Unfunded Minimum and Living Wage increases to cost nurseries thousands

The Low Pay Commission has released a new report revealing that 5 million people benefited from an increase to the National Living Wage (NLW) in April 2018. 
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The 4.4% rise in the NLW increased pay faster than average including those at the bottom 20% of earners (those earning up to £9 per hour). Employers have sought to maintain a gap between pay grades, or keep their wages above the NLW.

Responding to the Low Pay Commission’s report on the National Living Wage increase NDNA has highlighted that the rising costs have not been factored in to the DfE’s Early Years Funding Formula rates announced last week (22 November).

Purnima Tanuku OBE, Chief Executive of NDNA said: “While today’s report will be good news for those in lower paid sectors, which childcare has traditionally been, without new funding to meet these costs it will set alarm bells ringing for many nurseries.

“As well as ensuring all their staff are paid the statutory increase, there is a knock-on effect to those above that rate as well. As providers struggle to cover their costs, the Low Pay Commission’s report shows that pay is increasingly settling at, or around, the living wage. This makes it harder to reward more qualified or experienced staff.  

“In other parts of the economy employers have adjusted their business models to accommodate the rising wages, including increasing prices and restructuring the workforce. However, with legal requirements on staff ratios and funded childcare policies in place, nurseries do not have the same flexibility as shops, salons and bars.

“We have just had the announcement of the 2019/20 funding rates showing that all but two councils will receive the same or less money per child for childcare in their area. These rates from Government have failed to keep pace with swelling wage bills with the current rates based on wage costings from 2012/13. Since then, the National Living Wage has been introduced and increased by over £2 an hour.

“This change will add thousands to the average nursery’s running costs but time and again Government Ministers have chosen not to account for this. If they are promising funding for childcare, they must allow for higher staffing costs the Government is mandating and pay a meaningful rate to providers.”

Read the full report here