The UK government is set to allocate significant financial support to schools and further education institutions in an effort to offset rising employer national insurance contributions (NICs). As of April 2025, the contributions will climb from 13.8 percent to 15 percent, resulting in a financial burden on several sectors within education. To ease this impact, the government will provide over £1 billion in funding, breaking down into £155 million specifically for post-16 schools and colleges, £1 billion for mainstream schools, and an additional £25 million earmarked for early years provision.
Starting in April 2025, employer national insurance contributions will increase from 13.8 percent to 15 percent, with a decrease in the threshold at which employers are required to pay from £9,100 to £5,000 per year. This represents a steep hike in costs for educational institutions, particularly impacting staffing budgets across the board. The Department for Education (DfE) issued guidance on March 18, 2025, outlining how this funding will be distributed and stressing the need for schools to manage these higher expenses.
The distribution of funds will occur in two phases. Eligible educational institutions will learn their allocation in May and will begin receiving these payments by September 2025. Colleges that cater to students aged 16 to 19 will receive funding based on their overall allocations from the 2024-25 financial year, while those providing adult education and apprenticeships will see funding allocated based on their income from the fiscal year 2023-24.
James Kewin, deputy chief executive of the Sixth Form Colleges Association, while expressing appreciation for the government support, indicated the need for the grant to be incorporated into mainstream funding. He remarked, “16 to 19 funding is uncertain at the best of times, but this year colleges are also waiting for their post-16 budget grant allocations and a decision on the 10 percent T Level uplift. This is all very late in the day and is why we’d like to see grants mainstream into the 16 to 19 funding rate wherever possible.”
The Association of Colleges, which has voiced concerns regarding the financial implications of the national insurance hikes, estimated in November 2024 that these increases could cost further education (FE) and sixth form colleges up to £100 million annually. Proponents emphasize that timely financial support is crucial to ensure stability within the sector.
Interestingly, the funding will also reach schools designated as having special units and resourced provision. The government announced that for the first time, additional grants will be available for these schools due to their higher staffing costs. As part of the new funding allocations, mainstream schools will benefit from base funding rates which include a mandatory lump sum and a per-pupil rate. Specific rates for the 2025-2026 financial year include £78 for primary pupils and £68 for key stage 3 pupils.
Moreover, the DfE has provided schools with a calculator tool to estimate NICs grant funding, enabling institutions to plan their budgets more effectively. Despite this support, privately run early years providers have been excluded from receiving funding assistance, leading to disappointment across the sector. Neil Leitch, CEO of the Early Years Alliance, criticized the government by stating, "It beggars belief that the government is willing to provide millions in additional funding for state-run early years settings...how can it be that the Treasury has now excluded these providers from the support so readily offered to their state-run counterparts?"
In the backdrop of these changes, small businesses across the region are bracing for an alarming wave of cost increases starting in April 2025, notably through the adjustments in national insurance contributions. With the national insurance rate set to increase alongside the minimum wage, economists predict that many small firms may face decreased profits and increased operational costs.
Emma Jones, CBE, a prominent advocate for small businesses, articulated the painful reality for many employers: "We know many of our members have already made the decision to raise prices and carefully restructure their growth plans." These sentiments echo across several sectors as businesses are expected to respond by scaling back on hiring or reducing staff. Surveys conducted by the Federation of Small Businesses indicate that the number of firms hiring is declining, with only 10 percent reporting plans to expand their workforce.
The details surrounding the national insurance increase showcase how interconnected public policy is with the economics of local and statewide businesses, educational institutions, and families. As the government has pushed forward with these initiatives, communities are left to grapple with the impending adjustments and the implications for employment stability and quality of education. The challenge ahead appears daunting, particularly for those sectors feeling the immediate impact of financial constraints.
In the coming months, the government will have to navigate this treacherous landscape with strategic foresight to ensure the sustainability of both education delivery and business operations. As Justin Lane, a local business operator asserted, "Balancing budget cuts, pay raises, and additional taxes will be a veritable tightrope for many amidst the current economic uncertainties."
Overall, the brewing changes in national insurance contributions set into motion a complex narrative that requires attentiveness from policymakers to adequately support institutions’ and businesses’ needs moving forward. The onus lies heavily on the government to respond dynamically to the shifting needs of educators, students, and the workforce while also ensuring fiscal responsibility and economic growth.
