National Living Wage, the care sector, and a crisis to dwarf the steel industry's problems

In a post-election Budget on 8 July 2015, Chancellor George Osborne announced the introduction of a compulsory National Living Wage (NLW). Low paid workers celebrated; employers analysed their bottom line; and an already underfunded care sector stood shocked. In the following nine months we’ve seen consistent warnings from care providers, trade unions, and local authorities that the increased cost pressures brought on by the NLW could be the ‘straw which breaks the camel’s back’ of the care sector.

Martin Green, the chief executive of Care England, warned that “without adequate funding to pay for the national living wage, the care sector is at serious risk of catastrophic collapse.” His counterpart at the UK Homecare Association, which represents domiciliary care providers, warned that without Government action to address the funding gap, “continued supply of state-funded homecare will become unviable”.

However despite the warnings, ‘D-Day’ is here. From today, 1 April 2016, employees aged 25 or over and will earn £7.20 per hour – a 50p/hour increase compared to the previous minimum wage. The NLW will continue to rise to at least 60 per cent of median earnings (slightly more than £9.00 per hour) by 2020.

Providing for the lowest paid in society with a fair living wage is a good thing, and something the care sector fully supports. However with most care providers reliant on the fees received from local authority placements, it is crucial that the introduction of NLW is fully funded.

The increase in staff wages, which accounts for around 70 per cent of the cost of providing care, is expected to cost the sector £1bn by 2020. This is coupled with a national shortage of trained nurses, which has caused severe financial strain as replacement agency nurses are, on average, three times as expensive a permanent staff.

These cost pressures follow five years of funding constraints which have seen the fees councils pay for care home placements fall in real terms by 5 per cent. They are now, independent studies suggest, as much as 15 per cent below the level needed to cover costs and allow investment in improving facilities and services. The Local Government Association, which represents English and Welsh Councils, estimates there will be a £2.9bn annual funding gap in social care by the end of the decade.

As a result, independent research suggests 37,000 care home placements could be lost over the next four years as care providers close financially unviable homes or enter administration. This comes at a time when the number of older people in society is increasing, pushing up demand for care placements.

The Government has taken some action, with the Chancellor’s Autumn Statement last year introducing a two per cent social care levy on Council Tax, as well as adding a further £1.5bn to the Better Care Fund. Taken together, the new measures could provide English Councils with a total £3.3bn of new money for the care sector by 2020.

However, much of this money will arrive towards the end of this decade, far too late when costs have increased today. It is also questionable how much of this money will reach the frontline, with the £5bn previously committed to the Better Care Fund failing to reach care providers, there is little optimism that things will change this time around.

This week the crisis facing the British steel industry has dominated the news headlines, forcing the Prime Minister and the Business Secretary to call short overseas trips, and leading to the Labour Party calling for nationalisation of the steel industry. The crisis in the steel sector is largely the result of UK energy costs and international market forces. The result is one of the largest steel manufacturers, Tata Steel, announced its entire UK business was for sale threatening 15,000 directly employed workers.

Yet the scale of the steel crisis could be dwarfed by the potential for 37,000 of the UK’s most vulnerable older people being made homeless – around nine per cent of all people in residential care homes. Hospitals would be unable to cope, with little over 100,000 total beds nationally and average hospital occupancy already at 89.5 per cent, many people in need of care will have nowhere to go. Job losses in the care sector could reach more than 120,000 people – eight times greater than the steel industry. This is of course the predicted worst case scenario, and it is unlikely so many care beds would be lost at one time, but rather it would be a ‘drip-drip’ of losses over a number of months.

Whilst the introduction of the National Living Wage today will be a cause for celebration for low paid workers across the UK, everyone involved in the social care sector waits with bated breath to see what happens next. Providers will not collapse today, nor will homes immediately close, but by the end of the summer many are expecting to see the impact of rapidly increasing cost pressures on the social care system start to take effect. Some major providers are already in financial difficulty, and many more likely will be. Care standards could fall as providers can no longer afford to invest in equipment, training and facilities.

The next six-months is a critical time for the entire care sector, and a solution is urgently needed. The think tank Respublica has suggested greater integration of the health and social care systems, with all delayed transfer patients supported in a residential care setting rather than in hospital, could save £2.4bn a year, money which could then be used to fully fund the wider social care system. Many of the big providers are supportive of this suggestion.

How we pay for social care will be a crucial topic over the coming years. The question has been dodged by successive governments, yet the pressure on the sector is reaching breaking point. Whilst political will to achieve a consensus has been lacking, it is time parties of all sides come together to find a solution before it is too late.