Social care providers face £2.8bn bill from wage and tax rises next year, analysis finds

Independent adult social care providers in England face a £2.8bn in extra costs in 2025-26 due to wage and tax rises announced in last month’s Budget, an analysis has found.

The Nuffield Trust assessed that the almost 18,000 providers would face £940m in increased costs from the rise in employer national insurance contributions (NICs) plus £1.85bn from the boost to the national living wage (NLW).

The trust said that only the largest providers – who make up about 2% of the market – would be able to absorb the costs because of the low profit margins services operated under.

Providers’ ability to increase fees to self-funders would “significantly vary”, meaning they would need to turn to local authorities, who are responsible for 70% of care purchased from the independent sector.

Based on this, the trust calculated that authorities would need to find an extra £2bn to cover providers for these costs next year, said the trust.

Assessed costs swamp £600m in extra grant

This is over three times the £600m in additional grant that ministers have allocated to social care in 2025-26, which is expected to be available for both children’s and adults’ services.

The trust estimated that the increased costs to councils was roughly equivalent to the 3.2% rise in real-terms council spending power that the government has promised for 2025-26.

However, this is due to cover all authorities for the increased costs of all of their services.

Councils already struggling to balance budgets

At the same time, authorities are already struggling to balance their £24.5bn-a-year adults’ services budgets, being due to overspend them by £564m in 2024-25, according to a recent Association of Directors of Adult Social Services (ADASS) survey.

The same ADASS survey found that councils were planning to make £1.4bn of adult social care savings in 2025-26 before news broke of the Budget measures.

Another think-tank, the Health Foundation, has assessed that councils would need an extra £1bn for adult social care in 2025-26, just to meet additional demand, let alone the costs brought about by the Budget.

And the Homecare Association has assessed that councils and NHS commissioners were paying providers £1.08bn less than what was needed to pay staff the NLW, meet other costs and turn a 5% profit.

‘Real and devastating consequences’

The Nuffield Trust concluded that, without a significant additional injection of government cash, the sector might see “not just single providers going out of business but large swathes of the market collapsing”.

“Real and devastating consequences will be felt most acutely by people already drawing on care, whose lives would be disrupted, and by those struggling to access or afford the care and support they desperately need,” it added.

The Local Government Association (LGA) said the increases in the NLW and employer NICs “must be fully funded”, with further investment required to “address unmet and under-met need and ensure timely access to social care for all who need it”.

Providers ‘should be exempt from national insurance rise’

The Homecare Association urged ministers to exempt domiciliary care providers from the NICs increase, while fully funding the NLW rise.

“Without immediate action, we risk the collapse of regulated homecare services in many areas, with devastating consequences for the older and disabled people who rely on them and additional pressure on an already struggling NHS,” it added.

Age UK issued a similar message, with its charity director, Caroline Abrahams, saying: “It’s hard enough already to source good, local, affordable care but if more providers go out of business it will get even more difficult. What’s more, it’s the smaller providers, charities and small and medium enterprises, where the best care is often to be found, who are at greatest risk of retrenchment and closure.

“It’s imperative the government compensates social care providers for these big cost hikes in the Budget, because otherwise for some they will be the straw that breaks the camel’s back.”