Cost of implementing ‘living wage’ could leave home care market unviable, providers warn

The UK Homecare Association's open letter to government says the policy will require councils to pay providers at least £16.70 per hour

The government’s ‘national living wage’ policy will threaten the viability of home care services unless it is fully-funded, providers have warned.

The UK Homecare Association (UKHCA) said it estimated local authorities and the NHS would need a funding increase of at least £753m to implement the policy in 2016-17.

If this deficit in funding is not addressed, home care providers could pull out of the market, resulting in ‘catastrophic failure’ for the sector.

“Market exit by providers would cause considerable distress for people who use home care services and their families; create a significant burden for local councils who would have to find replacement providers and provide uncertain employment prospects for trained and committed care workers,” the UKHCA said.

‘Minimum price’

The providers’ warning came in an open letter to chancellor George Osborne, who announced the policy in the summer budget statement. It will see the introduction of a compulsory wage floor of £7.20 per hour for workers aged over 25 from April next year, rising to £9 by 2020.

The government will also increase the employment allowance for National Insurance contributions from £2,000 to £3,000 in April 2016, in order to help businesses meet the increased cost of paying their staff the new wage.

But even after accounting for these changes, the UKHCA estimates that the new ‘living wage’ will require councils to pay at least £16.70 per hour, including care workers’ travel time and all other costs.

This is an increase of £3.04 on the average hourly rate paid currently paid by councils (£13.66), according to a recent freedom of information request carried out by the UKHCA.

The UKHCA’s current recommended minimum hourly rate for home care services is £15.74. This calculation includes mileage, holiday pay, employers’ national insurance contributions, a profit of 3% and business overheads, which account for 27% of the minimum price.

In their latest ‘Minimum Price for Homecare’ paper, the UKHCA has analysed the age profile of the home care workforce to determine the average wage that will be applicable from April 2016. The £16.20 minimum price is based on the assumption that workers will be paid an average of £7.13 per hour.

‘Increasingly fragile’

The open letter called on the government to implement the following four recommendations, in order to avoid destabilising the ‘increasingly fragile’ home care sector:

  • Address the increase to the social care wage bill in the next spending review to ensure councils are sufficiently resourced and that monies are actually used to fund home care services.
  • Give care regulators in the four UK administrations the power to oversee local authority commissioning practices, with particular reference to their impact on the stability of local care markets.
  • Change the VAT exemption for welfare services to ‘zero-rated’ services. This would ensure that councils and self-funders continue to purchase home care services without paying VAT, but would enable providers to reclaim VAT on the costs they incur.
  • Consider tax incentives for individuals who do not meet the financial eligibility criteria for state-funded social care.

A government spokesperson said: “The National Living Wage will benefit hundreds of thousands of care workers who will see their pay increase. The overall costs of providing social care will be considered as part of the spending review later this year and we are working with the care sector to understand how the changes will affect them.”




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5 Responses to Cost of implementing ‘living wage’ could leave home care market unviable, providers warn

  1. syl July 28, 2015 at 12:30 pm #

    And this is what you get when every service previously carried out by a council employee/public servant is contracted out to a private provider who then charge exorbitant amounts to the council to fill the roles previously held by council workers making a damn good profit for the private provider/stakeholders into the bargain.

  2. Ruth Cartwright July 29, 2015 at 11:23 am #

    I think the Government and local authorities are aware that they have been getting home care on the cheap at the expense of the workers, who often receive little training and are expected to fork out for their own travel expenses and yet carry out some complex and intimate tasks, usually with totally unrealistic timescales. Now these low wages are to be addressed and that can only be a good thing in terms of just rewards for hard work and attracting a greater range of people to this profession. When they are receiving a decent (but not extravagant) wage, the issue of poor terms and conditions for these workers needs to be looked at and the temptation to reduce still further the time they spend with service users must be resisted.

  3. kendall July 29, 2015 at 4:00 pm #

    The overall costs of providing social care will be considered as part of the spending review later this year and we are working with the care sector to understand how the changes will affect them.”

    You can’t make this up. Great way of controlling budgets. Jump in with a forced massive wage increase and THEN lets go round and see if we can understand the outcome on providers of vital services.

    Let me help with this understanding. If the increases aren’t fully covered by fee increases in the care sector, at least 70% will fail their users and fail to deliver an acceptable service.

    Absolutely brilliant. What a farcical sector we are all in.

  4. J Harris July 31, 2015 at 1:20 pm #

    I do know of some care agencies that do not pay their staff for their time spent having compulsory training let alone any extra training needed for their job. If they don’t attend they don’t get work

  5. Terry McClatchey August 3, 2015 at 11:59 am #

    This is a difficult one because we shouldn’t complain that low paid workers will finally get something of a increase and theyprobably deserve even more.

    The impact however will be huge. It’s hard to see any promised “review” delivering matching funding in an environment where “non-ringfenced” budgets ( is including local government) are being expected to plan for 25-40% further reductions.

    The impact however is highly predicable. The hourly cost of delivering care will increase as announced and mathematically be compounded by employer’s national insurance contributions and auto-enrolement pension contributions (another good thing).

    Providers (even the best) will be unable to deliver the same hours at prices for which they have tendered. Any now bidding for three-year tenders (common) will need to build the new projected payrates (and consequential) into their prices. If they don’t, they will simply fail.

    The implication is that eligibility criteria will be tightened so that more expensive hours of care are spread across still fewer people.