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Introduction
People who need social care will suffer if government repeats the funding mistakes of the past.
Loading unfunded costs on care providers ultimately leads to fewer people receiving social care support. That’s the key lesson in this year’s Social care 360 review, both for the government and the upcoming commission into adult social care to be led by Baroness Casey. With providers facing escalating costs this year, from an increase in the minimum wage and employers’ national insurance contributions, the review provides an urgent warning to government to avoid the same mistake again.
After analysing nearly a decade’s worth of data, this year’s review argues that successive governments have failed to take responsibility for the costs of introducing the statutory minimum wage in the social care sector. This has created an annual chain reaction of increased costs to providers, resulting in increased fees paid to them by local authorities and, ultimately, fewer people accessing publicly funded long-term care as local authorities try to balance their books. This trend was evident from 2015/16 to 2021/22 and has only recently been reversed: we argue that it must not be allowed to return.
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The first link in the chain was the introduction of the National Living Wage in 2016. This increased the wage floor for hundreds of thousands of social care workers (over half of all care workers benefited immediately because they were being paid below the new statutory minimum), and by 2023/24, median care worker pay had increased by 17% in real terms.
The increase in pay will clearly have made a huge difference to many care workers’ lives. They are among the poorest paid staff in England, carrying out a difficult job that does not receive the respect it deserves. Even with the minimum wage increases, one in four residential care workers lived in, or were on the brink of, poverty in 2019/20. 1 in 8 of their children did not have access to fresh fruit and vegetables or warm winter clothing.
However, wage costs account for the majority of care providers’ costs and most social care (figures vary) is commissioned and paid for by public sector bodies – local authorities who have the statutory duty to provide services to people who are assessed as needing adult social care.
As a direct result of the minimum wage increase, the costs of social care providers shot up and they inevitably sought to ensure these costs were reflected in the fees paid to them by the local authorities who commission services. The data shows they were often successful. Local authorities are legally required to ensure a stable provider sector from which to commission services and cannot afford for large numbers of those providers to leave the market. Between 2015/16 and 2023/24, they increased the fees paid for older people’s care homes by 33% in real terms, for home care by 18% and for working-age adults care homes by 13%.
But local authorities have a legal duty to set a balanced budget and that meant less money was available to spend on meeting the increasing levels of demand they faced. Although spending on care went up in real terms every year from 2015/16 to 2021/22, as local authorities prioritised social care over other council responsibilities, budgets still came under severe pressure and were forced to effectively ration the care they provided. As a result, between 2015/16 and 2021/22 the number of people receiving long-term care declined from 873,000 to 818,000. The loss was largely felt by older people: the number receiving long-term care fell from 587,000 to 529,000.
The chain was only fully broken last year (2023/24) when a significant increase in local authority spending power meant they were able not just to pay higher provider fees but also to increase the number of people they supported.
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Inevitably, other factors are involved in these trends. Some increase in fees over the years is likely to be related to the increasing needs of people being supported, and some increase in the number being supported in 2023/24 was due to the growth in the care workforce as a result of more staff coming from overseas. Covid-19 also played a role, reducing the number of services that could be provided for at least two years. Providers have also faced increases in costs other than staffing (for example, insurance and energy costs). There is also wide local variation because some local authorities were more severely financially challenged than others. Nevertheless, the link between the minimum wage, the increasing cost to providers, the higher fees paid by local authorities and the lower number of people being supported is too strong to be ignored.
The risk is, however, that it will be. The government intends a number of measures that will increase the costs of care providers, including a significant increase in employers’ national insurance contributions this year. Some of these measures will directly improve the working lives and conditions of care workers – for example, the proposed increase in the pay of care workers beyond the statutory minimum through a ‘fair pay agreement’. It will have the added benefit of increasing the competitiveness of social care pay compared to other sectors, and so should improve recruitment and retention.
But the combined effect for providers is a significant increase in costs and a fear that many of them will be forced out of the market. It is certainly possible that some will be.
However, history suggests that this will not be the only or even the most likely result; instead, it suggests that local authorities will be forced to meet at least some of the extra cost. Indeed, the government has said that the local government settlement must fund increased national insurance contributions costs to providers and, in the case of the fair pay agreement, its impact assessments specifically says costs will have to fall on local authorities (as well as on those who fund their own care).
Unless national government recognises and fully reimburses the cost of these measures, local government could be in the unenviable position of having to fund the additional costs of providers while struggling with a precarious financial position after a decade in which core spending power has fallen.
The losers may well be people who draw on care services. If local authorities have to pay more to providers while struggling to balance their books, then they will ration services (and seek other savings elsewhere), however reluctantly. We could easily return to the trend from 2015/16 to 2021/22, when the demand for care services increased but receipt of long-term care fell.
That would be a tragedy, and an avoidable one. It should be a key concern for the first phase of the government’s new commission on adult social care.
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Expenditure and providers
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Data and methodology
With thanks to
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