The cut to National Insurance, announced in the Budget, is ‘not good news’ for nursery staff, the majority of whom will see their taxes rise, according to new analysis by the Resolution Foundation for Nursery World.
Within his Budget, the Chancellor, Jeremy Hunt, announced a 2p cut to the main rates of National Insurance.
The Resolution Foundation’s senior economist, Hannah Slaughter, said this would negatively affect most nursery staff, however.
She explained, ‘The Chancellor’s likely last Budget before the next General Election unsurprisingly had a major tax cut at its heart. The 2p cut in employee National Insurance coming into effect from April comes just months after the rate was cut by 2p in January.
‘There are huge questions over whether these cuts are affordable – especially given the sharp cuts to public services pencilled in after the next election – but that’s a £19 billion problem for the next government to deal with. These election year cuts need to be seen in the context of previously announced tax rises via the freezing of income tax thresholds. This means more of your pay becomes taxable as you earn more.
‘But, overall, personal taxes are falling by £8 billion in the election year. The combination of these cuts and rises creates a mix of winners and losers. Around four-in-five employees stand to gain overall, by £450 on average, from cuts this year.
The biggest winners are those earning £50,000, while those earning £19,000 or less will actually be worse off as they lose more from income tax rises than they gain from National Insurance cuts.’
Extra funding for early years providers
The Chancellor also announced there will be an extra £500 million for providers over two years to support them with workforce costs.
Treasury documents published after The Chancellor’s speech in the House of Commons confirm ‘that the hourly rate providers are paid to deliver the free hours offers will increase in line with the metric used at Spring Budget 2023 for the next two years’ to support the sector to deliver the expansion of childcare.
According to the Department for Education (DfE), ‘The metric is a combination of general inflation, average earnings growth and National Living Wage. On current forecasts, this amounts to over £500 million of additional investment over two years.’
Busy Bees, the largest nursery group in the country, said it was pleased to see the Chancellor going beyond its call for index-linked funding rises.
Its CEO, Chris McCandless, commented, ‘At Busy Bees, we’ve been working exceptionally hard to prepare for the expansion of funded childcare. The Chancellor’s announcement gives us the confidence in future funding levels to invest in both our centres and our staff.
‘We are also very pleased to see the Chancellor going beyond our call for index-linked funding rises.’
interview with Ros Marshall, managing director of Bright Horizons
Do you think the metric being used with the additional £500 million funding will be beneficial?
We know the DfE will be using average earnings growth and the National Living Wage to forecast how staff costs are changing for providers, as well as using CPI to forecast how non-staff costs will change.This is really important for us as the confirmed rate that providers are being paid to deliver the funded childcare offers for children aged nine months to four years will increase in line with the metric. We work with a large number of local authorities, some of whom have not applied any inflation increases to the funding rates for three, four, or five years, so effectively our rates have gone backwards, as inflation and other costs have increased.
You said that a ‘standardised approach’ to funding at local authority level now needs to follow. Are you able to expand upon this please?
We operate nationwide and work with about half the total number of local authorities. Each of them has a different way of delivering the funded entitlement. We understand they all have local stakeholders making decisions which they see are best suited to their own communities, but the system has become overly complex. Such inconsistency stems from the lack of a consistent Government early years strategy – ten early years ministers over ten years is not helpful. The end result is initiatives being added to different processes which just overcomplicates it all.
What other improvements could be made?
One of the obvious things to make simpler would be to automate the reconfirmation of eligibility for funding. Families have to re-enter their details every 12 weeks to retain their funding. Surely in this world of automation and AI, couldn’t HMRC use information from PAYE records to check parents are still eligible? We have put this to the DfE and they are listening. You can understand there needs to be a system to check families are still eligible, but the workload all falls onto the parent.
As one of the largest nursery groups in the country, do you still struggle with staff recruitment and retention?
We’ve been in the thick of it, obviously, like everybody else, since 2020, from the initial lockdown period. Some staff were furloughed and not as many came back as we might have liked. Some staff preferred to work behind a screen at Tesco, but we’ve found many are coming back now as they missed working with children and the fulfilmentit brings.
We focused early on on improving the range of qualifications available to staff, as well as professional development programmes. We’ve instigated a wide range of apprenticeship programmes and accelerated pathways for our teams. We have also increased wages and made a £10 million investment into wage rates in 2021 to uplift pay above the National Living Wage.
We’ve had to be extremely creative with recruitment and retention strategy and have increased our resources in this area. Just last week we found out Bright Horizons has been awarded 13th best place to work by Great Place to Work.