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Social care faces rising costs from wage and NIC changes, but new policies and tech offer hope
Published on 17 February, 2025
The care sector is facing a significant increase in the cost of employing staff following changes introduced in the Autumn Budget. The impact could be far-reaching but shifting policy and new technologies offer a glimmer of hope for a brighter future.
The social care sector has endured its fair share of challenges over the years, particularly when it comes to recruitment difficulties and tight operating margins.
But it’s now facing its biggest challenge yet, in the wake of last November’s Budget. This increased the National Living Wage by 6.7% for those aged over 21, and the employer rate for National Insurance Contributions (NICs) by 1.2%. It also reduced the threshold at which employers must pay NICs, from £9,100 to £5,000 in 2025-26.
The Nuffield Trust estimates the combined effect will be a £2.8 billion hit to the sector1, with the increase to the National Living Wage accounting for £1.85 billion and the NICs changes a further £940 million.
Impacting services
Research by the Care Provider Alliance2 (CPA) provides insight into some of the potential ramifications for the sector, and for society as a whole. Almost three-quarters (73%) of care and support providers questioned say they’ll have to refuse new care packages from local authorities or the NHS, and 57% will hand back existing contracts. The vast majority (92%) of providers who also accept self-funders will need to increase rates. From a business perspective, 77% expect to have to draw on reserves to make ends meet, and one in five (22%) believe they will have to shut altogether.
Professor Vic Rayner OBE is chair of the CPA. She points out that many of those who work in the care sector do so on a part-time basis, meaning employers may not have had to pay any NICs on their wages up to now. “On those people, there’s a 15% uplift on their salary so for very small firms particularly, it’s a huge shift,” she says. “Lots of people remain very concerned about their ability to sustain services in that environment.”
The Local Government Finance Settlement, which allocated an extra £880 million for adults and children’s social care compared to the previous year, is welcome but won’t cover the increased costs, she adds. “If they can’t absorb these costs in some other way, by restructuring staff, cutting back on training or technology or squeezing the differentials between frontline staff and more senior staff, then the risk of closure is very real.”
This is also when contracts will be handed back to local authorities, she says, which then leaves them with a choice over whether to pay the necessary increased fees or put the contract back out to market.
Meeting the costs
Ian Turner is managing director of The Partnership in Care, which runs six care homes with 270 beds in East Anglia and is also co-chair of the National Care Association. The exact situation that care homes find themselves in will differ, he says, but the general indication is that local authorities are unlikely to be able to increase what they pay by more than 5% or 6%.
“The question then becomes what increase is achievable from private fee-payers. People do not want to have to say to somebody that they have got to move because they can’t afford it.” This could mean some care homes only imposing higher fees – perhaps as much as 12% – for new residents, he adds, or taking these over local authority-funded cases, even if that means rooms being empty for a few weeks. Providers may even seek evidence that residents will be able to self-fund for a long period of time at a higher rate.
But not all providers in the care sector can push the burden on to the private sector, warns Rayner. “If you operate working-age adult services, almost all of your funding comes directly through the state or the health service,” she says.
Even where providers can cope financially, potentially by delving into cash reserves, the increased costs are likely to mean other investments – in technology, buildings or maintenance – do not happen. “We have a rapidly changing set of needs,” says Rayner. “We've absorbed a lot of complexity into the care system, and that means we need to invest in staff training. We’ve also got a big programme that the government’s put in place around digitisation and adoption of technology, which has a lot of infrastructure costs. All those will be at risk.”
Hope for the future
Beyond the immediate situation, Rayner is hopeful that the new government is taking steps that could help to improve the delivery of social care in the longer term, as seen in the proposals around a National Care Service, a fair pay agreement and the Casey commission into adult social care3. “An understanding of the centrality of social care to millions of people’s lives is more evident under this government than it was under the previous one,” she adds.
Technology is also helping to impact the sector in a positive way. “We’re beginning to see ways in which bringing technology in can offer different mechanisms for independent living and for people to be supported in residential contexts,” she says. “But that needs to happen in an equitable way, not by embedding inequities that are driven from the financial envelopes that are available to people.”
Sources:
Urgent call to address devastating impact of budget on care and support
New reforms and independent commission to transform social care