Up to a million care workers set to benefit from new National Living Wage

Chancellor’s Autumn Statement must address the looming £1.4bn ‘pay crunch’ in social care

Up to a million care workers are set to benefit from the new National Living Wage (NLW), but a combination of rising costs, a growing workforce and reduced funding will create a ‘pay crunch’ that the Chancellor must address in his Autumn Statement, according to new research published today (Thursday) by the Resolution Foundation, an independent think tank.

The analysis shows that between 850,000 and 1 million frontline care workers are set to benefit from the new National Living Wage by 2020, with an average annual boost to their earnings of £1,250. The Foundation believes that this long overdue pay rise should help to recruit and retain staff, while the Exchequer will also benefit from higher tax revenues.

However, the higher wage floor will raise costs in a sector already hit by a funding squeeze – and which is due to undergo funding cuts further in the current parliament. The Foundation estimates that with around two-thirds of social care provision funded through local government, around £1.4bn of public investment will be needed to fund the NLW. It is urging the Chancellor to announce further investment in social care in his Autumn Statement on 25 November.

This looming ‘pay crunch’ should force government to think about both funding levels in social care, and the scope for productivity gains to make the NLW affordable, says the Foundation.

The NLW will also force the sector to look for productivity gains, says the Foundation. While the sector has less scope for productivity gains than many other low paying sectors, it suggests that a renewed focus on smarter commissioning practices and greater use of technology could help to make rising wage costs more affordable. The NLW may also encourage employers to consider extra investment in training for care workers as a way to improve productivity.
The Foundation warns that without significant extra investment and productivity gains, the looming ‘pay crunch’ may force a further rationing of care provision, with shorter visits and further restrictions on eligibility for public-funded care.

The Foundation adds that it is crucial for any additional public investment to filter through into care workers’ pay packets. There is a risk of further illegal wage theft in a sector already blighted by widespread non-payment of the minimum wage. Recent Resolution Foundation research found that around one in nine care workers are losing out on a total of £130m a year through under-payment of the minimum wage.

Laura Gardiner, Senior Research and Policy Analyst at the Resolution Foundation, said:

“The introduction of the National Living Wage will make a huge difference to up to a million low-paid care workers who look after some of the most vulnerable people in our society.

“But the new higher wage floor will also raise costs in a sector already facing a funding shortfall. This will create a ‘pay crunch’ that the Chancellor will need to address in his Autumn Statement.

“The consequences of not funding the National Living Wage could be severe, with increasing non-payment of the minimum wage for staff, and reduction in the quality of care for patients.

“It is imperative that the Chancellor announces the necessary funding in the Autumn Statement, and that commissioners and providers of care work together to ensure that as much of this investment as possible filters through to staff and patients.”

Ends

Notes to editors

Embargoed copies of the briefing note are available from the press office.

Laura Gardiner will present the findings at an event in Westminster on the future of health and social care tomorrow morning (Thursday 12 Nov). Please let the press office know if you would like to attend.