The impact of the Autumn Budget 2024 on the day nursery market

On Wednesday 30th October 2024, the Chancellor of the Exchequer, Rachel Reeves, presented her first Autumn Budget to parliament. It began with the promise of economic growth that was delivered through a series of changes that will undoubtedly impact childcare and education businesses throughout the UK. Here are just some of the key changes that were announced.

Against the backdrop of the expansion of funded hours to include children under two years, it was announced that the minimum wage for 18 to 20-year-olds will increase by 16%, National Living Wage (NLW) for those 21 and over will increase by 6.7%, and apprentice wages by 18%, this will immediately offset a significant proportion of the benefit afforded by the funded rate being paid by local authorities for those youngest children. Given the number of young and apprentice-age staff employed in day nurseries, these wage rate increases will potentially have a significant impact if these additional costs cannot be passed on through fee increases. As with any increase to the NLW, it is not only those lowest-paid members of staff that have to be considered but also the knock-on effect this has on wage increases for Nursery Practitioners, Room Leaders, Deputies and Managers to maintain a pay differential reflective of their role and responsibilities. In what is becoming a common theme, settings only offering care and education for preschool-age children will likely be hardest hit as they won’t benefit from the increased funding provided to younger children. 

There were further changes to employers' costs through the increase of Employers' National Insurance contributions by 1.2% to 15%, while also lowering the threshold at which employers pay NI from £9,100 to £5,000. This, coupled with the announced NLW changes, represents potentially significant increases in staffing costs. Some relief was offered to the smallest of settings, however, through the increase in the employers’ allowance to £10,500. 

The Chancellor also announced an immediate increase in Capital Gains Tax (CGT). As a result, the lower rate of CGT has risen from 10% to 18%, and the higher rate from 20% to 24%. The Government will increase the Business Asset Disposal Relief (BADR) rate from 10% to 14% for the first £1 million of taxable gain in April 2025, and, from April 2026, it will deliver further reforms. 

Impact on the market

In the lead-up to the Budget, and following the announcement of the £22 billion black hole in public finances, the market experienced a frenetic level of activity as sellers channelled their focus into completing deals before the anticipated changes kicked in. This resulted in an unprecedented October, during which Christie & Co completed 45 day nursery transactions — a level beyond the norm — from smaller single-asset sales to landmark deals such as the sale of Children 1^st Day Nurseries on behalf of Margaret Mason OBE.

This heightened level of activity isn’t limited to the day nursery sector, as Christie & Co completed 144 transactions across the business landscape in October alone, echoing the seller sentiment of wanting to complete while still trading in certainty. 

The further CGT changes in both April 2025 and April 2026, teamed with rises in National Insurance (NI) contributions and increased NLW, are all factors which could potentially lead to increased market activity. However, business owners will need to take time to consult with their accountants, tax advisors, and business property advisors. Insights from those discussions will enable them to contemplate their business acquisition or exit strategies, alongside how the Budget may impact their business operational performance in terms of revenue, operational expenditure, and earnings. 

To find out more about the impact of the Budget on the day nursery market, or help with your business planning in these challenging times, contact Courteney Donaldson: courteney.donaldson@christie.com / 07831 099 985