National Living Wage
The Chancellor’s decision to introduce the National Living Wage (NLW) has significant implications and cannot be resolved without looking at how the social care sector is funded. The NLW will be £7.20 an hour in April 2016 for all workers aged over 25 (an increase of 10% excluding the October 2015 NMW increase) and this will rise by around 6% a year until 2020 when it will reach the Government’s target of over £9. (Estimated by the Office for Budget Responsibility as £9.35 by 2020).
Analysis by the Resolution Foundation found that paying the Living Wage in 2013 to the entire ‘frontline’ social care workforce would have required an extra £1.4 billion of public funding. Moreover, the Local Government Association and the Association of Directors of Adult Social Services estimate that by the end of the decade there will be a social care funding gap of £4.3bn, with this year seeing reductions in social care budgets of £500m.
The social care sector is labour intensive with around 60% of income allocated to labour costs and any inflationary increases in pay must be funded from the fees charged to those who use the services. The reality is that with several years of austerity and an ageing population placing increasing demands on services for older people, the effect has been for local authorities to reduce funding for social care with, at best, care fees staying the same or barely increasing year on year, and at worst, fees reducing. Therefore, the introduction of the NLW will escalate the crisis in the social care sector.
Without doubt, the higher pay the Living wage will bring will be welcomed by the lowest paid. In particular, the provision of care and support for older people, which is generally the lowest paying area of social care. However, every increase in the NLW will cause providers to be non-compliant and unless the sector receives appropriate funding to meet the higher wage-bill, the NLW will lead to a deterioration in service quality or availability. Given that the majority of care services are publicly funded, what happens in terms of low pay in the care sector is down to local and national government.
An unintended consequence of the NLW will be the adverse effect on recruitment and retention because the bottom end of the labour market will be compressed. Social care providers compete for with sectors, such as retail and hospitality, when recruiting. Arguably, those sectors may, if they choose, increase their prices and pass on costs to the customer/consumer in a way that social care providers who undertake services for local authorities may not.
The NLW will also erode pay differentials and those below management grades who are currently paid more to recognise their added responsibilities will see little or no reward for the accountability they have. This will be detrimental for career development, progression and job satisfaction.
Community Carers, who are primarily paid only for the contact time they have with service users, the increase in NWL in April will cause frequent breaches of the minimum wage and this is despite the great efforts that providers have been undertaken to increase the basic rate of pay significantly above the minimum wage to accommodate recompense for unpaid travel time.
Finally, it is likely that the NLW will contribute to economic inflation adding a further financial burden for providers.
The imperative is for the sector and local authority to engage and ensure that service provision remains viable and providers can attract and retain good staff that have the commitment, skills and knowledge to deliver high quality services. To meet the NLW, residential and community based care for older people will require additional funding.
For residential care an increase in funding of £30 per bed each week is necessary. Thereafter until 2020, an annual increase of £12 per bed each week will be required to meet the annual increase in NLW.
For community based care, supporting older people to live independently in their own homes, care packages will require an increase in funding of £1 an hour and 60p an hour until 2020.
Increases exclude annual cost of living increases to meet inflationary pressure on wages.
The government’s ambition on low pay will, for many sectors, require a relatively minor increase in labour costs. Retail and hospitality may well feel pressure, but above all it is social care that offers the greatest cause for concern, due to the existing low wages, reductions in funding, rising demand for services and limited prospects for productivity gains.
Unless the social care sector receives appropriate additional funding to meet the NLW in 2016 and each year to 2020, the local authority commissioned care and support for older people will diminish as providers experience financial deficits and the potential for insolvency, despite any efficiency gains that maybe achieved. Only by engaging with the sector, will Commissioners develop strategy to adequately fund social care, enabling providers to meet the NLW and sustain social care provision.