Skyrocketing wage costs driven by changes to employers’ National Insurance contributions (NICs) are threatening to overwhelm the social care sector, with experts warning that care fees could rise by as much as 10%. Speaking to Caring Times’ sister publication, HealthInvestor, industry leaders voiced concerns over the financial strain this policy is expected to place on providers.
Lizzie Wills, senior partner and head of private equity at GK Strategy, noted: “This will have a significant impact on businesses with substantial wage bills, potentially leading to closures of those already grappling with inflationary pressures and rising wages. From the companies I’ve spoken with, it’s clear this will affect hiring plans and limit capacity expansion. That said, private equity-backed businesses, known for their resilience, may adapt more effectively to these challenges.”
Ali Al-Mufti, founder of Arcadia Care Homes, estimates the policy will cost his one-home operation £30,000 annually—comparable to the expense of hiring a full-time employee. “Our NIC contributions on salaries and pensions are increasing from 13.8% to 15%, but the real challenge lies in the lower threshold, now £5,000 instead of £9,100,” he explained.
“This combination of the NIC hike and limited fee increases from councils creates a perfect storm. Even with a modest 5% rise in the real living wage, every provider will need to reassess what they can offer in the coming year.”
Samantha Crawley, chief executive of Bracebridge Care (soon to be rebranded EQ Care Group), added: “It’s unsustainable. With workforce costs already consuming half or more of care homes’ revenue, any additional burden tips the balance further.
“Operators who invest in their teams by paying higher wages are being penalised across their entire workforce, not just the direct care team. This policy lacks foresight. The push to scrap zero-hours contracts is also concerning, given that many employees actively choose the flexibility they provide. Better dialogue is needed to understand why these arrangements exist.”
Efforts to resist the NIC hike include a petition, which has gained over 19,000 signatures, calling for social care providers to be exempted. However, political observers and industry insiders remain skeptical about the government’s willingness to make concessions. Opposition Leader Kemi Badenoch raised the issue in Prime Minister’s Questions, but market sources doubt the pleas will be heeded.
Wills remains pragmatic: “An exemption seems unlikely. Wes Streeting might explore alternative funding mechanisms, such as grants, but the government appears committed to maintaining simplicity in its tax structure.”
Meanwhile, Lee Findell, partner and head of corporate at WA Communications, highlighted broader risks: “The Treasury may need to rethink this policy. Social care, which already struggles with recruitment and costs, cannot absorb such financial pressures without fee increases that could devastate families. This policy is likely a necessity born from manifesto commitments rather than a preferred choice.”
Some worry the changes may prompt operators to classify carers as self-employed, potentially destabilizing employment arrangements. Others doubt such a shift could proceed without significant scrutiny from HMRC.
An advisory source summarized: “Instead of bolstering the social care sector, the changes exacerbate its struggles. Smaller operators, particularly those reliant on local authority funding, will be hardest hit as council fee increases won’t keep pace with mounting costs.”
This stark reality underscores the precarious position of the social care sector amid sweeping fiscal changes.
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