Fair pay agreement for adult social care likely to increase council costs, says government

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.