Swathes of social care market could collapse under £2.8bn cost pressures

Private and non-profit social care providers could be hit with increased costs of approximately £2.8 billion in the upcoming financial year, an analysis by the Nuffield Trust has indicated, raising concerns about the risk of businesses failing.

The health and social care think tank highlighted that the rise in national insurance contributions (NICs) and wage bills for providers might lead to "swathes of the social care market collapsing under these extra cost pressures". The analysis took into account potential costs for nearly 18,000 independent organisations – excluding those run by local authorities – that provide adult social care in England.

In her inaugural Budget last month, Chancellor Rachel Reeves raised the rate of employers’ NICs to 15% and lowered the threshold at which this tax is paid from £9,100 to £5,000, aiming to generate £26 billion a year. Additionally, she declared a 6.7% increase in the national living wage for employees aged 21 or over – from £11.44 an hour to £12.21 – starting April.

According to the Nuffield Trust, just the NICs increase could impose an additional cost of around £940 million on the adult social care sector next year. With wage rises included, the total wage bill could see an estimated £1.85 billion added in 2024/25. The trust warned that without Government intervention to cover the NICs costs, providers are facing a challenging financial outlook.

Natasha Curry, deputy director of policy at the Nuffield Trust, said: “Faced with a series of financial black holes in almost every corner of the public sector, the Government faced the unenviable task of urgently raising funds at the Budget to plug them.

“But by choosing not to provide support to adult social care providers in covering the costs of the raise in ENICs, the result is likely to be catastrophic.

“Already fragile after a decade of cuts, runaway inflation and the effects of Covid-19, adult social care was in desperate need of relief.

“But this was a Budget that gave with one hand and took away with the other.

“The Government rightly wants to reform social care, but with the real prospect of swathes of the social care market collapsing under these extra cost pressures, there may be little left of it to reform unless the Government takes urgent action to cover ENICs for adult social care providers.”

Voices within the sector warned in the immediate aftermath of the Budget that some care homes could be forced to close.

A Department of Health and Social Care spokesperson said: “This government inherited a social care system in crisis. We are determined to tackle the significant challenges and build a National Care Service so everybody can access the high-quality care they deserve."