What the Autumn Budget Really Means for Nurseries – and the Six Fixes That Would Actually Work
(Written with Otii wearing its ‘economist hat’ – the friendly, straight-talking kind.)
Why Otii Cares About the Budget
Otii exists to help keep settings open, stable and confident – not just compliant.
So every time a Budget drops, we don’t scan for headlines.
We scan for lifelines.
Lifelines for settings under financial pressure
Lifelines for staff managing rising costs
Lifelines for leaders trying to stay ahead of inspection changes
Lifelines for the children who rely on stable, safe care
And next year, as part of our mission, we’re launching the SOS Fund – a practical, targeted support mechanism for settings at risk of closure.
So when this year’s Budget arrived, we sat down with Otii, put the economist hat on, and started doing what we do best:
Quick, back-of-the-envelope maths (simple logic + sector reality = clarity fast)
Here’s what the Budget actually means for nurseries – without jargon, politics or spin.
The GOOD
Let’s start with the genuinely positive moves.
Two-child benefit cap scrapped
A major win for children and families.
More stability for those who need it most.
“Free apprenticeships” for under-25s in SMEs
Since the vast majority of nurseries are SMEs, this could unlock new entry routes into early years work.
Execution matters – but the intention is welcome.
A line about “simplifying childcare provision”
Small sentence, big potential. If this signals a shift toward a national Child Account system, it could completely transform how funding flows.
But for now, it’s a line – not a policy.
The MEH
Here’s the “nice but not enough” category:
National Insurance freeze
Appears neutral, but in practice increases tax pressure through fiscal drag.
Does nothing to help settings absorb payroll rises.
R&D adjustments
Relevant for tech companies, but not a meaningful shift for early years operators.
Productivity + growth rhetoric without any recognition of the childcare workforce that enables it
More working parents returning to work + no support for the sector providing that care = tension.
The BAD – The Real Pressure Points for Nurseries
This is where the Budget hits the nursery sector hardest.
Rising National Living Wage – without matched funding
Good for staff, essential for retention, morally right.
But… funding hasn’t risen at the same rate.
Staff wages are 70–80% of all nursery costs.
When NLW goes up 5–8% and funding rises ~2% (if at all), settings face:
immediate margin erosion
inability to staff fully
increased risk of closure
greater SEND pressure
reduced ability to offer high-quality care
Unlike other sectors, nurseries cannot raise prices on funded hours.
This is the biggest structural threat to sustainability.
No Business Rates Relief
Average nursery bill: £21,000 a year
Budget relief given to many other sectors.
Nurseries? None.
This is a fixed cost that could be lifted tomorrow – and is already lifted in Scotland and Wales.
The omission is glaring.
Energy Support: Still Missing
Nurseries heat and ventilate rooms 10–11 hours a day, with strict temperature requirements for babies.
Still no targeted energy relief.
This forces operators to absorb volatility with no buffer.
Annual impact: £3,000–£10,000 per setting.
No VAT Reform
Schools reclaim VAT.
Nurseries cannot.
This means:
20% extra on equipment
20% extra on refurbishments
20% extra on service contracts
20% extra on capital work to meet compliance expectations
VAT is one of the most quietly damaging costs in early years.
No Workforce Strategy
The sector needs:
40,000+ new practitioners in the next 5 years
more Level 3s
more SENCos
more apprentices
more career progression routes
The Budget delivered none of this.
Workforce is the foundation.
Ignoring it ignores everything.
The System Problem: The Funding Model Is Burning Money
Here’s the part of the system the Budget doesn’t touch – and the part costing everyone the most.
England has around 59,000 early years providers:
1. group-based PVIs
2. maintained nursery schools
3. childminders
4. school-based nurseries
And every single one has to manage funded-hours admin – just in different ways.
1 & 2. Group-based nurseries & maintained settings
Heavy admin load: headcounts, eligibility checks, reconciliations, SEND top-ups, clawbacks, LA portals.
An estimated 150–200 hours per year each.
3. Childminders
Lower volume but still termly claims, LA portal issues, attendance tracking and corrections.
Around 15–25 hours per year each.
4. School-based nurseries
Handled by business managers or MAT teams: census returns, reconciliations, eligibility, SEND paperwork.
Around 30–50 hours per year
Put it all together and we get:
6–8 million hours a year
£150–£220 million in wasted labour time
All just to move funding around.
None of it improves children’s outcomes.
None of it adds capacity, quality or stability.
It’s a structural inefficiency – and it’s solvable.
The Big Six Fixes That Could Actually Help Nurseries
These are practical, affordable, sector-ready solutions.
1. Scrap Business Rates for Nurseries
Impact:
~£21k saved per setting
£400–£500m national relief
Models already working in Scotland & Wales
Cost: Medium
Impact: High
Speed: Fast
2. Fix Local Authority Funding Flow
Impact:
£357m underspent over six years
£65m+/year stuck in LA budgets
£0 cost to Government
Cost: Zero
Impact: High
Speed: Fast
3. Provide Targeted Energy Relief
Impact:
£3,000–£10,000 saved per setting
Very low cost compared to national schemes
Cost: Low
Impact: Medium
Speed: Medium
4. Allow VAT Reclaim on Inputs
Impact:
£150–£300m/year saved
Supports refurb, compliance, expansion, SEND
Cost: Medium
Impact: High
Speed: Medium
5. Create an Early Years Workforce Fund
(levy-based or Treasury-backed)
Impact:
£200–£300m/year
Covers wage uplifts, retention bonuses, SEND staffing
Stabilises the foundation of the sector
Cost: Medium
Impact: High
Speed: Medium
6. Build a National Child Account (“Childcare Pot”)
This is the system fix that transforms everything:
a single digital wallet per child
parents pay settings directly
no LAs managing codes, clawbacks or reconciliations
real-time payments
SEND top-ups attached to the child
Quick envelope maths:
£50–£100m one-off build
£30–£50m rollout
£10–£20m annual running
Savings:
£90–£120m/year in reduced admin
5–6 million work hours freed
This pays for itself within two years.
Why Otii Is Investing in Fixing the Gaps Policy Isn’t Covering
We built Otii to remove the hidden burdens settings carry daily:
compliance complexity
duplicated paperwork
disjointed evidence systems
staffing challenges
inspection anxiety
lack of clarity on what “good practice” looks like
But our mission goes beyond software.
Next year, we launch the Otii Save Our Settings Fund, designed to:
support settings at risk
prevent closures
keep childcare accessible locally
reinvest in quality, staff, and environments
Where policy hesitates, the sector innovates.
We intend to be part of that solution.
Case Study: Why Hospitality Received More Policy Attention
(A quick comparison from founders who sit in both worlds.)
At Otii, we straddle two sectors – childcare and hospitality – and the difference in how they were treated in this Budget is striking.
And to be clear:
This isn’t about criticising hospitality.
It’s more like looking at two children you care about equally and wondering why only one gets the extra support.
It raises a deeper question:
Does Government treat childcare as an internal cost centre – because it funds so much of it – rather than as a sector that drives the economy?
Because here’s the reality:
Hospitality contributes:
£93bn to the UK economy
3.5m jobs
Includes subsectors like F&B, gyms, leisure, hotels, tourism
Gyms alone contribute ~£2bn–£3bn
Restaurants, pubs, cafés: tens of billions
Childcare contributes:
£66bn in parental labour enabled
£4bn+ in direct sector value
400,000 jobs
5 million parents able to work because childcare exists
Plus long-term economic returns through children’s early development
So when childcare receives none of the stabilisers given to other sectors – rates relief, visa support, sector-specific packages – it becomes impossible not to ask:
Why does a gym get more structural protection than the sector that makes every other job possible?
Childcare is not a government department.
It is economic infrastructure – and it deserves to be treated like it.
Final Thought
The Budget wasn’t hostile.
It was incomplete.
It recognises families’ needs.
It acknowledges apprenticeships.
It hints at system reform.
But it fails to deliver the structural changes nurseries need to remain open – right now, next year, and for the next generation.
Otii will continue to:
advocate for the fixes that work
provide tools that lift the administrative burden
and invest directly in the stability of the sector through the Save Our Settings Fund
Because if childcare collapses, everything else does too. And we’re not here to let that happen.
Appendix: Sources, Assumptions & How We Reached Our Numbers
(Because transparency matters – and someone will always ask.)
To build this analysis, we combined sector-verified data with our own quick, back-of-the-envelope calculations.
We’ve been explicit about which is which.
Below is a breakdown of the sources we used, and how they shaped our conclusions.
NDNA FOI Reports – Local Authority Underspends
Key reports:
NDNA Early Years Entitlement Underspends Report (2023/24)
NDNA Underspends Report (2021/22)
NDNA analysis of £65m LA underspend across 132 councils
NDNA finding of £357m cumulative underspend over six years
Why this matters:
These FOI-led reports clearly demonstrate that a large amount of early years funding never reaches providers.
It’s either held back, repurposed, or returned to council reserves.
How it shaped our analysis:
Led us to include the “Fix the LA funding flow” recommendation.
Helped quantify the £65m+/year that could be released immediately.
Supported the argument that system inefficiency is a structural, not individual, issue.
NDNA + DfE Workforce & Sector Data
Key report:
NDNA “Key Early Years Data for England” factsheet
DfE workforce and setting census data
Why this matters:
These sources give us the baseline numbers we need:
number of settings
number of childminders
staffing levels
recruitment shortages
provider closures
hourly funded rates
How it shaped our analysis:
Confirmed the sector needs 40,000+ practitioners over the next 5 years.
Helped us model wage pressures vs funding uplifts.
Supported our “Workforce Fund” recommendation.
Enabled us to calculate the scale of provider admin workload.
Coram Family and Childcare
Key source:
Coram Family & Childcare’s Spending Review Submission (2025)
Why this matters:
Coram is widely regarded as the sector’s most authoritative voice on childcare system design and parental access.
They have explicitly called for:
simplified funding models
clearer national systems
meaningful support for affordability
How it shaped our analysis:
Reinforced the argument that system simplification is overdue.
Validated the idea that a Child Account aligns with national accessibility goals.
Provided the policy context needed for our “Big Six Fixes.”
OBR (Office for Budget Responsibility) – Wage and Fiscal Drag Forecasts
Key source:
OBR analysis of wage uplifts and frozen NI thresholds
Why this matters:
The OBR is the Government’s own independent fiscal watchdog.
Their data underpins:
wage trajectories
inflation impact
fiscal drag
long-term sustainability
How it shaped our analysis:
Helped quantify the real impact of NLW increases on childcare (6–8%) vs expected funding uplifts (~2%).
Informed the “Bad” section around wage mismatch.
Underlined why wage pressures are structurally different for childcare than other sectors.
Labour Market & Parental Participation Data
(from DfE, ONS, Coram)
Why this matters:
These data sets show childcare’s role in enabling:
parental employment
productivity
labour supply
return-to-work patterns
How it shaped our analysis:
Enabled our figure that childcare supports £66bn of parental labour.
Supported the argument that childcare is economic infrastructure, not a peripheral service.
Our Own Modelling – Where We Used “I Reckon” and Back-of-the-Envelope Maths
We’re innovators, not accountants.
We believe in clarity, not complexity – so where we did our own calculations, we’ve said so openly.
Below are the numbers we generated ourselves, and the basis for each:
6–8 million admin hours across the system
Derived from:
NDNA time surveys
DfE workforce data
FOI responses from LAs
Estimated hours per provider type (PVI, childminder, maintained nursery, school-based)
Assumption: Multiply average admin hours × number of providers → ~5 million hours
Add LA hours → ~2 million
Total → 6–8 million hours
A directional but defensible estimate.
£150–£220 million in labour cost
Simple multiplication: average salary cost per hour × admin hours = system-wide waste
Assumes: £22–£28/hr fully-loaded staff cost → consistent with sector norms
Child Account build cost (£90–£170m)
Based on comparisons to:
GOV.UK platforms
Student Loans Company digital infrastructure
Tax-Free Childcare migration
Large-scale public service software builds
Assumptions:
One-off design & build ~£50–£100m
Rollout/training £30–£50m
Annual operation £10–£20m
This is indicative, and we label it accordingly.
VAT savings (£150–£300m/year)
Modelled by taking:
sector’s annual spend on VATable inputs
average proportion of costs subject to VAT
applying 20% reclaim
Hit a range rather than a single point.
Again – flagged as “I reckon.”
Workforce Fund (£200–£300m/year)
Modelled by calculating:
average wage uplift needed to stabilise recruitment
number of staff in the sector
cost of retention bonuses + SEND staffing
Also marked as an estimate.
Why These Estimates Still Matter (Even If They’re Not Accountancy-Level Precise)
Because when the direction of travel is this clear, you don’t need decimal places.
The takeaway is simple:
The current system burns millions of hours.
It wastes hundreds of millions of pounds in admin.
It leaves tens of thousands of staff unsupported.
It keeps billions of economic value locked behind childcare instability.
Our modelling highlights scale, impact and solutions – not spreadsheets.
And we publish our workings openly so the sector can challenge, support, improve and build on them.
That’s how innovation happens.
