Fair pay in social care is a fine and progressive policy – but who is going to pay for it?

If there is no such thing as a free lunch, there is definitely no such thing as a free pay rise. That unavoidable truth is at the heart of unease within the social care sector about the government’s planned ‘fair pay agreement’ for care workers, an unease that is exacerbated by the total lack of certainty about what any agreement will cover, how it will be negotiated, when it will happen, what will be its impact, what it will cost – and who will pay the bill.

The proposal for a fair pay agreement stood out in the Labour Party’s manifesto because it was the only concrete measure about social care, and the government moved quickly to introduce it after the election. The Employment Rights Bill will establish a negotiating body involving two key groups – care providers and trades unions – that will have the ability to negotiate a legally binding higher pay agreement for care workers.

That process has already begun but currently the two sides are in a ‘phoney war’ as members of a working group and a series of ‘task and finish groups’ that are exploring the complexities of the policy. Things will only become real once the Bill is passed. Then, a formal negotiating body will be created, probably in 2027, and both sides will have to get down to hard bargaining. That is where the critical decisions about which workers are to be included (just care workers or other groups), what the agreement will cover (basic pay or other terms and conditions) and the amount (how much more will they be paid) are supposed to be decided (if they cannot, the Secretary of State will have the power to impose a deal).

Underpinning the chance of agreement is broad support for the principle of paying care workers more, for two main reasons:

• The ‘social care’ argument accepts that better pay is critical to improving the sector’s chronic recruitment problems, which in recent years have only been alleviated by bringing in 230,000 workers from overseas. That route is now closed, and better pay is the only game in town.

• The ‘social justice’ argument accepts that it’s unfair to pay care workers so poorly for doing a critical and difficult job. A recent report from the Health Foundation found that 1 in 5 residential care workers in the UK is in poverty, more than 1 in 10 risks going without food, and 15% rely on Universal Credit.

But even if these are broadly shared beliefs on all sides, there is nowhere near consensus about the scale of the change needed in response and, critically, who will pay for it. Logically, it’s clear that the costs will have to fall in some proportion on four groups: care providers, local authorities, people who fund their own care, and the government.

Providers argue they can’t afford any additional costs, particularly after the increase in employers National Insurance at the last budget. In this, they have support from the government’s own impact assessment, which says they have limited capacity to bear additional costs through reduced profits or improved efficiency.

What about local authorities? They commission most social care and so, in theory, could meet the costs of higher care worker wages by paying providers higher fees. This has in fact been a general trend for a decade. However, local authorities are scarcely in a better financial position themselves, with 4 in 5 already overspending on social care.

People who fund their own care (around a quarter of home care and a third of residential care) could also pay higher fees. The fairness of this will be questioned because self-funders already subsidise local authority funded care. They do not, however, have much of a collective voice so the question is how much they will be heard at the negotiating table.

Finally, the government could pay the costs from general taxation, most obviously by funding local authorities to pay higher fees to providers. Understandably, this is the preferred – indeed expected – solution from other players. We know there is money set aside in the current spending review to do this, though the government is being incredibly coy about how much this is.

Whoever ends up footing the bill, crudely the general effect is to transfer funding from better off groups to poorly paid care workers: care providers are a mix of small and large private businesses, with a minority of not-for-profits; self-funders by definition have income and assets above the means test threshold; local and national government generates income though asset and wealth-based taxation. So a fair pay agreement will be progressive, tackling that issue of social justice. It also looks like good politics: the first pay increases for thousands of lower-paid workers should arrive in 2028, which might well be a general election year.

But will it be good for social care? It should ease recruitment difficulties, with the extent depending on the size of the pay increase. However, it must do it in a way that stabilises the sector rather than weakens it. It must not overturn existing wage structures (for example by reducing even further the differential between lower paid staff and more senior/more experienced workers). It must not create financial or administrative burdens that might put providers out of business or force them to cut corners in other areas (for example by reducing the number of staff). And it must be sustainable for many years, not just one. It must be judged by its effect on the overall quality of social care experienced by people who use it.

That’s a tough bargain to strike. The negotiating body will have its work cut out to find it – but the government will need to ensure that it does.