Social care can’t cope alone with the cost of the living wage

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The cost to local authorities of commissioning social care is heavily affected by the rate of careworker pay. The impending 6.2 per cent rise in the national living wage is richly deserved by care staff but, along with rising demand for services and workforce shortages, may be more than the sector can bear.

Staff costs are the single largest outgoing cost for care businesses. The UK Home Care Association estimates that gross care worker pay accounts for just over half of the cost of running a viable homecare business. Pension, National Insurance and other wage-dependent costs add a further 14 per cent, bringing the total linked to basic pay to around two thirds of total costs. Similarly, the Competition and Marketing Authority’s industry-wide analysis of nursing and residential care found that staff costs account for over half of residential and nursing home costs.

In the independent sector – the private and voluntary organisations that provide most of the hands-on social care in England – wage costs have been increasing year on year by more than inflation. The key driver is the national living wage (and for younger people, the national minimum wage), the statutory minimum that employers must pay their staff. This pushes up not just the wages of the lowest paid staff but also those above them, as employers try to maintain differentials for more experienced staff, for example between a care worker and a senior care worker. The increase in the main rate of the national living wage was 4.2 per cent in 2017/18 and rose to 4.8 per cent in 2019/20.

'The impending 6.2 per cent rise in the national living wage is richly deserved by care staff but, along with rising demand for services and workforce shortages, may be more than the sector can bear'

No-one could deny that under-valued staff doing difficult jobs deserve a pay rise. But it has implications: the increase inevitably impacts the sector’s pay bill and that has knock-on effects on the costs of local authorities, who are the main purchasers of care. For the past three years the social care wage bill increase, according to the recent ONS study of productivity in the sector, has been around 4 per cent. And in the past two years, local authorities have broadly matched – or exceeded – that increase in the rates they pay providers for residential, nursing and home care (though the increase varies between settings and service user groups).

This suggests that, in practice, the level of the increase in the national living wage is a fair indicator of the how much extra income social care providers need just to meet their statutory wage duties and, in turn, how much local authorities need to pay them to ensure they can do that. There is also likely to be a similar impact on the fees self-funders pay for their care but there is very little data about them .

The sums work out to be very significant. For 2019/20, directors of social services estimated the impact of the national living wage on their direct wage costs, the fees they pay for care and other indirect costs would add nearly £450 million to their budgets. In 2020/21, they face a further 6.2 per cent rise in the national living wage.

Nor is the living wage increase the only potential upward pressure on wages. So called ‘sleep-in’ shifts, which currently do not have to be paid at the national living wage hourly rate, may have to be in future (a legal judgement is pending). And the gradual loss of EU workers from 2021 is likely to increase vacancies, which in turn is likely to push up wage costs.

One option would be for providers to swallow these extra costs themselves. Yet, they do not look to be in a position to do that. Local authorities continue to report difficulties with providers closing or handing back contacts, particularly in home care. One of the largest providers, Mears Group, has just given in and sold its home care business, citing the unsustainability of fees.

'This rapidly arriving crisis should be top of mind when the Chancellor sets out his budget on 11 March because the extra money promised… simply won’t fund all of the pressures on adult social care'

If these upcoming costs can’t be borne by providers, then they have to fall on the buyers of care: people who fund themselves or the local authorities who commission it. The trouble is that local authorities – and probably many self-funders – don’t have the money either. A combination of major demographic change, other cost pressures and the impact of austerity on local government means that councils are hanging on by their fingertips. Estimates of the social care funding gap vary but the Local Government Association, which represents councils, puts it at £3.6 billion by 2025.

This rapidly arriving crisis should be top of mind when the Chancellor sets out his budget on 11 March because the extra money promised for social care – £1bn a year, spread across children’s and adults services, plus the capacity to raise another £500 million through the social care precept – simply won’t fund all of the pressures on adult social care, including the increase in costs that the national living wage will create. Without additional funding, it is likely there will be a further reduction in access to publicly funded care, with knock-on effects across the wider health system. Employers will squeeze the pay of higher paid staff, further limiting career progression at a time when turnover is already too high. And the drift of companies away from the publicly funded sector will continue, making it even harder for people to find the care they need.

In the short term, money will help stave off crisis. Anyone who cares about social care will be watching the Budget on 11 March, hoping for more support. In the medium term, the sector is crying out for a workforce strategy, joined up with the NHS, that addresses not just pay but the other deep-rooted staffing issues that bedevil social care and its users.

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