National Living Wage - the straw that breaks the camel's back?

In the post-election Budget on 8th July this year the Chancellor of the Exchequer, George Osborne, made an announcement that has sent shockwaves throughout the social care sector: an announcement that many commentators are saying could have catastrophic consequences for providers of residential care across the country.

The issue at hand was the Chancellor’s statement that a compulsory National Living Wage is to be introduced from April 2016. The National Living Wage will be obligatory for employees aged 25 or over and will start at £7.20 per hour, rising to at least 60% of median earnings (slightly more than £9.00 per hour) by 2020.

Implementation of the National Living Wage will be hugely challenging for care providers, who have long been arguing that the fees being paid by local authorities across the country do not even meet the current cost of care for the elderly people they support. For a sector that pays the current national minimum wage to many care support workers, an increase of 70p per hour over the present level will be an enormous challenge, and one that many providers fear will drive them to the wall.

The Office for Budget Responsibility (OBR) acknowledges that the National Living Wage could cost 60,000 jobs by 2021. But, it argues this number will be more than offset by an increase in overall employment by 1.1 million. What the OBR analysis does not reflect is that, without an increase in care funding to enable local authorities to pay providers a fair fee, the impact on the care sector will be disproportionately severe.

Early research suggests the additional impact of the National Living Wage on the social care sector could reach £1 billion by 2020, with staff costs representing over 60% of the costs of care – although for more complex care this can rise to 80%.

A coalition of care providers supported by Care England has come together to seek Government intervention to avert this impending crisis. Leading providers Four Seasons Health Care, Bupa UK, HC-One, Care UK and Barchester, alongside Care England, wrote to the Chancellor at the beginning of August to highlight the risk to the sector and to call on the Government to work in partnership with the coalition to find a solution.

The letter has been the trigger for a sustained press campaign, which has seen the issue debated across the media. Importantly, the campaign is being backed by independent voices too. Speaking on 20th August on Radio 4’s Today programme, Chris Ham of the King’s Fund said: “Unless there's a sea change between now and the spending review, the prospects for adult social care, publicly funded, for the most vulnerable in society, are pretty bleak.”

It has also generated support from some unlikely quarters. Whereas one would expect the King’s Fund to offer a pragmatic analysis, it is somewhat less expected for the unions to support the big independent providers. Nevertheless, the GMB’s National Officer Justin Bowden has been vocal in echoing the concerns raised in the coalition’s letter to the Chancellor, saying: “The crisis in care is not the result of the rates of pay staff receive. It is the product of chronic underfunding by successive Governments and society's failure to face up to its responsibility to care for those who paid tax and national insurance all their lives in their times of need.”

At the time of writing the Government’s response has been limited to a brief statement that costs of care will be considered as part of the Spending Review which will be announced in November, but pressure is mounting for clear action to be taken. No Government will want to preside over a collapse of the care sector – after all, television footage of care home residents out on the streets equals political suicide. It could well be that by announcing the launch of the National Living Wage, the Chancellor has inadvertently created the circumstances in which a decision on how we as a country fund social care in the future can no longer be indefinitely postponed.