Social care providers at risk of collapse as analysis reveals cost to sector of employer national insurance hike

Changes to Employer National Insurance Contributions announced last month look set to cost the adult social care sector over £900m next year, more than wiping out the extra funds allocated to social care at the recent Budget, new analysis reveals today.

Based on an approximation of the entire wage bill for the independent social care sector in 2025/26, to which the forthcoming changes to Employer National Insurance are applied [1], the analysis finds that:

• The planned 1.2 percentage point increase to Employer National Insurance Contributions (ENICs) and the reduction of the earnings threshold for employer contributions from £9,100 to £5000 in 2025/26 will add in the region of £940 million more to the employer national insurance bill for independent (non-public sector) social care organisations, compared to the current regime. 
• This estimated figure is slightly above that contained in a line later retracted from the Office for Budget Responsibility’s costings of the costs to government of covering employers’ national insurance in adult social care. 
• The 6.7% increase to the National Living Wage (the minimum wage for those aged 21 and over) will add an estimated £1.85bn to the total wage bill in 2024/25 compared to the current financial year, assuming as in previous years that all wages above the minimum also rise at a roughly similar rate to maintain differentials in earnings. 
• Taken together, these add an estimated £2.8bn of cost pressures to social care providers, the majority of which are small or medium-sized organisations with limited ability to absorb additional costs. 
• With local authorities purchasing around 70% of care delivered by independent social care providers, councils would need to find an extra £2 billion if they are to increase the fees they pay to offset these higher costs – immediately consuming both the £600m extra funding allocated to social care (for both children and adults) at the Budget and the effects of an increased local government grant and changes to council tax rates (expected to yield around £2bn in total) for all council services. 

Commenting on the analysis, 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.” 

[1] The Nuffield Trust’s analysis calculates the impact of the 1.2 percentage point increase to Employer National Insurance Contributions (ENICs) and the reduction of the earnings threshold for employer contributions from £9,100 to £5000. Drawing on publicly available data it creates an estimate of the wage bill for the entire sector once the minimum wage changes come in and applies the effects of the ENICs changes, deducting changes to the Employment Allowance.