National Living Wage will cause ‘care catastrophe’ – new report

Analysis, commissioned by Allied Healthcare and delivered by the Centre for Economic Business Research, shows that the impact of the NLW will be distributed unevenly across sectors, with social care and childcare facing markedly higher costs.

According to the analysis, these sectors already operate at the margins of profitability so will struggle to absorb higher costs or influence the price paid for their services or their productivity.

The policy, announced by the Chancellor in his July Budget, will increase the national pay floor for all workers over-25 to £9 per hour by 2020, which in some cases is 38% above its current level. 

The reportwarns that the social care sector will be one of the hardest hit by the changes, which by 2020 will cost care providers an additional £366 million each year.

At the same time employers will also face an additional £74 million in national insurance contributions. 

Recommendations to mitigate some of the effects include reinvesting a proportion of the additional contributions the Treasury is likely to receive in employer national insurance contributions from the introduction of the NLW. 

Allied Healthcare suggests raising the threshold at which care employers pay national insurance by £5,000, saying the move could save 15,000 care workers’ jobs. 

The support would cost £154 million in 2016 and rising to £257 million in 2020 but the Government can expect a £1.8 billion national insurance windfall from the NLW between 2016 and 2020.

Tim Pethick, executive chairman of Allied Healthcare said: “We were the first social care provider to ban compulsory zero hours contracts and we believe that rewarding care workers properly is the way to improve social care.

“Paying the National Living Wage to our dedicated care workers is absolutely the right thing to do, but there is a major challenge that needs to be addressed.

“Local authorities are increasingly being forced to auction out care contracts to the lowest bidder or contract at rates that are simply uneconomical for care providers.  This race to the bottom is creating a flight away from quality.

“Raising employers NI thresholds for social care providers could help stave off catastrophe.  It will throw a lifeline to thousands of care workers who face losing their jobs and provide some certainty for those they care for, who fear being left without the support they need.”

Read the full report, Consequences of the National Living Wage,  here.