Introduction of living wage set to hike childcare providers' costs by a third

A survey of childcare providers by the National Day Nurseries Association (NDNA) has found that employers’ payroll costs will rise by an average of 10 per cent next year and 35 per cent by 2020 as a result of the introduction of a national living wage for staff aged over 25 from next April.

The national living wage, details of which were announced by Chancellor George Osborne in last month’s budget, will be initially set at £7.20 an hour before rising to £9 an hour by 2020. It will replace the national minimum wage – the current rate of which is £6.50 per hour.

NDNA says the rise in staff costs this will bring, coupled with inadequate funding to deliver the free childcare entitlement for children aged two to four, will make many day nurseries’ finances “unsustainable”, forcing some to employ lower-qualified staff to keep costs down.

Purnima Tanuku, NDNA chief executive, said the changes will affect the pay of all nursery staff and, as such, presents “a real threat” to the sustainability and quality of provision.
 
“Most nurseries will have to increase all staff wages to keep their pay differentials and incentives for qualified staff or risk losing practitioners,” she said.

“Some qualified under-25s will find themselves paid less than unqualified 25-year-olds, which just isn’t fair. But many employers will not be able to find extra funds to rectify this situation, so fear their business will suffer because well qualified staff will leave.
 
“Nurseries shared with us their worries that the national living wage could drive down quality, with providers struggling to reward and retain well qualified staff and forced to rely on unqualified younger staff.”
 
The NDNA survey of 300 nursery providers of all sizes found that 62 per cent of the 10,000 early years staff they employ are currently paid below the £7.20 an hour national living wage. Of this group, 37 per cent will be over 25 by next April and so entitled to receive the higher living wage pay rate.

In addition, 58 per cent said they would balance the books by recruiting younger staff or fewer agency workers, which NDNA said could affect the quality of childcare.

Tanuku added: “The sector already has a huge issue in recruiting and retaining staff as we evidenced in our workforce survey in June, so the new living wage will have a massive knock-on effect.
 
“Changing the ratios or employing more younger, less qualified staff is not the answer, as this will affect quality, which is not negotiable. Childcare has to be of high quality for it to be effective.
 
“We need action on this now with just eight months until the living wage becomes mandatory.”

The Department for Education is consulting on funding levels for childcare in advance of the planned expansion of the free entitlement for three- and four-year-olds from 2017.