The Impact of the Big 3, Free Childcare, Auto-enrolment & Living Wage on Pre-Schools & Nurseries

Pre-schools are bracing themselves for the government’s plans to increase free childcare places from 15 hours per week to 30 hours a week for three and four-year-olds. While this seems like a great initiative to help parents back into work, will it create an unsustainable funding gap for nurseries?

At present, the government funds free places at £3.80 per hour for 15 hours per child. Typical pre-school costs are £5.00 per hour. At present pre-schools are able to make up the shortfall through the non-funded hours. Skip forward to the government providing 30 hours of free places and pre-schools will have nothing to fill the gap. What’s more, they are being stopped from asking for top-up fees.

The increase in free child places is being implemented in chosen pilot areas from this autumn with a view of being rolled out in September 2017.

In addition to this proposal pre-schools and nurseries are having to make preparations for auto-enrolment pensions. This will lead to an increase in wage costs before taking into account ordinary wage rises. There is also the prospect of long-term uncertainty, as the government has not thus far confirmed contribution rates past the first three years of the roll-out.

The Childcare Industry, already squeezed, has traditionally been a low wage sector so the introduction of the living wage will have a significant impact. The National Day Nurseries Association (NDNA) estimates that payrolls could be pushed up by between 10% and 35% overall. In line with many other industry sectors, childcare businesses may look to employ younger less experienced staff to avoid the 25 years living wage staff threshold.

Overall the impact of the ‘Big 3’ could quite possibly lead to an overall reduction in the amount of early years care available, with parents having less choice and places becoming more difficult to come by. Childcare providers may struggle to bridge the funding gap to deliver the quality of care and education required to give children the good start they deserve.

Taking early professional advice is the first step to identifying such issues ahead of time and getting the necessary processes in place to avoid a business incurring losses or encountering cash flow problems. We offer a free consultation service so please call us on 01273-731144 or email at if you require independent professional advice.