The REAL Hidden Costs in Your Childcare

We hear and see it all the time in the headlines. We’re told the “official reasons”, but what are the real hidden costs in your childcare?

It has become increasingly clear that, through their actions, the government in England is pushing to systematically shut down independent childcare providers, replacing them with so-called “baby barns”—school-based nurseries. These are huge, soulless institutions for babies from nine months old, placed in classrooms. And we have no doubt the rules will be bent so that fewer staff are used to care for them.

Hidden costs unfairly charged to independent providers—but NOT to government-run settings:

• National Insurance Contributions (NICs)

• Business rates

These might sound like normal business costs… but are they being charged fairly to childcare settings? And are providers properly funded to meet them? Of course not!

National Insurance Contributions (NICs)

In April 2025, the government changed the threshold at which employers start paying NICs on employees’ earnings. It was lowered from £9,100 to £5,000 per year (£96 per week). This means employers now pay NICs on a much larger portion of each employee’s salary.

For staff-heavy employers, this has had a huge financial impact. Other sectors, such as hospitality, have already been hit hard and are now in receipt of NIC relief.

Nurseries and childminders must employ large numbers of staff to meet strict legal ratios in every room. For example, a nursery registered for 100 children a day will often employ 40–50 staff, working shifts or long days to cover the hours parents need.

Other sectors have reduced staffing, turned to contractors or even AI. But childcare can’t do that—thankfully! We need highly trained, caring staff in our settings. The government even recognises this: their own guidance shows that schools and state nurseries can receive relief on NIC payments (for example, via grants or exemptions in government schemes).

National Insurance Contributions (NICs) grant for 2025 to 2026

So, not only do schools and state nurseries receive much higher funding rates than private providers, they also often do not pay NIC on their employees (or are compensated/relieved through grants).

Business Rates

Schools and state nurseries also typically do not pay business rates directly.

In Wales and Scotland, childcare providers have been granted full exemptions from business rates, recognising that nurseries are not “ordinary” businesses. England, however, continues to penalise its independent sector.

Figures & evidence

• The National Day Nurseries Association (NDNA) reports that the average nursery in England pays about £21,000 per year in business rates. NDNA+1

• In England, voluntary and charitable nurseries may get an 80% discount, and some qualify for small business relief. But the majority of private, profit-oriented nurseries do not benefit from substantial reliefs. UK Parliament Committees

• In Scotland, all day nurseries have been exempt from business rates since April 2018 through Day Nursery Relief regulations. Research Briefings+2UK Parliament Committees+2

• In Wales, registered early years premises have received permanent 100% business rates relief from November 2024, estimated to save the sector £3.4 million per year. EYA Alliance+1

Sneaky changes that have increased rates for nurseries

1. A space-based tax on a relationship-based service
   Business rates are based on “rateable value,” which is akin to a property’s open market rental value. That might make sense for retail, but nurseries have legal space standards per child.
2. Per-child valuation
   Since 2023, the Valuation Office has used the maximum number of children a setting can accommodate as a factor in valuations. The result is huge inconsistency: some providers pay ~£250 per child, others over £650 per child. (This is drawn from industry accounts and NDNA’s campaigning arguments.) NDNA+2NDNA+2

For outdoor-led settings with minimal buildings, this system makes even less sense. They are taxed as if their floor space were a profit-making retail unit—ignoring actual value or use of the buildings.

England vs Scotland & Wales

• Scotland: Day nurseries are fully exempt from business rates under the Non-Domestic Rates (Day Nursery Relief) Regulations. Research Briefings+2EYA Alliance+2

• Wales: Since 12 November 2024, registered childcare premises have permanent 100% relief, saving the sector around £3.4 million annually. EYA Alliance+1

• England: No dedicated relief for nurseries. Providers must rely on general relief schemes (such as Small Business Rate Relief), but many do not qualify. The government has refused to reintroduce nursery-specific relief since the temporary COVID measures ended. Research Briefings+2UK Parliament Committees+2

Why This Matters

England is expanding funded childcare hours, but most providers say funding rates do not meet actual costs. Combining under-funding with full NIC and business rates—charges that state or public settings are often exempt from—creates a deliberate squeeze on independent childcare.

The result? Parents continue to shoulder rising costs, as government funding fails to cover the true cost of quality care.

(And childcare providers are also taxed on their funding income—just like any other business. That’s another hidden pressure we’ll explore in a later post.)

The Bottom Line

Early years education is not “just another premises-based business.” It is a public-good service that builds children’s foundations—delivered largely by private, voluntary, and independent providers the state relies on.

Taxing nurseries like retail units (or worse, as if children were revenue-producing floor space) penalises quality and shifts costs to parents.

If Scotland and Wales can recognise this, England can too.

The real hidden costs of childcare continue…