Closures of childcare providers have reached their highest level since at least 2018, following increases in employer national insurance contributions (NIC) that came into force last year.
Poorer areas are worst-affected by shutdowns that are leaving parents struggling to find places, the Early Years Alliance warned.
For parents who managed to secure a place this autumn, they face increasing fees for hours not funded by the government and for extras such as nappies, wipes and food, the trade body said.
Many working parents of children aged nine months to four years are entitled to 30 hours of government-funded childcare, but providers said the subsidies neither cover the full cost of delivery nor factor in the rise of NICs.
The childcare businesses worst-affected
The rate of employer NICs increased from 13.8 per cent to 15 per cent in April 2025.
The number of nurseries and childminders dropped 5 per cent from 56,300 in 2023 to 53,600 in 2025, according to Department for Education (DfE) data. Childminders were worst-affected by closures.
This was the lowest number of providers since at least 2018, when there were 66,600 childminding settings.
Neil Leitch, chief executive of the Early Years Alliance, said: “If providers are trying to stay open, the only thing they can do to cross-subsidise the shortfall in funding is increase their charges.”
In poorer areas, parents are less able to afford higher fees, which makes it harder for providers to stay afloat, he said.
The Early Years Alliance, which represents the sector but also operates 28 of its own not-for-profit nurseries, closed around 12 locations in disadvantaged areas after the NI rise added £1.2m to its staff bill.
Workers also feel the squeeze
Despite demand for childcare from parents, the quantity of jobs advertised in the sector has also plunged to its lowest level since January 2021, according to Indeed, a recruitment website.
The number of staff working in the sector has remained flat in the last year, according to DfE data analysed by The i Paper.
Leitch said the NI rise has had knock-on effects on workers in the sector, who are younger than average because older, more experienced staff have been leaving.
He said: “It is a tax on business, but a tax on business means that that business has to consider whether it can expand, whether it can increase salaries, or whether in fact it actually has to contract.”
He said many staff members are paid close to minimum wage and claim benefits because they struggle to make ends meet.
Leitch said a freeze in the personal income tax allowance as well as high inflation have added to workers’ challenges, saying: “People are worse off, and I don’t think anybody could deny that.”
Tax system ‘shifting responsibility towards younger workers’
It comes as an influential think-tank called on the Government to introduce NI on pensioners’ incomes to shield workers from further levies.
The Institute for Public Policy Research said billions of pounds of tax rises were required on pensioners to fix a system that “has become too tilted in favour of age and wealth”.
Ben Ansell, a professor at the University of Oxford and the report’s author, wrote: “The current government entered office having ruled out changes to the big three taxes on ‘working people’ – income tax, employee NI and VAT.
“It quickly opted to raise employer NI, which met the words if not the spirit of that commitment, and may in turn be blamed for slowing down employment growth and pressures on the small business sector.”
He said the tax system “has increasingly shifted responsibility towards younger workers while protecting many of those who have benefited most from decades of rising property and asset wealth”.
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