Government help is needed to stave off catastrophe in the care sector following the introduction of the National Living Wage (NLW). The move will increase the national pay floor for all over-25 workers to £9 per hour by 2020 – some 38% above its current level.
Analysis by the Centre for Economic Business Research (Cebr) shows that the impact of the NLW will be distributed unevenly across sectors, with low profit sectors such as social care and childcare facing markedly higher costs. These sectors already operate at the margins of profitability so have little or no ability to absorb higher costs or influence the price paid for their services or their productivity.
It is predicted that a number of low paid workers will move from low pay to “no pay” unless government support is put in place. The Office for Budget Responsibility estimates that it could cost between 60,000 and 110,000 jobs by 2021.
The report, commissioned by Allied Healthcare, warns that the social care sector will be hit hard by the NLW, which by 2020 will cost care providers an additional £366 million each year and at the same time employers will also face an additional £74 million in employers national insurance contributions.
Job losses and potential bankruptcies could be staved off by ministers ploughing back a proportion of the additional of contributions they are likely to receive in additional employer national insurance contributions from the introduction of the NLW.
Raising the threshold at which care employers pay national insurance by £5,000 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 facing losing their jobs and provide some certainty for those they care for, who fear being left without the support they need.”
Without proper funding society’s most vulnerable will be put at risk by the failure of an increasing number of smaller providers. These failures will lead to an increased cost burden to an already overburdened NHS as an increasing number of older or vulnerable people find they are unable to be discharged from hospital due to a paucity of emergency social care provision.
Despite being the largest domiciliary care provider in the UK – with all the economies of scale that this brings – Allied Healthcare have had to walk away from an increasing number of contracts over the past year. Rates being paid by some local authorities are simply not sufficient to cover paying care workers fairly, let alone pay for the proper training and oversight required when caring for some of the most vulnerable in our society and this is before the introduction of the National Living Wage.