Budget implications for care providers

With the Autumn Budget presented on 30 October 2024, social care professionals were hopeful that the new government would begin rebuilding the health and social care sector. However, despite Secretary of State for Health and Social Care Wes Streeting’s warning that the NHS cannot be fixed without first fixing the social care sector’s problems, the budget did little to provide social care professionals with confidence about the future of the sector.

The budget announced a £1.3bn increase in Local Authority (“LA”) funding, with at least £600m reserved for investing in social care. Though it was not officially confirmed, this £600m will likely be shared between both adult and child social care, perhaps further diminishing what little impact this figure would have had on the adult social care sector. Though this is a small step in the right direction, the £600m saved for social care is likely going to be a drop in the ocean.

Although less than half of the LA budget increase is reserved for social care, it makes up approximately 61% of LA spending, with LAs estimated spending on social care reaching £38.6bn in the 2024/2025 tax year. A £600m budget makes up 1.5% of this figure. With the Local Government Association estimating a further £3.4bn worth of additional pressures, the increased funding is unlikely to financially support providers and LAs before even considering the rest of the announcements made in the budget.

This has left social care professionals envious of the vast amount of support the NHS have received in this budget, with an increase of £22.6bn for day-to-day spending, and a further £6.7bn increase for capital spending, which dwarfs the social care increase.

The Labour government have also increased employer expenditure by raising the National Minimum Wage (“NMW”) by 6.7% to £12.21 and increasing employers’ National Insurance Contribution (“NIC”) from 13.8% to 15% of salaries, whilst also lowering the threshold for contribution from £9100 to £5000. These increases will swallow the £600m budget increase for social care, leaving little to none to fund improvements in the sector. Instead, the social care sector will remain in a fight for survival. Although pay in the social care sector lags behind other areas, wages already make up one of the largest expenses for providers. Unless LAs are able to fund the increase of wages and NIC, which is unlikely due to the small budget increase mentioned, this will pose a significant challenge to the sector, with providers and LAs already struggling financially but now having to pay hundreds of thousands of pounds more yearly.

Furthermore, the reduction in NIC thresholds will penalise employment of part-time workers’ earnings by between £96 to £148 per week. There is a strong likelihood that being required to pay a premium of £750 rising to £1350 for employing a low-paid, possibly part-time worker may increase redundancy. It may well be suggested that this constitutes discrimination against disabled workers, with 32.4% of disabled workers and 21.8% of non-disabled workers working part-time, and thus potentially looking for restricted hours working.

There is worry in the sector that many providers will face closure, with operating costs increasing and LA funding largely stagnating. Although a NMW increase seems to benefit care workers, if there are mass closures in the sector, many care workers will lose their jobs; therefore this NMW will also adversely impact them by putting their job at risk.

To tackle this, it has been suggested that providers should be exempt from the tax increases to avoid an increased financial strain. This will allow the budget increase to go towards improving the sector, although it is questionable how much can be done with the increase.

The budget has also been criticised for its lack of a long-term solution to fixing social care. With the smaller funding increase the only step forward for the sector, it feels like a ‘duct-tape solution’ for a sector in crisis. Although the Labour government made a commitment to social care reform, such as through the proposed National Care Service, the budget made no indication that this is on the horizon. However, it did state that NHS improvements will receive further consideration in coming months, leaving the social care sector feeling isolated and pessimistic. Previous reviews and proposals to improve the sector have been ignored due to the perceived difficulty and expense, and with no indication that improvement can be expected in the near future, the Health and Social Care Committee (“HSCC”) have launched an inquiry into the cost of inaction to assess how this has further impacted the sector, with findings likely to be published early next year.

Mitigating the challenges

So the question is to be posed: how might individuals seek to mitigate the challenges of these statutory fiscal charges so as to protect their businesses from collapse?

Parliament is sovereign and so, given the current political majority, it is reasonable to assume that this legislation will be passed and enacted. Individual businesses will not be able to challenge statutes and only have limited challenges to regulations.

However, the changes impose laws which increase service provision costs – not by employer choice but by statutory criminalised imposition.

Commercial long-term contracts would usually contain a provision for adjustment where there is a material change of circumstance. As such, you should:

1. Check your contracts to see if such provision exists – particularly look carefully at dispute resolution clauses
2. Use such provisions to force price adjustments
3. Absent such provision argue that such terms should be implied as necessary to make long-term contracts commercially viable
4. The issues for debate will be whether such cost increases should be passed to the commissioner or shared. Why should statutory imposition fall in any way on the provider?

Contracted public services cannot pass on costs where prices are in effect capped by dominant purchasers. We thus face a position where providers are expected simply to absorb cost increases devised from political decisions. The issues are issues of contract management, not rationality of public decision-making.

The social care sector has been looking for a lifeline for a while now, which the budget has unfortunately not provided, nor has it hinted at any improvements in the near future. The government needs to be persuaded to modify the proposals or provide proper funding for necessary care services, ring-fenced to meet the identified needs.

With the HSCC launching their inquiry into the costs of inaction, hopefully this motivates the Government to focus more on the improvement of the sector and provide the much-needed help providers have long-desired.