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The rise in employers’ national insurance contributions (NICs), which came into force yesterday (6 April 2025), risks causing harm to people with care needs and more strain for carers, care provider leader have warned.

Sector associations have claimed that many services face closure, leaving people without much-needed care, due to employers now paying a NICs rate of 15%, up from 13.8% previously, on employee earnings above £5,000 a year, down from £9,100.

But while public sector organisations had their increased costs covered, this was not applied to the adult social care sector, with the government successfully overturning an attempt by the House of Lords to enact such an opt-out.

Cost of almost £1bn to sector

Think-tank the Nuffield Trust has calculated that the change will cost independent care providers in England an extra £940m in 2025-26, alongside a further £1.85bn from this year’s 6.7% rise in the national living wage (NLW).

Councils should meet about £2bn of the combined £2.8bn cost, said the trust, because they purchase about 70% of care provided by the independent sector.

But while the government has claimed that English councils with adult social care responsibilities will have up to an additional £3.7bn in budget in 2025-26, approximately £1.2bn of this is dedicated to adult social care.

Council fee rises lag well behind cost increases, say providers

The Homecare Association, which represents domiciliary care providers, said that its members faced an average increase in costs of 10% in 2025-26; however, council fee increases were averaging about 5%, based on data it had collected so far.

It said that some councils had frozen fees, while others offering higher percentage rises were starting from a low base.

Last year, it reported that there was a £1bn shortfall between the fees paid by councils and NHS commissioners in England and the amount home care providers needed to pay staff at least the NLW, meet other costs and make a minimum profit or surplus.

Since then, the association’s calculation of the minimum price for home care in England has risen from £28.53 to £32.14 per hour. This is mainly due to the NICs and NLW rises, though it has also uplifted its minimum profit level from 5% to 7% of costs, based on recent research.

‘Risk of harm to individuals and strain on carers’

Commenting on the impact of the increased costs, chief executive Jane Townson said: “We are likely to see an increase in non-compliance with regulations, insolvencies and provider closures.

“This risks harm to individuals; greater burdens on unpaid carers; and more pressure on NHS services. We call on the government to provide adequate funding for vital homecare services.”

Care England chief executive Martin Green offered a similar message, saying fee increases from councils did not reflect the “enormous increases” in cost that providers were facing.

“[This] will drive some services into bankruptcy, and the impact on both people who are supported, and care staff will be catastrophic,” he added.

Bridging fund proposed to mitigate impact on providers

Meanwhile, the National Care Forum (NCF), which represents not-for-profit services, has written an open letter to chancellor Rachel Reeves suggesting a way to mitigate the impact of the NICs rise on providers and prepare the sector for the government’s planned fair pay agreement.

It urged the Reeves to set up a “bridging fund”, equivalent to at least the sector’s losses from the NICs rise, to enable employers to make the transition to the fair pay agreement.

Under this, an Adult Social Care Negotiating Body would be created, to make agreements about the pay, terms and conditions of adult social care workers in England, in a move designed to raise salaries across the sector.

The bridging fund – an idea conceived of by NCF member Methodist Homes – would be allocated based on an organisation’s number of employees and could be paid direct to providers or administered by local authorities, the open letter said.

‘Not too late for government to step in to safeguard services’

NCF policy director Liz Jones said it was “not too late” for the government to address the impact of the employer NICs rise on people who needed care and support.

She added: “Without action, we are concerned that hundreds of thousands of people with learning disabilities, autistic people and older people, as well as their wider communities, will not be able to access the vital services they need to live fulfilling lives as a result of the predicted shrinkage of care and support services resulting from these measures.”

By Simon Bottery, King’s Fund

On the day before the Budget, I held a round table with social care leaders on the government’s ambition for a ‘fair pay agreement’ to raise care worker pay.

This would involve creating a negotiating body, bringing together care providers and unions, to agree higher wages and better terms and conditions for care staff.

“Will the plans happen?”, I asked. The sector leaders were largely positive that they would.

The next day, the Budget loaded care providers with big new national insurance bills. I quickly got a text from one of round-table participants, who wrote: “I wonder what the responses would be if you re-ran that question now?”

From caution to alarm about government social care plans

Fair to say that much of that positivity might have evaporated. Some at the event – mainly social care providers – had already been very cautious, fearing they would be expected to bear the costs of a future increase in pay rather than – as they hoped – having the cost met in full by the Treasury.

So the way in which the Treasury loaded those same care providers with extra staffing cost from increased national insurance contributions (NICs), which, in the worst cases, will make their businesses uneconomic, will have turned up the dial from ‘caution’ to ‘real alarm’.

One large voluntary sector provider, employing 6,000 staff, said the increase in NICs would add £5m to its costs, against a budgeted surplus for the year of just £2.7m.

The owner of a small group of care homes told BBC Radio 4’s Today programme that the measure would increase their costs by £200,000 a year, with the rise in the national minimum wage adding another £500,000.

Chancellor ‘confident’ care services can bear tax rise

The chancellor, Rachel Reeves, was unrepentant. Though “not immune to criticism”, she told the BBC’s Laura Kuenssberg that, despite the costs increases, she was “confident” that care services would continue to operate properly.

She pointed to the Budget providing councils with a 3.2% real-terms increase in available resource in 2025-26, including a £600m grant for children’s and adult social care, as the route through which cost pressures could be met.

It is true that the 3.2% increase in spending power is better than it might have been, even if it doesn’t quite rise to the heights of the “significant rise” called for by the Local Government Association.

Councils ‘staring at a financial precipice’ 

However it still leaves many local authorities staring at a financial precipice and in no position to give care providers the sorts of increases they need to cover increasing costs.

Four in five councils are expect to overspend their adult social care budgets this year and directors fear the financial situation will be worse next year.  The 3.2% increase is also some way short of the 4% average annual funding increase for NHS England over the next two years.

That has left the sector – providers, local authorities, and people who draw on services – with a sense of dismay at the prospects of real change in social care.

Does the government ‘get’ social care?

The Budget has added to a strong sense that the government doesn’t ‘get’ social care – or, if it does, that it doesn’t see it as in any sense a priority.

They remember that virtually the first thing the new government did was to cancel the introduction of a ‘cap’ on a lifetime care costs and wider charging reforms that were due to be introduced in 2025, in the process saving £1.1bn – more than the £600m promised at the Budget.

Though this was part of a broad package of cutbacks and the cap was by no means universally popular – some councils had already argued publicly for it to be postponed – it was not replaced with an alternative vision for the future of social care.

The best the government could muster was a rumoured royal commission on social care, to report some time in the future.

Benefits of fair pay agreement come at a cost

The one concrete measure that government has promised is the fair pay agreement for care workers. It is a bold proposal and one that would meet an undoubted need – an increase in care worker pay so that the sector could compete for staff with other industries.

That would potentially allow social care to offer more and better support to people, an ambition that is widely shared by government, providers, local authorities and, of course, people who draw on care and support.

But it will come at a cost and, after the Budget, the government now has an even bigger job on its hands to convince the social care sector that they will not be expected to bear it.

Simon Bottery is senior fellow, social care, at the King’s Fund 

The planned fair pay agreement for adult social care is likely to increase costs to councils, as well as those funding their own care, the government has said.

Providers have limited scope to absorb the expected boosts to staff pay and conditions by improving productivity, narrowing salary differentials or squeezing profits, according to an impact assessment of the proposal contained in the government’s Employment Rights Bill.

As a result, the pay increases are likely to have to be reflected in increases to the fees paid to providers by self-funders and councils, with the latter potentially translating into increased costs for central government, said the Department for Business and Trade (DBT) assessment.

However, the assessment did not put a figure on the overall costs of the measure or the amount that would fall on councils.

It was published as MPs backed the Employment Rights Bill by 386 votes to 105, following its second reading in the House of Commons on 21 October 2024.

Body to set pay and conditions for adult care staff

The bill would allow the government to make regulations creating an Adult Social Care Negotiating Body, with a remit to make agreements about the pay, terms and conditions of adult social care workers in England.

The body would have to have representation from unions representing social care staff and sector employers, though may have other members, while the government would determine how it would operate and reach decisions.

Under the bill, the government would also be able to ask the negotiating body to reconsider proposed agreements.

Enforcing social care pay agreements

Where ministers were in agreement with the body’s proposals, the bill provides for them to make further regulations ratifying them, meaning the agreements would be binding on adult social care employers in England and would need to be reflected in workers’ contracts.

This would be enforceable in the same way as minimum wage legislation is, with such enforcement being the function of a new Fair Work Agency.

The objective of the agreements would be to raise pay, terms and conditions in the sector.

Poor pay and terms and conditions

As of December 2023, median pay for care workers in the independent sector was £11 per hour, against a then national living wage of £10.42, according to Skills for Care’s annual report on the workforce for 2023-24.

The sector continues to lag behind most parts of the economy, with 80% of workers in the UK earning at least £11.54 as of November 2023, according to Office for National Statistics (ONS) figures.

Besides receiving low pay, care workers’ terms and conditions tended to be the minimum required by law, said the impact assessment.

At the same time, the vacancy rate in adult social care in England (8.3%) is three times that of the wider economy (2.7%). While the turnover rate in the independent and local authority sectors fell from 29.1% in 2022-23 to 24.8% in 2023-24, this was substantially driven by international staff, the supply of whom has fallen due to immigration restrictions brought in this year.

Also, Skills for Care analysis has found that staff paid more are less likely to leave their roles.

Low pay ‘affecting domestic recruitment and retention’

In its impact assessment, the DBT said that the evidence it had accumulated showed that “that low pay and poor terms and conditions are key factors affecting domestic recruitment and retention, alongside factors such as limited career progression and limited access to learning and development”.

However, while in a normally functioning market, wages would rise in response to labour shortages, provider pay was “highly constrained” by local authority fee rates, in a context where 77% of community care users and 63% of care home residents received state-funded care as of 2022-23.

The assessment said this could not be addressed simply by raising funding for local authorities as councils may not pass these rises on to providers and, if they did, employers may not pass the increased fees on to staff.

It said creating a fair pay agreement for adult social care “provides a means to negotiate for better pay and conditions”, along with “levers to ensure the negotiated outcome is honoured”.

Positive impact for workers, negative impact for providers

The assessment said the agreement would improve the living standards, health and wellbeing of care workers. However, the impact on providers would be negative, due to increased labour costs, which would be partially offset by cost savings from improved retention.

The DBT said that providers had limited scope to raise productivity in order to absorb these costs because of the labour intensiveness of social care. If they were unable to raise their fees to compensate, due to local authority budget constraints, this would squeeze profits, threatening the viability of some providers, particularly smaller businesses.

The department said it would expect the costs of the fair pay agreement would “likely lead to higher costs for local authorities’ commissioning services and for self-funders”, with the higher council costs potentially requiring more funding from central government.

However, it was not able to quantify the costs because these would be dependent on negotiations between employers and unions through the Adult Social Care Negotiating Body.

Mixed impact on people needing care and carers

The impact on people needing care and unpaid carers was mixed, based on the impact assessment.

It added that people with care and support needs may benefit “both from the additional supply [of workers] to meet demand and from more productive carers who are retained for longer, with greater experience and skills, and more motivation and effort in their work”. This may reduce the burden on unpaid carers by reducing unmet need.

However, it said the increased costs faced by self-funders may increase unmet need and pressures on unpaid carers as a result of people buying less care.

After passing its second reading in the Commons, the bill will now be scrutinised by a committee of MPs, whose deliberations will conclude on 21 January 2025.

The government will create a body to set pay and conditions for adult social care staff in England should its Employment Rights Bill become law.

The bill, published yesterday, would allow the government to make regulations creating an Adult Social Care Negotiating Body, to make agreements about the pay, terms and conditions of adult social care workers in England.

The body would have to have representation from unions representing social care staff and sector employers, though may have other members, while the government would determine how it would operate and reach decisions.

Under the bill, the government would also be able to ask the negotiating body to reconsider proposed agreements.

Enforcing social care pay agreements

Where ministers were in agreement with the body’s proposals, the bill provides for them to make further regulations ratifying them, meaning the agreements would be binding on adult social care employers in England and would need to be reflected in social care workers’ contracts.

This would be enforceable in the same way as minimum wage legislation is, with such enforcement being the function of a new Fair Work Agency.

Tackling ‘exploitative’ zero-hours contracts

Alongside the negotiating body, the bill also provides for an end to “exploitative” zero-hours contracts by introducing rights for workers to:

• a reasonable notice of shifts and payment for shift cancellation and curtailment at short notice, for those on zero- and low-hours contracts, and
• a guaranteed hours contract that reflects the hours they regularly work over a reference period.

According to Skills for Care’s latest report on the adult social care workforce, also published yesterday, 21% of all adult social care posts (about 340,000 roles), 29% of care worker posts and 43% of home care worker posts were employed on zero-hours contracts in 2023-24.

The bill would also abolish the lower earnings limit – currently £123 per week – for eligibility for statutory sick pay (SSP), while SSP would also be payable from the first day of a person’s absence, not the fourth, as is currently the case.

Question marks over funding

The government has not yet set out how the measures affecting social care would be resourced, in the context of most services being funded by the state, prompting concerns from provider leaders.

Homecare Association chief executive Jane Townson said it  fully supported “measures to enhance workers’ rights and improve job security”.

However, she said that, by the association’s calculations, current council and NHS fees were significantly below that required by providers to cover costs and make a 5% profit or surplus.

Providers ‘may be pushed to the brink’

“Introducing day-one rights for sick pay, for example, could add at least 10p per hour to the cost of delivering homecare. While beneficial for workers, this will add financial burdens to care providers who already operate on tight margins,” she added.

“If local authorities and the NHS don’t provide more funding, these new regulations could push many providers to the brink.”

She said the association backed establishing a national contract, requiring public bodies to pay a minimum price for care services.

“We call on the government to work closely with the care sector to find solutions that balance the laudable aims of the Employment Rights Bill with the need to maintain a viable and robust care system,” Townson said. “We must address these challenges to protect and support both care workers and those they help.”

‘A major step towards giving social care due priority’

Think-tank the Nuffield Trust said the bill was a “major step towards giving adult social care the visibility and priority it has been lacking for far too long”.

“The provisions on pay and conditions massively strengthen the secretary of state’s powers and responsibilities for social care staffing, making them clearly accountable in a way that has previously been lacking,” said its deputy director of policy, Natasha Curry.

“However, the new rights and any changes to pay will need to be implemented carefully because social care is in such a precarious state after decades of neglect,” she added. “Many employers are so financially squeezed that suddenly requiring guaranteed hours and additional rights without support could push some into bankruptcy.”

The legislation was strongly welcomed by UNISON, whose general secretary, Christina McAnea, said: “The means to create a fair pay agreement to increase wages for care workers in England is game-changing. It’s an historic first step towards transforming a sector that’s been neglected and ignored for far too long.”

Other employment reforms

The bill would also remove the two-year qualifying period for protection from unfair dismissal, meaning that employers would only be able to dismiss staff for a fair reason that falls under any of five categories (conduct, capability, redundancy, statutory restriction, or some other substantial reason) from the start of their employment. However, employers would have more flexibility to dismiss during an initial probationary period set by regulations, which is likely to be nine months, though will be subject to consultation.

Other measures include:

• reducing employers’ scope to reject flexible working requests only to cases where accepting the request were not reasonably feasible;
• removing the 26-week qualifying period for people to take paternity or parental leave, enabling them to do from day one of their employment;
• requiring employers to protect their staff from harassment from third parties;
• enabling ministers to require employers delivering outsourced public services to equalise terms and conditions between staff transferred from the public sector and other employees;
• making it easier for trades unions to gain recognition from employers to collectively bargain on behalf of staff.

Announcing the bill in a parliamentary statement, business and trade secretary Jonathan Reynolds said it represented “the biggest upgrade in employment rights for a generation” and would “raise living standards across the country and provide better support for those businesses who are engaged in good practices”.

Sector leaders have urged the government to “change course on social care” after a week in which it cancelled the cap on care costs and a planned increase to workforce training funding.

In an open letter to health and social care secretary Wes Streeting, more than 30 leaders said the decisions had “raised alarm bells” for those working in, and receiving, social care.

And in a reference to the pay settlements granted to public sector staff outside of the sector, they said these were “a bitter pill for social care in a climate where other public services and their workforces are finally having their contribution recognised”.

The letter was signed by the heads of seven of the major umbrella bodies for care providers: learning disability body ARC England, the Association of Mental Health Providers, Care England, the Homecare Association, the National Care Association, the National Care Forum and the Voluntary Organisations Disability Group.

Other signatories included the heads of the Social Care Institute for Excellence, Learning Disability England, which represents people with learning disabilities and their families and several providers and local provider associations.

Ditched social care policies

Their intervention came days after the government first scrapped the adult social care charging reforms, due to come into force in October 2025, and then ditched the adult social care training and development fund proposed by its Conservative predecessor.

Both decisions were made to tackle a £21.9bn projected overspend on public spending, which chancellor Rachel Reeves said had been bequeathed to Labour by the Conservatives. This was despite £9.4bn of the funding gap being down to the incoming government’s decision to accept recommendations on public sector pay made by independent review bodies.

In their open letter to Streeting, the sector leaders acknowledged the “hugely challenging” economic situation. However, they stressed that social care was critical to delivering some of the new government’s key ambitions.

“Without high quality social care, it will be impossible to fix the broken NHS,” they said. “Without high quality social care, it will be impossible to sustain economic growth. Without high quality social care, it will be impossible to lift-up our communities and the people that live in them.”

‘Change course on social care’

The letter added: “We now need to see positive action on social care. There is time, political capital, and the expertise of a united social care sector to make this happen. We urge the government to change course and we stand ready to help you transform social care for the millions who work in it and most vitally, rely upon it.”

The sector leaders also referenced Labour’s two key policy pledges on social care: to introduce a fair pay agreement for the workforce and, over the next decade, to set up a national care service.

The fair pay agreement is designed to raise pay, terms and conditions for staff and will be legislated for in the forthcoming Employment Rights Bill, though the government is yet to say how the improvements will be funded.

It has also not fleshed out what it means by a national care service.

In their letter, the sector leaders said they needed “assurances about the timeframes and support needed to move to a national care service and the introduction of a fair pay agreement for care workers”.