New mandatory Living Wage could force care homes to close and cost of home care to rise

The Chancellor’s announcement that the Government is to bring in a compulsory Living Wage next year, will be welcome news for care home workers and home care workers who are often poorly paid.

Many will see their pay per hour increase from the national minimum wage of £6.50 to £7.20 in April 2016, rising up to £9 per hour by 2020.

There are nearly a million care workers in the UK and the think-tank, the Resolution Foundation, estimates that currently around two-thirds of care workers are paid below the existing Living Wage of £7.85 per hour (£9.15 in London).

However Care England, which represents independent care homes, has warned that unless the Government puts money into the care sector to fund its new compulsory Living Wage, some care homes could be forced to close.

George Osborne’s announcement caused high drama in the House of Commons with Work and Pensions Secretary Iain Duncan Smith jumping to his feet and waving his fists in the air in delight and the rest of the Conservative Party cheering.

In his speech, Mr Osborne said: “Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing a new National Living Wage. We’ve set it to reach £9 an hour by 2020. The new National Living Wage will be compulsory. Working people aged 25 and over will receive it. It will start next April, at the rate of £7.20 The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60 per cent of median earnings by 2020.”

Sixty per cent of care home costs go on staff

Sixty per cent of care homes’ costs are spent on staff and Care England claims that with care home workers’ pay rising to £7.20 and then £9 per hour by 2020, some will be unable to cope financially.

Professor Martin Green, chief executive of Care England, said: “The care sector cannot sustain an unfunded increase in labour costs. We have been calling for the Government to establish a Living Wage, but have underlined this can only be done when the Government funds care properly.

“In many areas, local authorities are funding older people's residential care, at a rate which works out to be approximately £3.30 an hour, and is totally unsustainable. With 60 per cent of costs in staffing, the announcement of a significant increase in staff costs, will leave some businesses unable to survive”.

He added: “Care is a regulated sector, and so services cannot by law reduce staffing levels and this measure, unless it is properly funded, could lead to a reduction in provision and even more pressure placed upon the NHS.

'Danger of collapse'

“Nobody in this Government seems capable of understanding that the current level of funding for adult social care is totally inadequate and they must heed the warnings of many independent commentators, and the NHS, that unless they put more money into social care, the system is in danger of collapse.”

Mr Osborne added in his speech that to help small employers with paying the living wage, employers’ national insurance contributions will be cut by £3,000 to offset the impact of wage rises.

Mike Padgham, chair of the Independent Care Group which represents care home and home care providers in York and North Yorkshire, also had reservations over the new compulsory living wage.

“On the face of it, the introduction of the new National Living Wage is a positive step in that direction. However, unless more funding is put into social care, providers will not be able to afford to pay the new National Living Wage to their employees.”

“Estimates suggest that more than £4.6bn has been cut from local authority budgets since 2010-11, with further cuts of £1.1bn forecast for this year. This has meant that local authorities have been squeezing, rather than increasing the amount they pay for care.

“Unless there is a recognition by the Government and by local authorities that they have to pay a fair price for the care they commission, it is difficult to see how the National Living Wage could be paid to social care workers,” he said.

Giving with one hand, taking away with the other

Dave Prentis, general secretary of UNISON, the trade union which represents care workers, also voiced criticism saying: “An hourly rate of £7.20 is not a living wage. George Osborne’s announcement might look attractive at first glance but as tax credits are cruelly snatched away – leaving many workers £1,200 worse off – he’s simply giving to the low-paid with one hand and taking away with the other.

“An independently set living wage already exists, and its higher rate assumes the full take up of in-work benefits. Renaming the minimum wage will mean fewer employers will feel obliged to pay staff any more than the law requires them to.”

Significant impact on cost of home care

Colin Angel, policy director of United Kingdom Homecare Association Ltd (UKHCA) expressed concern that the cost of home care could rise as a result.

He said: “UKHCA supports measures which improve the terms and conditions of low-paid workforces. We note that Government's announcement on a National Living Wage for workers aged 25 years and above is offset to some degree by changes to employers' National Insurance contributions. However, due to the age profile of the social care workforce this announcement will have a significant impact on the cost of homecare.

“Whilst employers are responsible for meeting the increased cost, the vast majority of homecare services are purchased by local councils, who have an extremely poor record of increasing their fees in response. The impact of constrained public spending by councils has been subject to repeated criticism from the Low Pay Commission.

“We call on Government in each UK administration to ensure that the statutory sector is adequately funded to meet these additional costs, and to monitor effectively how such funding is passed on to employers. It is vital to ameliorate the negative impact on an increasingly under-funded sector, and to achieve better conditions for the homecare workforce in a sustainable way.”