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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.”

Experienced care workers were earning just 4p per hour more on average than newcomers to the sector as of December 2024, according to new Skills for Care data.

This is the smallest pay gap between independent sector care workers with five or more years’ experience and those with those less than a year’s service yet recorded in a data series dating back to 2016.

Then, experienced care workers earned 33p per hour (4.4%) more on average than newcomers, but the gap has fallen significantly since, dropping from 10p to 4p per hour from March to December 2024.

Shrinking pay gap between senior care workers and junior colleagues

Skills for Care’s latest report on independent sector pay also showed that the differential between care worker and senior care worker salaries had reached its lowest level yet recorded – 6%, down from 8% in March 2024 and a high of 11% in March 2017.

Median pay for senior care workers stood at £12.75 per hour in December 2024, compared with £12.00 per hour for care workers, said the report.

The squeeze in pay progression appears to have been driven by the impact of growth in the national living wage (NLW), now the wage floor for those aged 21 and over, on a low-paying sector such as adult social care. Since the NLW’s introduction in 2016, real-terms median pay has grown by 26.2% among the bottom tenth of independent sector earners and by just 14.1% among the top tenth.

Providers’ challenge in meeting living wage rises

The NLW has increased sharply over the past two years, from £9.50 to £10.42 per hour in April 2023, a rise of 9.7%, and then to £11.44 last April (9.8%). This has meant that independent care workers have received average real-terms pay rises of 5.4% and 7%, respectively, in each of the past two years, said Skills for Care.

However, it added that some employers had reported that keeping up with changes in the NLW had been challenging, alongside their other business costs.

This is likely to become more challenging still next month, when the NLW grows by a further 6.7%, to £12.21 per hour, and employers must also meet the costs of significant increases to their national insurance contributions (NICs).

Skills for Care found that 58% of independent sector adult social care workers – about 780,000 staff – were earning less than the forthcoming NLW (£12.21 per hour) as of December 2024 – meaning they would benefit from next month’s rise. This includes about 575,000 care workers.

Much of the rest of the workforce is likely to receive a pay rise too because of the need to maintain pay differentials as far as possible.

Costs of NLW and national insurance hikes

Think-tank the Nuffield Trust has calculated that the rises in the NLW and NICs combined will cost independent sector providers an additional £2.8bn in 2025-26, with councils expected to fund £2bn of this to cover the services that they commission.

However, dedicated adult social care funding for councils in England is due to rise by approximately £1.2bn in 2025-26.

“Many councils cannot cover the rise in employment costs and we are worried this will increase the risk of non-compliance with the minimum wage,” said Homecare Association chief executive Jane Townson, in response to the Skills for Care figures.

Townson criticised the government’s decision last week to overturn a House of Lords vote to exempt adult social care providers from the NICs rise.

‘A direct threat to the quality of care’

For Care England, which represents independent sector providers, chief executive Martin Green said: “Care providers are caught between rising wage costs and insufficient money to fund them. Many are already struggling to recruit and retain staff, and with further financial pressures, the situation is only going to worsen.

“This is not just a problem for the providers themselves – it is a direct threat to the quality of care that millions rely on”.

MPs have overturned an exemption for adult social care providers from the forthcoming increase in employer national insurance contributions (NICs), in what leaders have described as a “devastating blow” to the sector.

In a vote today, they rejected House of Lords amendments to the legislation introducing the NICs rise that would have exempted regulated care home and home care providers in England and Wales, along with charitable social care services and health bodies, from the rise.

From April 2025, the rate of employer NICs will rise from 13.8% to 15% and the employee salary threshold at which firms start paying the tax will drop from £9,100 to £5,000 a year.

Public sector organisations, such as councils, are receiving grants to cover the costs of the rise for them, and the Lords amendment was designed to provide similar protection for health and social care providers.

However, the House of Commons overturned peers’ main amendment to the National Insurance Contributions (Secondary Class 1 Contributions) Bill, by 307 votes to 182, today, courtesy of the Labour government’s huge majority in the elected chamber.

Cost of national insurance rise for adult social care

Think-tank the Nuffield Trust has calculated that the NICs rise will cost England’s 18,000 independent adult social care providers £940m in 2025-26.

The government has said that councils with social services responsibilities will be able to help commissioned providers meet these costs through an increase of up to £3.7bn in their funding in 2025-26. This includes an £880m increase in the social care grant, 60% of which has been spent on adults’ services historically, and licence for authorities to raise council tax by up to 5%, with up to 2% ring-fenced for adult social care.

However, this amounts to only £1.2bn in dedicated extra resource for adult social care and, in addition to the NICs rise, providers must also fund the implications for their workforce of a 6.7% increase in the national living wage (NLW) next month.

The Nuffield Trust has calculated that the two measures combined will cost providers £2.8bn in 2025-26, with £2bn relating to council-commissioned care – significantly more than the increase in dedicated resource for adult social services departments in 2025-26.

‘Devastating blow that seals fate of thousands of providers’

Provider leaders reacted angrily to today’s vote, with the Homecare Association and Care England describing it as “a devastating blow that seals the fate of thousands of care providers across our nation”.

The Homecare Association has calculated that its members face a 10% increase in their costs in 2025-26, chiefly due to the rises in employer NICs and the NLW.

Its chief executive, Jane Townson, said: “The government’s refusal to exempt care providers from the [employer NICs increases], while simultaneously failing to provide adequate funding to local authorities, threatens the existence of regulated home care services across Britain. The government is forcing home care providers to choose between breaching regulations or insolvency.”

For the National Care Forum, director of policy Liz Jones said: “In choosing to vote down the amendments that would have protected care and support providers from the devastating impact of the employer’s national insurance contribution changes, the government inflicts a devastating blow on already fragile, underfunded and undervalued essential public services which millions of people, and their families, depend on for vital support.”

‘Funding available to meet social care pressures’

Defending the government’s position in the House of Commons today, Treasury minister James Murray said it could not support the Lords amendments because they would put at risk the funding that ministers intended to raise through the employer NICs rise and put further pressure on the public finances.

“On social care, the government have provided a cash increase in core local government spending power of 6.8% in 2025-26, including £880m of new grant funding provided to social care—funding that can be used to address the range of pressures facing the adult social care sector.”

Providers are holding a day of action in protest against the impact of the autumn Budget on adult social care.

The Providers Unite event today includes a rally at the Houses of Parliament to lobby MPs on the implications for the sector of the increases in employer national insurance contributions and the national living wage (NLW), which are due to come into force in April.

The campaign is calling on the government to review the measures, with 3,900 providers and people having signed a letter to chancellor Rachel Reeves warning that the policies risk “eroding the foundations” of adult social care services.

What are providers protesting about?

In the autumn Budget, in October 2024, Reeves announced:

• A 6.7% rise in the NLW, from £11.44 to £12.21 an hour, benefiting hundreds of thousands of care workers.
• A rise, from 13.8% and 15%, in the contribution rate for employers’ national insurance.
• A reduction in the wage threshold at which employers start paying national insurance, from £9,100 to £5,000 a year.

Estimated £2.8bn in additional costs

Think-tank the Nuffield Trust has calculated that the measures will cost independent care providers in England an extra £2.8bn in 2025-26: £940m in additional national insurance and £1.85bn in extra wage costs.

With councils purchasing an estimated 70% of the care these providers deliver, the Nuffield Trust said authorities would have to find £2bn of this bill.

The government’s finance settlement for councils includes a £880m top-up to the existing social care grant, which can be used on adults’ and children’s services. If councils allocate 60% of this to adults’ services, in line with current practice, this will yield £528m in 2025-26.

Question marks over extra resource for councils

In addition, authorities may increase council tax by up to 2% and ring-fence the proceeds of this for adult social care, raising about £650m and bringing the total amount of extra dedicated resource for the sector in 2025-26 to almost £1.2bn.

Authorities may also raise council tax by a further 3%, without putting the issue to a local referendum, and have also been given a £600m ‘recovery grant’, providing further resource that can be used on adult social care.

However, councils will also need to use much of this money to deal with other pressures, not least in children’s services, while county authorities have warned that they will be receiving very little of the recovery grant because it is distributed based on deprivation.

Social care ‘already underfunded’

Moreover, councils and providers alike have repeatedly warned that the autumn Budget measures will hit a sector that is already underfunded.

For example, last year, the Homecare Association calculated that there was a £1bn shortfall in home care fees paid by commissioners and the amount required by providers in England to pay staff the NLW, meet other costs and make a 5% profit or surplus.

Speaking ahead of the day of action, the association’s chief executive, Jane Townson, said: “Losing access to quality home care risks harm to people needing care, adds burdens to family carers, and piles pressure on an over-stretched NHS.

“Today, we stand united with homecare providers and their care workers with one message: enough is enough. The government’s refusal to exempt our sector from the latest national insurance hikes, coupled with a lack of proper funding for the minimum wage increase, risks devastating disruption of homecare provision.”

Peers vote to exempt care providers for NI increase

On the day of the rally, the House of Lords voted to exempt adult social care providers – along with NHS-commissioned healthcare providers and hospices – from the increase in national insurance contributions.

This was through an amendment to the National Insurance Contributions (Secondary Class 1 Contributions) Bill, the piece of legislation that will bring in the change.

The bill is due to be subject to a final vote in the Lords – at the third reading – before returning to the House of Commons, which will consider amendments to the legislation made by peers in order to agree a final version of the bill.

Sector representative body Care England welcomed the amendment, with chief executive Martin Green saying: “This is a huge moment for the social care sector and a testament to the relentless campaigning from care providers, local trade associations, national bodies, the Care Provider Alliance, and Providers Unite. For too long, social care has been overlooked, but yesterday’s vote proves that when we come together, our voices can no longer be ignored.”

Prospects for success

However, the government is almost certain to use its sizeable majority in the Commons to overturn the amendment on exempting care providers from the national insurance contributions increase. The House of Lords would be unlikely to press its case in relation to the amendment, in that event.

Next month, fiscal watchdog the Office for Budget Responsibility will assess whether the government is on course to meet its fiscal rules: that by 2029-30, it should only be borrowing to invest and that public sector net debt should be falling as a percentage of national income (source: Institute for Government).

The pressures on the public finances means the OBR may judge the government to be on track to miss the first of those rules unless the government takes reparatory action, such as raising taxes or cutting spending (source: Institute for Fiscal Studies).

This hugely limits the prospects for additional investment in services including social care.

The government has let six English councils with responsibility for social care increase council tax rates by more than national limits this year.

Birmingham, Bradford, Newham, Somerset, Trafford and Windsor and Maidenhead will be able to increase levies by more than will the other 147 social services authorities; the latter would need the approval of citizens through a local referendum to raise rates by 5% or more.

Bradford will be allowed to raise council tax by 9.99%, Newham and Windsor and Maidenhead by 8.99%, and Birmingham, Somerset and Trafford by 7.49% in April 2025 without a referendum, said deputy prime minister Angela Rayner this week.

Tax rises ‘to prevent financial distress’ for councils

The authorities had all requested “exceptional financial support” , a system by which councils can receive government aid – usually in the form of loans – to address funding pressures they consider “unmanageable”.

In a statement to parliament setting out the finalised local government finance settlement for 2025-26, Rayner said the decision was taken to help “prevent these councils falling further into financial distress” and on the basis that they had “amongst the lowest levels of council tax” in the country.

Think-tank the Institute of Fiscal Studies (IFS) said five of the six authorities had council tax rates for Band D properties that were in the lowest quarter, nationally, though Somerset’s was above average. The South West authority said it was facing a £66m funding gap in 2025-26, driven chiefly by social care pressures, and that the additional council tax increase would not fill be enough to fill this.

‘A substantial cash-terms increase’

According to the IFS, if all authorities increased council tax by the maximum permitted without a referendum, funding for English councils would rise by £4.3bn in 2025-26, which it described as a “substantial cash-terms increase”.

Authorities will also be able to make use of an extra £1.1bn through a new scheme designed to charge producers for their use of packaging. Excluding £470m allocated to help councils meet the costs, for their own staff, of April’s rise in employer national insurance contributions (NICs), the IFS said this amounted to a maximum 6.4% rise in resource for authorities in 2025-26, after taking account of inflation.

However, local government leaders said the funding was not sufficient to address pressures, particularly in social care, driven substantially by the costs of compensating care providers for the rise in employer NICs and this year’s 6.7% increase in the national living wage (NLW).

Funding ‘falls short of what is desperately needed’

Local Government Association chair Louise Gittins said: “Extra money for councils next year, including compensation for employer national insurance contributions increases, will help meet some of the cost and demand pressures they face but still falls short of what is desperately needed to cover them all.”

The settlement includes a £270m children’s social care prevention grant, to help roll out family help services and implement a new duty on councils to offer parents a family group decision making meeting whenever they are considering issuing care proceedings for a child.

It also comprises an £880m top-up for the social care grant, which covers both children’s and adults’ services, while authorities will be able to raise council tax by 2% specifically to fund adult social care.

The Association of Directors of Adult Social Services (ADASS) has calculated that these two measures combined would raise about £1.2bn extra for adults’ services in 2025-26 – well short of the £1.8bn in extra costs they have calculated that authorities are facing.

‘Substantial overspending on social care and homelessness’

In its response to the settlement, the organisation representing the capitals’ boroughs said they were facing a funding gap of £500m in 2025-26, despite the settlement, driven by social care and homelessness services.

London Councils said that boroughs were facing overspends of £180m on adult social care, £150m on children’s social care and £270m on homelessness services in 2024-25.

“We are dealing with a range of immense challenges in London, but the worsening homelessness emergency represents the biggest single risk to borough finances,” said London Councils chair Claire Holland.

“The impact of homelessness on Londoners – especially families with children – is devastating, and the costs to boroughs are utterly unsustainable.”

Mixed views on government approach to funding

The County Councils Network (CCN) said the costs of the employer NIC and NLW rises outweighed additional funding received through the settlement for the shire authorities it represents.

It also took aim at the government for redirecting money away from these areas through a £600m ‘recovery grant’, the distribution of which was based on deprivation levels, which ministers said were a proxy for population need.

In her statement, Rayner described this is the “first meaningful step” towards reforming funding based on “an up-to-date assessment of councils’ funding needs and financial resources”, which would be implemented from 2026-27.

The grant was welcomed by metropolitan councils’ body the Special Interest Group of Municipal Authorities (SIGOMA), which said it would “provide welcome relief to the most deprived areas after a decade of disproportionate cuts and increases in demand”.

However, the CCN, whose members are receiving just 3% of the recovery grant, has argued that significant areas of need are not fundamentally driven by deprivation.

Social care and SEND demand ‘key drivers of need’

“The CCN’s evidence shows that demand and market failure across adult and children’s social care and special educational needs services are the main reasons as to why councils across all four corners of the country are struggling,” said its finance spokesperson, Barry Lewis.

“If the trend of this finance settlement does continue, the government will completely understate the very real financial pressures faced by councils outside of towns and cities and it will push many county and unitary councils to the brink.”

The news comes with the government having announced its intention to replace existing two-tier (county and district) councils by unitary authorities and replace small unitaries with bigger bodies, in order to boost value for money and clarity of service responsibility for citizens.

Various groups of councils have come forward with proposals for reorganisation already and the government is planning to create some of the new unitaries during this parliamentary term.

Staff vacancy numbers in adult social care services fell last year, early data suggests.

As of December 2024, 7% of roles in independent sector adult social care providers in England lay vacant, down from 7.6% in April 2024, according to the Skills for Care (SfC’s) figures.

The data only covers those providers that have submitted figures to SfC’s adult social care workforce data set (ASC-WDS) for the relevant time period so is not representative of the sector as a whole.

SfC’s last sector-wide assessment measured the independent sector vacancy rate at 8.1% as of March 2024, down from 9.9% in 2023 and 10.7% in 2022.

Rapid fall in level of overseas recruitment

These falls were largely driven by the recruitment of staff from abroad. However, levels of international recruitment have fallen since March 2024, when the government banned adult social care staff on new or extended health and care visas from bringing partners or children to the UK.

According to SfC’s estimates, independent providers recruited 18,000 international staff from April to September 2024, compared with 105,000 in the year to March 2024, a fall of roughly two-thirds in the quarterly average.

Nevertheless, SfC data showed that the number of filled posts in independent providers rose from 575,000 to 585,000 from April to December 2024, alongside the apparent fall in vacancies.

Possible contributors to the trends include the 9.8% rise in the national living wage (NLW), from £10.42 to £11.44 an hour, in April 2024, which will have driven up pay across hundreds of thousands of care worker roles.

Concerns over potential care and job cuts

The NLW is due to rise again in April, by 6.7%, to £12.21 an hour. However, there is widespread sector concern that the measure, in combination with the planned increase in employer national insurance contributions, will lead to cuts to both levels of care and employment.

Almost two-thirds (64%) of organisations said they would need to make staff redundant, while 57% said they would have to hand care contracts back to councils and NHS commissioners on the back of the measures, according to a survey carried out last November by the Care Provider Alliance.

Think-tank the Nuffield Trust has estimated that the measures will cost providers in England £2.8bn in 2025-26, £2bn of which would need to be met by local authorities. Separately, the Association of Directors of Adult Social Services (ADASS) has calculated that councils face £1.8bn in increased costs in adult social care in 2025-26 due to the two measures, and wider inflation.

The government has said that it is making available an extra £3.7bn for local authorities with adult social care responsibilities in 2025-26. However, only about £1.2bn of this is dedicated funding for the sector.

Council fee rises for social care providers have lagged behind increases in the national living wage (NLW) for each of the past three years, providers have reported.

The research, carried out before the government’s autumn 2024 Budget added an estimated £2.8bn to the costs of adult social care in 2025-26, revealed that services were facing increasing workforce challenges.

The latest Sector Pulse Check, carried out from August to September 2024 by representative body Care England and learning disability provider Hft, was based on data from 206 organisations responsible for the care of 128,000 older people and people with learning disabilities and/or autism.

Council fees not keeping up with wage rises

It found that 85% of providers felt that local authority fee increases were not sufficient to cover last year’s rise in the (NLW), from £10.42 to £11.44 an hour.

This replicates findings from 2023, when 79% of providers reported that fee rises did not cover the impact of that year’s rise in the NLW, and 2022 – the first year that the survey covered both learning disability and older people’s providers – when 81% of respondents reported the same.

The average care worker wage among the providers surveyed (£12.10 an hour) was 8.1% above the equivalent figure in the 2023 survey (£11.19 an hour), compared with a 9.8% rise in the NLW over the same period.

Recruitment squeeze

Alongside the reported squeeze on fees, 91% of providers listed workforce-related costs as among their top three financial pressures, up from 81% in the 2023 survey, with 86% citing pay as a key barrier to recruitment, the same proportion as in 2023.

Two-thirds of providers said they had seen a decrease or no change in the number of applications they had received from UK jobseekers in the past 12 months, down from 54% in the 2023 survey.

And while 55% reported an increase in applications from international staff over the previous 12 months, policy changes introduced in March 2024 – notably a ban on overseas social care staff on health and care visas bringing dependants to the UK – have squeezed the supply of staff from abroad.

Financial pressures easing

This year’s survey did reveal some improvements in providers’ financial position compared with 2023, including that:

• 29% of providers said they were in deficit in 2024, down from 40% in 2023.
• 26% said their surpluses had decreased, down from 31% in 2023.
• Use of agency staff fell to 7.8% in 2024, from 15.7% in 2023, despite the workforce pressures.
• 29% of providers said they had closed down parts of their organisations or handed back contracts to local authorities as a result of cost pressures, down from 43% in 2023.
• 9% said they were offering care to fewer people as a result of cost pressures in 2024, down from 17% in 2023.

Estimated £2.8bn bill from Budget

However, the survey was carried out before last year’s Budget announcement of a further 6.7% rise in the NLW and a significant increase in employer national insurance contributions (NICs), both of which will be implemented this April.

Think-tank the Nuffield Trust has estimated that these measures will cost providers an extra £2.8bn in 2025-26, with local authorities having to find £2bn of this in increased fees. The Association of Directors of Adult Social Services, meanwhile, has calculated an increased bill for local authorities of £1.8bn.

However, both the Nuffield Trust and ADASS figures far exceed the approximately £1.2bn in dedicated additional funding for adult social care that the government has allocated to councils for 2025-26.

Calls for sector funding boost and easing of migration rules

On the back of the latest Sector Pulse Check, Care England and Hft urged the government to:

• Fully fund the rise in employer or exempt care providers from the increase.
• Remove the ban on social care staff coming to the UK on health and care visas from bringing dependants.
• Introduce a multi-year funding framework for adult social care, with annual increases linked to inflation and increases in the NLW.
• Increase pay across the sector, over the long-term, in order to achieve parity with similar NHS roles.
• Introduce national standards for commissioning to tackle inconsistencies in local authority practices.

The survey results come with the government having announced the establishment of a commission, headed by Baroness (Louise) Casey, on long-term reform of adult social care, but faced sector criticism for deferring its final report until 2028 at the latest.

Delayed action ‘leaving more people without support they need’

Care England chief executive Martin Green said: “We are ready to work alongside Baroness Casey and the government to turn this commission into a catalyst for genuine change. But let’s be clear: the status quo is no longer an option. Every delay, every failure to act, pushes more care providers out of the sector and leaves more people without the support they need.”

The Local Government Association (LGA) issued a broadly similar message in response to the survey.

“Local authorities are under unprecedented financial pressure, exacerbated by inflation, rising demand, an increase in employer national insurance contributions, and workforce challenges,” said the chair of the LGA’s community wellbeing board, David Forthergill.

“We urgently need a long-term funding plan for adult social care, along with a workforce strategy that values and supports care workers. Without immediate government action, care services will remain at risk, with devastating consequences for individuals and families who rely on them.”

An extra £200m for social care in next year’s council finance settlement is “wholly inadequate” to tackle additional costs facing adults’ services, sector leaders have warned.

The government pledged to increase the social care grant – which is ring-fenced for adults’ and children’s services in England – by £880m, in its provisional local government finance settlement for 2025-26, published on 18 December 2024.

This is up from the previously planned increase of £680m.

The Ministry of Housing, Communities and Local Government (MHCLG) also confirmed that councils would receive £515m to deal with the impact on them of the increase in employer national insurance contributions (NICs) that comes into force in April 2025.

Funding shortfall

However, this does not cover the extra costs facing authorities from the impact of the employer NICs rise on the providers that they commission, notably in adults’ services.

The Association of Directors of Adult Social Services (ADASS) has calculated that councils face an additional £1.8bn in adult social care costs next year, as a result of the rise in employer NICs, a 6.7% increase in the national living wage (NLW) and inflation more broadly.

However, dedicated additional funding for adult social care will be about £1.2bn (see box).

‘This means fewer people will receive care’

In response to the news, ADASS president Melanie Williams said authorities would still be left with a funding gap for adults’ services.

“This means that fewer people will be able to draw on care and support to help them stay independent and well, such as transport to go shopping, a regular cooked meal or support for family carers,” she said.

“Limiting the number of people who can access adult social care creates a vicious cycle; too many people reach crisis point and end up in hospital unnecessarily because they aren’t receiving low level care at home, and they can’t leave hospital because there isn’t enough support to return home safely.”

Additional funding ‘wholly inadequate’

The Homecare Association, which represents domiciliary care providers, said that, while the additional £200m was welcome, it was “wholly inadequate to stabilise the sector”.

The association recently published its calculation of the minimum price for home care in 2025-26, which is the price per hour providers need to be paid to cover staffing costs and operating costs, as well as make a reasonable profit.

This will rise from £28.53 this year to £32.14 in 2025-26, significantly as a result of the rises in employer NICs and the NLW, though the association has also increased its minimum profit margin from 5% to 7%, based on evidence from care market analysts LaingBuisson around current profit levels.

‘Care workers deserve better’

Association chief executive Jane Townson said meeting its revised figure for 2025-26 would require a funding boost from councils and NHS commissioners of £1.8bn in 2025-26.

She added: “Care workers deserve better. Employers cannot offer fair pay without a fair price for care. If Labour is serious about improving social care, they must act now.”

On behalf of charities providing care to disabled people, the Voluntary Organisations Disability Group issued a similar message.

Chief executive Rhidian Hughes said that, if the full costs for providers of the NICs and NLW rises were not met, they would be “forced to cut services”.

This reflects the findings of a survey by the Care Provider Alliance, an umbrella body for provider associations, on the impact of the NICs and NLW rises on organisations.

Almost two-thirds (64%) of organisations said they would need to make staff redundant, while 57% said they would have to hand care contracts back to councils and NHS commissioners, if their additional costs were not covered.

Variations in funding rises

A more positive outlook on the settlement was provided by think-tank the Institute for Fiscal Studies (IFS).

It said that, once a £1.1bn payment derived from a levy on businesses for packaging costs were taken into account, councils’ spending power – the total resource available to them if they maximised increases in council tax – would rise by 5.5% in real-terms on average in 2025-26.

This is above the 3.5% figure issued by the MHCLG, which excludes the ‘extended producer responsibilities’ levy.

However, the IFS stressed that, because of the increasing weighting of funding towards poorer areas, real-terms spending power increases would average 7.9% in the poorest tenth of areas and just 4.4% in the least deprived tenth of localities.

This is driven significantly by the distribution of a new £600m recovery grant, which will go to 33 of 36 metropolitan councils, half of London boroughs, unitary councils and district authorities, but just one in 21 county councils.

Counties issue alarm 

This was reflected in the County Councils Network’s (CCN) response to the settlement.

“By targeting the £600m recovery grant on metropolitan and urban councils, the government is ignoring the fact deprivation is not the only driver of councils’ costs nor the key indicator of which councils are under the most financial distress,” said CCN finance spokesperson Barry Lewis.

“Instead, it is demand and market failure across adult and children’s social care and special educational needs services that are pushing councils in all regions and of political control to the brink.”

Council funding reform

The changes in the distribution of funding in 2025-26 are the first step in a wider reform of local government funding, designed to ensure that it better reflects need, which will be implemented in 2026-27. The MHCLG has launched a consultation on this reform.

The IFS said that reform was needed because current approaches to allocating funding were “out of date and essentially arbitrary with respect to current local circumstances”. However, it stressed there would be “significant losers as well as winners from whatever reforms are implemented”.

Extra £13m for children’s services

The settlement also announced an extra £13m for children’s social care, which will fund the introduction of a mandatory offer of family group decision making to parents when councils are considering making an application for a care or supervision order.

Dedicated funding for adult social care in England will rise by just over £1bn next year, according to government plans.

However, this falls far short of the estimated £1.8bn in extra costs facing councils, chiefly driven by rises in employers’ national insurance contributions (NICs) and the national living wage(NLW), the Association of Directors of Adult Social Services has warned.

The funding was set out in a Ministry of Housing, Communities and Local Government (MHCLG) policy statement on the local government finance settlement for 2025-26, published last week. This provided further detail on announcements made in the October 2024 Budget.

£1bn in extra funding

The extra money is made up of projected increases in the adult social care precept (£650m) – the element of council tax that is ring-fenced for the sector – and adults’ services’ share of a £680m rise in the existing social care grant, which amounts to about £400m.

Though local authorities will have further funding they can use on adult social care in 2025-26, the sector will need to compete with other services for this, several of which – including children’s services – are also under severe pressure.

Responding to the news, ADASS chief executive Sally Burlington said: “Whilst the additional funding is welcome, the 2025-26 budget doesn’t provide local councils with enough to cover the increase in the cost of care due to the recent national living wage (NLW) and employer national insurance rise and the growing numbers of us needing more complex care and support.”

Minimum wage and tax increases

The NLW is due to rise from £11.44 to £12.21 an hour in April 2025, benefiting many thousands of low-paid care workers, but costing independent providers an estimated £1.85bn next year, according to think-tank the Nuffield Trust.

The trust has also calculated that the rise in employers’ NICs would cost providers a further £940m in 2025-26. It said all but the 2% of the largest providers would have to pass on these costs on to funders – who are mostly councils – but warned that authorities were not being sufficiently resourced to pick up the tab.

A survey by the Care Provider Alliance (CPA), an umbrella group for provider representative bodies, found that most services would have to cut jobs and care on the back of the changes, without further government funding.

Councils ‘will be forced to ration care’

Burlington echoed these warnings on the back of the MHCLG figures, adding: “Without addressing this funding gap, local councils will be forced to further ration care and support, focusing on those people with the greatest needs.

“People waiting for care are likely to face further delays, risking their health deteriorating further and those paying for their own care may be forced to cut back on support due to increasing costs, making their lives more difficult.”

The government has pledged to cover councils for the increased direct costs they will face from the rise in NICs and will provide further information later this month when it sets out the provisional local government finance settlement for 2025-26 in detail.

Call for further funding

However, it has not pledged any funding to cover authorities for the knock-on impact on providers they commission.

Burlington urged ministers to address this in the settlement, adding: “ADASS along with care providers across the sector are calling on the government to provide additional funding to mitigate the shortfall in funding, or risk further destabilising local care markets at the detriment of those of us drawing on care and support”

Her message was echoed by Local Government Association chair Louise Gittens, who warned: “Without action, councils will be forced to make further cuts to statutory services, and risk not fulfilling some of their most important duties.”

Targeting funding at deprived areas

Alongside last week’s statement, the MHCLG announced plans to consult on reforming the way government funding for councils is distributed to ensure it better targets need.

As a first step, it will provide authorities with a £600m ‘recovery grant’ in 2025-26, which will “allocate funding where the numbers of vulnerable people who rely on council services are highest, and the ability to fund need locally is weakest”.

It will go to places where, weighted by population, deprivation outweighs council tax-raising ability, with some areas getting nothing at all.

Concerns over impact on county councils

The news sparked concern from the County Councils Network (CCN), which warned that deprivation was only one indicator of demand facing councils and the recovery grant risked ignoring the pressures on shire authorities.

“Considering that increases in the minimum wage and national insurance contributions will more than wipe out extra funds for social care, it is possible most CCN member councils – and many more across the country – will receive nothing from the ‘recovery grant’ which will be heavily targeted and weighted exclusively by deprivation,” said CCN Tim Oliver.

“As we have argued over the last few weeks, whilst deprivation is a key indicator of a councils’ need, it is not the only indictor nor the most important measure of financial distress. The reality is that it is demand and market failure across adult and children’s social care and special educational needs services that are pushing councils to the brink.”

He said CCN members deserved “an appropriate share of the recovery grant”.

Overhaul of funding system ‘long overdue’

However, London Councils, which represents the capital’s boroughs, welcomed the government’s plans to reform the distribution of local government funding, citing a report last year from think-tank the Institute for Fiscal Studies (IFS) that found London was under-funded relative to need.

For the IFS, head of devolved and local government finance David Phillips said the planned reform of the funding system was “long overdue”, with existing allocations based on “a range of ad-hoc decisions and data from back as far as the 1990s”.

Phillips also stressed that more deprived areas “bore the brunt” of local government funding cuts in the 2010s, though added that whether redistributing resource to them was fair “will be in the eye of the beholder”.

Providers say they will have to cut jobs and reduce the amount of care they deliver because of the increased costs imposed by the Budget, a survey has found.

Almost two-thirds (64%) of organisations said they would need to make staff redundant, while 57% said they would have to hand care contracts back to councils and NHS commissioners, reported the Care Provider Alliance (CPA).

The CPA – an umbrella body for organisations representing providers – surveyed 1,180 organisations about the impact of the increases to the national living wage (NLW) and employers’ national insurance contributions (NICs) announced in last month’s Budget.

Tax and wage increases

From next April, employers will have to pay NICs at 15% – up from 13.8% – on staff earnings above £5,000 a year, down from £9,100, while the NLW will rise from £11.44 to £12.21.

Think-tank the Nuffield Trust has calculated that the two measures will cost England’s almost 18,000 independent care providers an additional £2.8bn in 2025-26, about £2bn of which would need to be found by councils.

This dwarfs the £600m in additional grant authorities have been promised for social care in 2025-26, which is expected to be available for both children’s and adults’ services.

Providers predict cuts to care and jobs

The CPA found that, without further government assistance:

• 73% would have to refuse new care packages from local authorities or the NHS.
• 57% would hand back existing contracts to local authorities or the NHS.
• 77% would have to draw on reserves.
• 64% would have to make staff redundant.
• 76% of providers would have to cut training and resources for staff.
• 86% would not be able to maintain wage differentials between staff.
• 22% indicated they would have to close their businesses entirely.

Among the 479 home care respondents, 42.9% planned to shorten care visits.

Most (77.6%) of the 628 care home providers who responded said they were planning to reduce or stop planned maintenance, while 79.7% said they would have to halt capital investment.

‘People’s lives will deteriorate’

“Without adequate support, we now know for certain that services will close, care providers will stop delivering public services, and care workers will lose their jobs,” said CPA chair Vic Rayner, who is also the chief executive of the National Care Forum.

“Critically, a huge number of people who rely on care and support will go without or see their lives deteriorate.”