George Osborne’s ‘living wage’ could be the death of social care

http://www.theguardian.com/society/2015/jul/14/george-osborne-living-wage-death-social-care

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For all the garlands festooned around the chancellor, George Osborne’s neck for the animal cunning of his emergency budget, you do have to wonder if he thought about the impact of the unveiled “national living wage” (NLW) on the social care sector. It wouldn’t be the first time that the sector, for all its vast size, had been invisible to a politician.

Let’s suppose Osborne had done all his sums, however. In that case, the logical conclusion can only be good news for social care because he must have realised he would have to factor in a hefty bung of taxpayers’ money to meet the sharply rising costs of paying the NLW from next April. Any other way lies disaster.

In this sense, the announcement of what, in practice, will be a higher minimum wage for workers aged 25 and older – £7.20 an hour next year, increasing to £9 an hour by 2020 – could prove a game-changer for the sector in its struggle to win more government funding. There simply isn’t the money in the system to meet the costs without it.

The most serious implication is that the sector is failing to convince young people that it offers good career options.

According to initial calculations by the Local Government Association, indemnifying care contractors against the new minimum would cost councils in England an extra £330m next year, rising to £1bn extra by 2020. This at a time when, the association says, the funding gap in adult social care is widening by £700m annually.

The Resolution Foundation thinktank, which has carried out previous detailed analysis of the implications of ending the low-pay scandal in social care, puts the UK-wide extra costs to the public purse of Osborne’s plan at £1.3bn by 2020 – on top of another £1bn already pencilled in for increases in the original national minimum wage.

In net terms, deducting savings to the exchequer after tax and benefits, the foundation reckons the additional costs to be £675m by 2020, or just over £1.2bn including the amount already allocated for the national minimum wage.

By any yardstick, these are big numbers. And they could be even bigger unless the social care sector can arrest an alarming trend in the age profile of its 1.5 million-strong workforce. A survey by the National Care Forum, representing not-for-profit care providers, shows that just 11.5% of workers employed by its member organisations are under 25, down from 14.4% in 2012, while more than half (50.3%) are 45 or older, compared with 45.6% in 2012.

The most serious implication of this is that the sector is failing to convince young people that it offers good career options. A rapidly ageing workforce stores up all kinds of future problems, especially when the work can be physically demanding. But it also becomes a significantly more expensive workforce when 25 is set to be such a key pay threshold.

Related: If homecare businesses collapse, the health system will be in real trouble | David Brindle

Social care therefore certainly needs to do a great deal more to help itself. And there will be those who question why the taxpayer should have to underwrite its wage bill and bolster the profits of the companies that deliver the bulk of services – particularly when Osborne’s strategy is to relieve the state of some of the burden of subsidising low pay.

To argue that, though, is to ignore the deeply parlous state of the sector. Dark rumours persist of another care-home chain collapse waiting to happen, with little confidence that the system would cope as it did when Southern Cross went under in 2011, and the homecare business is in even more desperate straits. The biggest provider, Allied Healthcare, is up for sale with its current owner, the Saga group, having written down its balance-sheet value to nil.

So integral is social care to the stability of the NHS that it is surely inconceivable Osborne would have decided to impose further costs of £1bn‑plus on such a fragile sector without putting something aside to cushion the blow.

Then again, this was a chancellor revelling in the aftermath of a general election where voters made unexpected choices. In a tweet the other day, healthcare expert Sir John Oldham highlighted the £750m annual cost of free television licences for the over-75s and mused whether they would prefer “care or TV”. Since 7 May, when Labour support fell most sharply among older people, you have to think twice about that.