High-quality care at risk unless the Government covers higher wage costs

26th Oct 2015

High quality care will be available only to those who can afford to pay for it, unless Central Government covers the extra cost of paying all care home workers the National Living Wage (NLW) the Joseph Rowntree Foundation has warned.

A new report, The costs and benefits of paying all the lowest paid care home workers in the UK the Living Wage commissioned by the Joseph Rowntree Foundation (JRF) and written by Lancaster University and the International Longevity Centre – UK (ILC-UK), has found that introducing the NLW for low-paid care home workers will cost £387 million per year, which will need to be met by central and local government as well as care providers.

The new research is the first to examine the impact of the NLW in one of the most important sectors in the UK, and shows that half (50 per cent) of all care workers, 300,000 people, will be eligible for a pay rise under it. Those who benefit will see their pay packets increase by an average of £462 per year, rising to £640 per year for the lowest paid.

The report also finds that over three quarters (77 per cent) would benefit if their employer paid the voluntary, higher Living Wage (LW). Paying the LW would boost care workers’ pay packets by an average of £1,208, or £1,359 for the lowest paid.

The extra costs will come at a time when many care homes are already under financial pressure. However, the report finds that care homes which have mainly self-funded residents will be most able to afford wage increases brought about by the NLW under their current funding structures. The extra costs are likely to be partly offset by reduced staff turnover and training costs brought about by higher wages, and many homes will be able to pay the NLW without needing to increase fees.

However, the introduction of the NLW will put care homes that have a significant proportion of Local Authority places at a financial tipping point. Local Authority funding already falls below the full cost of care, with the gap often being filled by higher fees from self-funded residents.

As Local Authority incomes and spending continue to be squeezed, the shortfall brought about by higher wage costs will become too large to fill without extra funding. Unless more money to cover the cost of increased wages is found, there is a risk that standards of care for people in Local Authority funded places will fall.

The report finds that paying the NLW will boost Government coffers by bringing in £46 million more in income tax per year, and will reduce the need for welfare payments. Paying the higher, voluntary Living Wage would mean £156 million more per year in income tax receipts.

JRF is calling on central Government to use the increased income from tax receipts and reduced welfare payments to help Local Authorities to pay higher NLW costs for care workers. Higher wages could also have positive effects for residents, as a more valued and rewarded care work force is better placed to provide relationship centred care.

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said:

“The new National Living Wage is a welcome step towards a higher pay economy with lower need for welfare, and is good news for those working in traditional low pay sectors, such as care. However, care homes are already under financial pressure and if proper funding is not provided to help with these additional costs, the Government risks creating a two-tier care home system where good care is only available to those who can pay for it. This would be devastating for those who are unable to meet these costs themselves, and would have an impact on the wider economy. Social care should become a sector of primary national strategic importance to recognise its fundamental importance to our society and economy.

“While many Local Authorities will struggle to meet higher wage costs without further investment, many care providers with self-funded residents will find that their current business plans allow them to absorb the cost. Where possible, these care homes should consider paying their staff the higher, voluntary Living Wage, which would help to reward staff and drive up standards of care.”

Baroness Sally Greengross, Chief Executive of ILC-UK said "It is absolutely right that we pay care workers fairly. Better pay should help with recruitment and retention and should ultimately improve quality of care.  Additional cost pressures, however, risk the sustainability of social care and it is vital that the spending review results in greater investment in this sector. Social Care is in crisis today and some of our most vulnerable citizens aren’t getting the support they need".