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National Living Wage could cost councils £1bn and harm social care

The new National Living Wage could cost councils £1bn a year and ultimately affect the quality of home and residential care, according to an analysis by the LGA, writes Luana Salles.

The Living Wage for the over-25s across the UK was announced by chancellor George Osborne in the summer budget last week.

Charity director at Age UK, Caroline Abrahams, said that unless there is a rise in the overall budget for social care, the rise in carers' wages could mean a rise in the number of elderly people who will miss out on essential support.

Colin Angel, policy and campaigns director at the UK Homecare Association, added: “Whilst employers are responsible for meeting the increased cost, the vast majority of home care services are purchased by local councils, who have an extremely poor record of increasing their fees in response.

“We call on government in each UK administration to ensure that the statutory sector is adequately funded to meet these additional costs, and to monitor effectively how such funding is passed on to employers. It is vital to ameliorate the negative impact on an increasingly under-funded sector, and to achieve better conditions for the home care workforce in a sustainable way.”

The compulsory living wage will start at £7.20 from next April and reach £9 an hour by 2020. While Osborne said this will mean a direct pay rise of an average of £5,000 for 2.5 million workers, the LGA has warned that the government should take policy costs into account when council funding levels are set.

The organisation has calculated the wage rise will initially represent a dent of £340m a year for local authorities, to rise significantly until the end of the decade. The cost pressure on provider contracts will also increase by £170m a year and reach £1bn by 2020.

Though 95% of local government employees already earn above the proposed £7.20 wage, about 93,000 mostly part-time staff earn less. With the new rate rising to £9 an hour, the extra annual cost for council employees alone could rise to £111m, considering current staffing figures.

This could prove particularly negative for home and residential care providers, as an additional £330m would be needed next year to cover higher contract costs.

The new chair of the LGA, Conservative Cllr Gary Porter, said: “Local authorities have made £20bn in savings since 2010 and are likely to face further funding reductions and spending pressures over the next few years. It is vital that these costs are considered by the government in the wider debate of council funding.

“If government were to fully fund the cost of introducing the National Living Wage to council stuff and care workers, councils could avoid extra financial pressure being placed on them as they continue to protect services, such as caring for the elderly, collecting bins and filling potholes.”