Huge wage bills in the wake of changes to employers’ national insurance contributions could cripple some social care operators, market experts tell Caring Times‘ sister publication HealthInvestor.

Lizzie Wills, senior partner and head of private equity at GK Strategy said: “It will have quite a significant impact on businesses with a large wage bill, and it might mean the end of a few businesses already struggling with inflationary pressures and rising wages. From the businesses I’ve spoken with it’ll certainly impact hiring decisions, and the extent to which they’re able to invest in expanding capacity. But PE-backed businesses tend to be resilient, with management teams that are typically agile enough to make the best of these types of situations.”

Ali Al-Mufti, the founder of Arcadia Care Homes, estimates it will cost the one home group around £30,000 per year – which is equivalent to a new full-time employee: “Our contribution of NI on both salary and pension goes up from 13.8% to 15%, but the bigger issue is lowering the threshold from £9,100 per year to £5,000 per year.

“I do think it will suppress wage growth. If you take the tax hike coupled with expected low fee increases from cash strapped councils, it’s creating a perfect storm. Though the real living wage increase was modest at 5%, every provider will now be forced to re-think what they can provide next year.”

Another care home chief executive, Samantha Crawley of Bracebridge Care (soon to be rebranded EQ Care Group), agrees: “It’s not sustainable. Up to and beyond half of a care homes revenue is spent on the workforce already, and it’s going to go up a few percentage points more with the change.

“It penalises operators who pay their team members more, and it’s a rise on the cost of the entire workforce, not just the direct care team. It’s not well thought out at all. The desire to scrap zero hours contracts was also a concern – the only reason we have anyone on a zero-hour contract is that they have requested it and want to choose how to work every week, we would rather have contracted hours. More dialogue about why these things exist is important.”

A petition to “exempt all social care providers from the employer NIC increase” has gathered over 19,000 signatures at time of writing. The new Leader of the Opposition, Kemi Badenoch, challenged the Prime Minister on the impact the policy will have on care homes in PMQs. Market sources believe it will fall on deaf ears.

Wills says: “I don’t think there will be an exception. Wes Streeting may look at ways to increase funding, for example via other funding allocations and government grants, but they really want to keep the tax situation as straight forwards as possible.”

Lee Findell, partner and head of corporate at WA Communications, strikes a different tone: “I realise that the government found themselves in a fiscal hole and need to raise taxes to address this, but the Treasury may need to rethink this, because it’s having the impact you definitely didn’t want it to have. The care sector, both children and adult, relies on a group of moderately paid people.  

“There is already a recruitment and skills problem in the care sector and if you add another layer of costs on top of that you will force up fees. The impact could be catastrophic on a sector which already suffers from fees that are considered too high. And I don’t think it’s because the Treasury wants to raise this tax, they probably don’t think it’s a good tax, but because of the manifesto commitments on tax they made it was their only choice.”

One source has said that it could push operators to make all carers self-employed, essentially removing an element of stability to their work, however others question the feasibility of this happening without push back from HMRC.

An advisory source adds: “This is a time where we need to recognise the importance of our social care sector and really get behind them with more funding support but, in reality, the opposite has occurred. It’s the smaller operators who are predominantly local authority funded which will be impacted the most as the majority of local authority fee increases won’t increase in line with these increases in costs.”