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.
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.
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.”