Funded early learning and childcare in private, third sector and childminding settings: delivery costs

Anticipated cost pressures

This chapter summarises providers’ expectations for future cost increases and the pressures they anticipate over the coming year. It highlights concerns about rising staffing costs, National Insurance and pension contributions, food and utility prices, and changes to payment schedules. The chapter also presents reflections on service viability, particularly among smaller and rural providers, and the strategies some are considering to manage financial risk.

Staffing Costs and Wage Expectations

Many providers expect staffing costs to rise, driven by increases in the real Living Wage and the need to remain competitive with local authority pay scales. Several participants noted that they apply wage increases across all staff levels, not just those on the lowest pay, which adds further pressure. One provider commented:

“We are committed to paying our staff the Real Living Wage… but balancing fair pay with keeping fees manageable for families is becoming increasingly difficult.”

Others highlighted the challenge of retaining qualified staff, particularly when local authority settings are able to offer higher salaries. This was described by one respondent as a key factor in staff turnover:

“Wages - to compete with local authority I try and pay my team a better wage - I would love to pay them more but i can never compete with government wages!”

National Insurance and Pension Contributions

The recent changes in Employer National Insurance contributions was also cited as a new and significant cost pressure. Several providers expressed concern that this change had not been reflected in the funded rate, and that it could have a lasting impact on financial sustainability.

One provider estimated the impact at £45,000 across four sites, while another described the change as:

“A serious impact to profitability not just in this current year, but in all future financial years.”

Food, Utilities, and Operational Costs

Rising food costs were mentioned by many participants. Some reported that they had already made changes to menus or reduced spending on activities and resources to manage budgets. One provider explained:

“With the new ‘Setting the Table’ guidelines our food costs have risen substantially… there is more food wastage as children won’t all eat what is offered.”

Energy bills, insurance premiums, and maintenance costs were also expected to rise. One provider noted that changes to local authority payment schedules, such as moving from advance to arrears, were creating short-term cash flow challenges.

Sustainability and Service Viability

While most participants did not report an immediate risk of closure, many expressed concern about the longer-term sustainability of their services. This was particularly evident among smaller and rural providers, where occupancy levels are more volatile and external funding options are limited. One respondent stated:

“The cost of the hourly rate to deliver ELC hours at £6 per hour is half of what it actually costs to deliver those hours.”

Another noted:

“Our sustainability for 2025/26 is in the balance if the hourly rate from the council does not increase dramatically.”

Some providers described absorbing costs to avoid passing them on to families, but acknowledged that this approach may not be viable in the long term. Others indicated they were considering changes to their service model, such as focusing more on under-3s or reducing hours, to remain viable.