Autumn Budget 2025: Implications for Care Homes and Adult Social Care
Today’s Budget at a Glance:
Chancellor Rachel Reeves delivered her second Autumn Budget today, presenting a complex picture for residential and nursing care homes across the UK, with measures that will simultaneously increase staff wages whilst placing significant additional cost pressures on providers.
Pay Rise for Care Workers
In a move that will benefit approximately 180,000 adult care workers, the national living wage will increase by 4.1 per cent to £12.71 per hour from April 2026. This represents an annual gross earnings increase of around £900 for full-time workers on the rate.
The wage increase extends beyond those currently earning the minimum, with hundreds of thousands of care staff earning just above the national living wage also set to benefit from the uplift. For younger workers aged 18 to 20, the national minimum wage will rise by 8.5 per cent to £10.85 per hour.
Cost Pressures Mount
However, the positive news for care workers’ pay packets comes alongside significant financial challenges for care providers. The Budget extends the freeze on personal tax thresholds for a further three years until 2030-31, meaning an additional 780,000 people will become basic-rate taxpayers, 920,000 more will pay the higher rate, and 4,000 more will enter the additional rate by 2029-30.
Most significantly for the sector, from April 2029, salary sacrifice pension contributions above £2,000 will attract National Insurance Contributions, raising £4.7 billion for the government. This change will affect care providers who use salary sacrifice schemes as part of their employee benefits packages.
Limited Additional Funding
The care sector had been hoping for substantial additional funding following sustained campaigning. Prior to the Budget, the Care and Support Alliance delivered a symbolic red box filled with personal stories to Downing Street, urging the Chancellor to remember that the most important figures in this Budget are people, not just numbers.
Industry analysis suggests that whilst additional funding may be announced through local government settlements, this is unlikely to fully cover the cumulative impact of wage increases and other cost pressures facing the sector.
Workforce Challenges Continue
Directors of adult social care reported that 80 per cent experienced overspends in 2024-25, totalling £774 million nationally, whilst savings of £932 million are planned for 2025-26.
Concerningly, only 16 per cent of directors expressed confidence in their ability to deliver these savings.
The sector employs more than 1.6 million people across 21,100 organisations and contributes £68.1 billion in gross value added to the UK economy. Despite this substantial contribution, the funding challenges remain acute.
Social Care Reform Delayed
The Budget comes against a backdrop of delayed reform. Earlier this year, the government cancelled the planned £86,000 lifetime cap on personal care costs, which had been due for implementation in October 2025. The Casey Commission on adult social care, announced in January 2025, is not expected to report its reform recommendations until mid-2026 at the earliest, with full implementation potentially not until 2028.
Council Pressures
Local authorities face their own budget challenges, with councils projecting savings requirements of £1.4 billion in their adult social care budgets for 2025-26. The Association of Directors of Adult Social Services has calculated that councils are receiving approximately £2 billion less this year than needed to employ staff on the national living wage whilst meeting other costs.
No New Money
Nuffield Trust Senior Policy Analyst Sally Gainsbury said: “Under today’s Budget, day-to-day NHS spending is set to rise 2.2% next year, and while it has escaped cuts, this harks back to the slow growth we saw under 2010s austerity. There are some small boosts to pay for redundancies and new NHS tech. But with this now set to be one of the tougher periods for funding in the NHS’s history, an awful lot is being asked from this modest increase – from improving access to GPs in poorer areas, to totemic pledges like reducing hospital waiting lists.
“As the OBR warns, the unresolved dispute between government and the pharmaceutical industry is still looming large. If the government concedes to pay higher prices for the same drugs, that will either eat into today’s settlement or divert funding away from more cost-effective care like GP appointments, which give patients much greater health benefit for every pound spent.
“Meanwhile, today’s Budget has boosted the National Living Wage – which will come as welcome news to the many social care workers on low wages – but there’s no new money to help the care sector with the impact. With almost a quarter of the 1.5 million strong care workforce paid within 10 pence of the Living Wage in 2024, even small increases can have a big impact on the cost of delivering care. We estimate that this increase could cost the sector around £1.2 billion. It is difficult to see how current levels of investment will stretch to deliver even the planned social care workforce reforms, let alone leave enough for wider changes to England’s broken care system.
“Social care is still in dire straits and the impact of last year’s Budget measures, including Employer National Insurance rises, are beginning to bite. Ultimately, people who need care and support will feel the effects as cost pressures continue to increase.”
