The announcement of the National Living Wage is extremely welcome news for care workers, spelling a pay rise for up to 1 million of them by 2020 and having a significant impact on household budgets. Other recent developments have the potential to spur further improvements for a workforce that is poorly paid and faces casualised and unfavourable working conditions, despite providing a vital service that we or our loved ones will likely depend upon at some point.
But these developments come at a cost. The purpose of this briefing is to quantify the costs associated with the introduction of the NLW over the next five years in particular, and assess where the money might come from.
- The significant increase in the legal wage floor for over-24s brought about by the National Living Wage (NLW) is extremely welcome, directly affecting up to 1 million frontline care workers across the UK by 2020 and increasing the annual household incomes of those affected by more than £800.
- The NLW will increase payroll costs associated with frontline care workers by £2.3 billion by 2020, on top of £1.7 billion of costs already implied by above-inflation increases in the National Minimum Wage (NMW).
- Productivity increases show some long-term promise but are likely to be limited within the NLW phase-in period.
- ‘Trimming’ other costs or profits also appears a limited option, particularly as the sector has been seeking ways to ‘cut the fat’ already in recent years in the face of falling funding. In particular, holding down wage costs via further compression of already-flat pay distributions or increasing non-compliance with the legal wage floor are deeply undesirable outcomes.
- ‘Rationing’ of publicly-funded services, for example via further shortening of visits in domiciliary care or more stringent eligibility criteria, is similarly undesirable.
- Increasing the national funding settlement for social care therefore appears the most viable option.