to additional charges for entitlement places, the fact is that this updated guidance has been implemented against a backdrop of severe and sustained underfunding, which the Government has yet to address, or even acknowledge.
“Add to this the impact of upcoming increases in both national insurance contributions and the national minimum and living wage, and you have a perfect storm of challenges for early years providers - one that many will not be able to survive.
“It is one thing to recognise the importance of the early years, but it is quite another to deliver the financial and practical support that settings need – and make no mistake, our sector needs it now.
“We therefore urge the Government to work with the sector and ensure that the early years gets the investment it needs to deliver on the promise made to parents – before we reach the point of no return.”
Neil O’Brien, shadow education minister, said: “Rachel Reeves’s jobs tax is set to raise costs for providers significantly, costs that are inevitably going to be passed onto parents with higher fees as the sector sees little-to-no government support to compensate for the consequences of their decisions.
“At the end of the day, parents will be forced out of the workforce by these costs, hurting our economy even more.
“Once again, it is ideology over national interest with this Labour government.”
A Department for Education spokesperson said: “Giving every child the best start in life is central to our mission to break the unfair link between background and success, and through our Plan for Change, we’ll get thousands more children school-ready by age five.
“That’s why, despite having to take tough decisions to fix the foundations of the economy, we are raising spending on the early years entitlements to over £8 billion next year and we have announced the largest ever uplift to the early years pupil premium, increasing the rate by over 45 per cent compared to 2024-25.
“On top of this, we have recently announced details of a targeted £75 million grant to support the increase to 30 government-funded hours from September, alongside our strengthened guidance to make sure that parents do not face unfair charges to access a place.”
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