Pay for carers: will the 'national living wage' increase spending by £1 billion a year?

Published: 21st Aug 2015

In brief

Claim

The National Living Wage will cost care homes an extra £1 billion a year by 2020.

Conclusion

Some of this cost could be incurred anyway without the new policy, and the figure rests on a lot of uncertainty. Other estimates even suggest higher costs.

"The care home firms — which look after 70,000 old people, a fifth of those in homes across the UK — said the new national living wage will cost the sector an extra £1billion a year by 2020."—Telegraph, 20 August 2015

Five leading care home operators say that the government's target for the National Living Wage—forecast to mean a rise to over £9 an hour for the over-25s in 2020—could cost the care home sector £1 billion according to "early estimates".

One company explained to us where this figure comes from. The five companies expect their bill for current staff to be £200 million higher once the changes are brought in, and that they make up about a fifth of the market. That multiplies out to £1 billion per year for the whole sector.

That's not necessarily £1 billion as a result of the national living wage policy alone. The £200 million compares the cost of the minimum wage today with the cost of the higher National Living Wage in 2020. So to the extent that the minimum wage is higher by then, some of these costs might be incurred anyway even without the new policy.

And it's probably a lot more complicated than that.

To get to a reasonable figure you'd want to predict how many staff would be working in 2020, how many of them would be at the minimum wage level at the time, and how the wage bill would compare to a variety of other scenarios. You also have to factor what's happening in other companies currently in the remaining 80% of the sector.

So £1 billion, on these terms, could play out. But there are too many factors to be sure this is reliable.

Other estimates also suggest the cost to various players in the social care system could be in the billions

One estimate, by the Local Government Association, looked at rises in the minimum wage from now to 2020. It found the cost to local government could be £1 billion a year by 2020. That includes the cost of carers who conduct home visits, although we're waiting to hear full details of the methods.

Another estimate, by think tank the Resolution Foundation, looked at the increase in the wage bill for all frontline care workers and came up with annual spending £2.1 billion higher across all social care, whether it was paid for privately or by the public sector. That's compared to a scenario where the workers all received a minimum wage of £8.25 by 2020, as expected by the Office for Budget Responsibility.

About £1.3 billion of this is projected to be public spending, although the net cost to the public purse was put at just over half of that amount—£675 million. That's because the carers' higher wages will mean they pay more in tax and receive lower in-work benefits.

As ever with such forecasts there's some uncertainty to these numbers. For instance the researchers only considered the impact of the wage rise on personal taxes, rather than on indirect taxes like VAT. It also had to make certain assumptions about the size and nature of the care workforce in 2020.


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