Living wage increase could cost care sector £2.3bn per year by 2020


Think tank warns more government funding is needed to pay care workers, while British Chambers of Commerce calls for rethink on planned NLW rise

Social care organisations will be forced to cut jobs or workers’ hours unless government ministers provide more funding to pay for rises in the national living wage (NLW), a think tank has warned.

The Resolution Foundation said public funding would not be sufficient to cover increases in the recently introduced minimum wage for people aged 25 and over. The new NLW of £7.20 per hour came into force earlier this year, with the government planning further rises that will take it to £9 per hour by 2020.

If these plans come to fruition, up to one million workers in the care sector alone could receive a pay increase by 2020, which would cost employers £2.3bn per year, according to the report.

“Even with the new council tax precept, which allows local authorities to raise council tax specifically to fund care services, the current expectation is that public funding increases will be insufficient to meet the extra costs associated with a rising NLW,” said the report.

A lack of additional government funding could have dire consequences for workers in the sector, said a Resolution Foundation spokeswoman: “Hours could be cut, so employees could be forced to spend less and less time on each visit, which could have adverse effects on service users. There could be redundancies. If you are trying to save money and you can’t take it out of the business it will impact on the people you employ. The government will have to put more money in to avoid these impacts.”

The report, Rising to the challenge, also found that this year’s NLW increase had been successful in boosting pay beyond the parameters of the legislation. Social care providers spent twice as much raising pay in the four months to the end of July this year than they needed to satisfy the new law.

However, there was also evidence of increased ‘bunching’ of pay, with one-third of care workers now paid the top adult minimum wage rate of £7.20, up from one quarter during June to September 2015, which the Resolution Foundation said raised concerns about employees’ ability to progress within the sector.

Ewan King, director of business development and delivery at the Social Care Institute for Excellence, said: “It is encouraging to see that care providers are making progress in introducing the NLW, despite financial pressures.

“It is important to learn and share examples of how some services and areas are managing the increase in wages more effectively than others. And crucially we need to manage this issue as an integrated health and care system.”

Meanwhile, the British Chambers of Commerce (BCC) has claimed that the planned NLW rise to £9 per hour by 2010 is “unaffordable”, and is urging the government to abandon what it calls a “politically driven” approach in favour of a return to an “evidence based” method.

In its submission to the Low Pay Commission’s consultation on future increases, the BCC said failure to redress the policy could push up prices, raise unemployment and force companies out of business. It also warned that smaller organisations would be hit the hardest.

“The national living wage policy was set ­before the EU referendum result, and therefore it is valid that the government should reassess this policy following the referendum, taking into account new economic data and forecasts once these becomes available,” it said in its submission.

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