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The government is likely to be underestimating the impact of National Insurance changes on the early years sector due to a mistaken belief that many providers will be able to claim Employment Allowance, leading early years membership organisation the Early Years Alliance has warned.  

From April, employer National Insurance Contributions will increase from 13.8% to 15%, with the per-employee threshold at which employers start to pay National Insurance reduced from £9,100 to £5,000 per year. The government will also increase the amount employments can deduct from their National Insurance bill through the Employment Alliance scheme from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer National Insurance contribution bills from April 2025. 

While the government has claimed that , the Alliance is warning that in many cases, this won’t be possible. This is because , if more than 50% of an organisation’s work is considered to be ‘public work’ and more than 50% of their income is public funding, they are deemed to be a ‘public body’ and therefore cannot claim Employment Allowance (unless they are a charity), even though they will still face the upcoming National Insurance rises. 

This is likely to apply to a growing number of early years providers as the expansion of the early entitlement offer continues and government-funded places make up a growing proportion of the services that settings provide. 

Despite this, however, in response to a recent parliamentary question from shadow education secretary Laura Trott, Exchequer Secretary to the Treasury James Murray   

The Alliance is therefore reiterating its call for the government to either exempt early years providers from the National Insurance changes, or to commit to funding the rises in full.  

Commenting, Neil Leitch, CEO of the Early Years Alliance said: “Early years providers are stuck between a rock and a hard place. With the next phase of the entitlement expansion now just months away, we know that government-funded places are likely to account for the majority of many settings’ offerings to parents. It seems absurd, therefore, that as a result of this, many won’t be able to claim Employment Allowance because they will be deemed to be ‘public bodies’ – and yet, unlike public sectors, they will still be hit with the full force of the upcoming National Insurance changes in April. 

“With government now confirming that it has no estimates to support its suggestion that many early years providers will be able to claim Employment Allowance, we’re deeply concerned that ministers may well be underestimating the scale of the challenge facing our vital sector. 

“With our own research showing that providers will simply have no option but to raise fees and limit entitlement hours to mitigate the impact of April’s changes, there’s no question that without further government action, the upcoming changes to National Insurance are likely to hit both families and providers hard. As such, we once again urge the government to rethink its decision before it pushes even more settings to the brink.”