Fiscal Drag Will Strip Billions from Care Workers and Undermine Fair Pay Agreement

Care England has today published new analysis warning that frozen Income Tax and National Insurance thresholds will remove an estimated £1.4 billion from care workers’ take-home pay before the Fair Pay Agreement, with only £0.5 billion allocated to deliver the reform, even comes into force in April 2028.

Care England’s modelling shows that fiscal drag caused by thresholds remaining frozen until 2031 following the decision taken by this Government in the 2025 Autumn Budget, significantly contradicts the purpose of a National Living Wage; and is instead operating as a “silent pay cut”, leading to sub-inflation pay awards across adult social care, with a growing share of headline pay increases absorbed through higher deductions before they reach workers.

Key findings

• In 2026/27, frozen tax thresholds will remove the equivalent of around 0.7% of pay from the adult social care workforce, costing workers approximately £230 million in take-home pay that year.
• By 2027/28, the annual loss rises to around £470 million, equivalent to around 1.5% of pay.
• In 2028/29, the first year the Fair Pay Agreement takes effect, frozen thresholds remove around £720 million, equivalent to over 2% of pay. With a cumulative cost since 2025/26 of £1.4 billion.
• By 2029/30, frozen thresholds will be removing the equivalent of over 3% of pay each year, costing close to £1 billion annually, following several years of cumulative losses that cannot be recovered with the FPA settlement.
• Alongside this, frozen employer National Insurance thresholds add an immediate £41 million to provider costs in 2026/27, rising to £176 million per year by 2029/30, with a £430 million cumulative cost over four years.

You can read the analysis in full here

Professor Martin Green OBE, Chief Executive of Care England, said:

“The Fair Pay Agreement is being treated as the answer to some of the biggest challenges facing adult social care, including how we recruit and retain enough people to meet growing demand. It is being used to justify major workforce decisions on the basis that better pay will finally make care work more attractive.

But our analysis shows that, unless Government deals with the impact of frozen tax thresholds, care workers will not feel better off in reality. If pay reform does not translate into higher take-home pay, it will not rebuild trust, it will not stabilise the workforce, and it will not deliver the change the sector has been promised by the Fair Pay Agreement. The risk now is that expectations have been raised, but outcomes will not improve, leaving both care workers and the system itself less secure than before.”

Supporting the evidence, Dr Jane Townson OBE, Chief Executive of the Homecare Association, added:

“This analysis shows why so many care workers feel no better off despite rising wages. Frozen tax thresholds are quietly taking back a growing share of pay increases. If pay reform is to improve retention and recruitment, it must deliver real improvements in take-home pay, not just higher headline rates.”

Care England is calling on Government to take three urgent steps to ensure pay reform succeeds:

Increase Fair Pay Agreement funding to account for the impact of frozen Income Tax and National Insurance thresholds and protect the value of pay reform.
Use the Spending Review to act before April 2028 and address the immediate erosion of care workers’ take-home pay, rather than allowing losses to build up ahead of reform.

Ensure care workers are better off in practice by using a targeted fiscal measure, such as care worker-specific tax relief.
Together, these measures are essential if the Fair Pay Agreement is to strengthen recruitment and retention and deliver the outcomes ministers are relying on.

Professor Martin Green continued: “This ultimately comes down to how we value the people who provide care. Care workers are being asked to do more, to stay longer, and to believe that change is coming, while their take-home pay is quietly reduced year after year. Providers are being asked to hold services together under mounting pressure, absorbing costs that the system does not fund. The consequences are being felt now; And if the Government allows this to continue, the system will weaken further, and it will be far harder to put right later.”