Councils were already planning to make £1.4bn in adult social care savings next year before learning of the added pressures on the sector brought about by the government’s Budget.

That was one of the messages from the Association of Directors of Adult Social Services’ (ADASS) autumn survey, released today, which also revealed that councils were having to make over £1bn in savings in the current financial year.

ADASS’s survey, answered by 131 of the 153 English authorities, was conducted from 12 September to 9 October 2024, before Rachel Reeves delivered her Budget, setting out government spending plans for 2025-26.

Budget impact on social care

Reeves said that councils’ available resource would increase by 3.2% next year, with at least £600m in additional grant earmarked for social care.

However, at the same time, she announced  a 6.7% rise in the national living wage, which will benefit many thousands of care workers, and a significant increase in employers’ national insurance contributions, which will likewise kick in April 2025.

The rate employers pay per employee will rise from 13.8% to 15%, while the salary threshold at which they start paying the tax will fall from £9,100 to £5,000, bringing many more part-time workers, who make up 45% of the adult social care workforce in England, within its scope.

‘£600m risks being swallowed up by tax and wage rises’

Several sector bodies said the impact of the wage and tax rises on adult care providers would swallow up the £600m in additional grant, despite this expected to be available for the severely-stretched children’s social care sector as well.

They also warned that providers risked becoming financially unsustainable as a result of the measures.

However, ADASS’s survey revealed that authorities were already predicting severe pressures on adults’ services before learning of the Budget’s impact.

£1.4bn in planned savings

It found that authorities were planning to make £1.4bn in savings in 2025-26, based on extrapolating responses to the full complement of 153 authorities, a 55% increase on the £903m budgeted for 2024-25, as revealed by ADASS’s spring survey this year.

However, the latter figure had been topped up by £156m of in-year savings that councils responding to the autumn survey reported having had to find, taking the total for 2024-25 to over £1bn.

In addition, 81% of respondents said they were on course to overspend their budgets this year. Based on their responses, ADASS estimated that the 153 authorities were on course to overspend their allotted funding by £564m in 2024-25 – about 3% of total net budgets – a similar figure to 2023-24.

This is despite councils having budgeted to increase spending on adult social care by 9.2% in real terms in 2024-25 on the back of a significant boost in government funding. A 7.5% real-terms rise in 2023-24 helped councils increase the numbers of people receiving long-term, as well as reablement, packages of care.

Commenting on the results of its survey, ADASS said: “These are not the conditions for adult social care to thrive. These are not the conditions under which the new government’s proposed national care service can hope to succeed.”

A national care service is the government’s long-term ambition for the sector – however, it is yet to set out what this means in practice.

Budget ‘risks pushing providers over the edge’

Following the ADASS survey results, the Homecare Association reiterated warnings that the Budget would threaten provider sustainability.

“ADASS reports 81% of councils are already overspending and face unprecedented savings targets,” said chief executive Jane Townson.

“This means council fee rates are unlikely to rise enough to cover increases in provider costs. The Autumn Budget’s changes to employers’ national insurance contributions (NICs) and the minimum wage risk pushing many homecare providers over the edge.

“This perfect storm of council underfunding and increased employment costs will force providers to make impossible choices. We’re already seeing evidence of care visits being shortened; non-compliance with the minimum wage; providers exiting contracts; and providers ceasing to trade.”

She called on the government to exempt home care providers from the NICs increase and fully fund the increase to the NLW.

Many thousands of care workers will get a 6.7% pay rise next April after the government announced the 2025 increase in the national living wage (NLW).

The wage floor for UK workers aged 21 and over will increase from £11.44 to £12.21 per hour, while there will be a steeper rise in the national minimum wage for those aged 18-20, from £8.60 to £10.00 an hour, a 16.3% boost.

The increase was recommended by the Low Pay Commission (LPC), based on its remit, set by ministers, to ensure the NLW does not fall below two-thirds of median hourly earnings and that any increase takes account of expected inflation up to March 2026.

The LPC said it expected the increase to amount to a real-terms pay rise for those currently on the NLW, with the Bank of England predicting inflation to be about 2% during this period.

Thousands of care workers set to benefit 

The beneficiaries will include the many thousands of care workers who currently earn on or just above the NLW.

Before the last rise in the NLW, in April 2024, 18% of the then 875,000 independent sector care workers in England – about 150,000 people – earned on or just under the then wage floor of £10.42 per hour (source: Skills for Care).

Most of this group would have likely seen their pay rise to the current NLW, £11.44, in April 2024, and are likely to also benefit from the full 6.7% rise in the wage floor next year.

However, because of the need for care providers to maintain pay differentials in their workforces, the many care workers earning just above the NLW will also likely benefit from the 2025 increase.

Increased fees for councils

To cover the rise, providers will need to increase the fees they charge councils, NHS commissioners and self-funders.

This year’s 9.8% increase in the NLW translated into increases in the fees paid by councils of between 6% and 6.6% across different adult social care service areas in England.

Councils’ ability to cover the 2025 rise will depend on the local government funding settlement they receive for 2025-26 from chancellor Rachel Reeves in tomorrow’s Budget.

However, provider leaders have long warned that councils do not pay them enough to cover the NLW for their staff, given their other costs.

Claim of £1bn shortfall in home care fees

The Homecare Association has calculated that there is a £1bn shortfall in the home care fees paid by councils and the NHS in 2024-25 compared with what providers in England need to pay staff the NLW, meet other costs and make a 5% profit.

In a post on X in response to the latest NLW increase, the association’s chief executive, Jane Townson, said: “Most councils and [NHS integrated care boards] are not paying enough to cover this year’s [NLW] of £11.44. Some have not increased fee rates since 2023. Allowing unethical purchase of care by public bodies is scandalous.”

Plan to create adult social care pay-setting body

The news comes with the government legislating to create a negotiating body to set adult social care pay and conditions in England. Its agreements, when ratified with ministers, would be binding on providers, who would need to reflect them in care workers’ contracts.

The measure, included in the Employment Rights Bill, is designed to raise terms and conditions in the sector and thereby boost recruitment and retention, reducing labour shortages.

However, the government has admitted that it would likely raise costs for councils because providers would not be able to absorb the impact through boosting productivity, narrowing pay differentials between workers or squeezing profits.

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”.