The government’s 2024 Autumn Statement is already having a major impact on charities operating in the social care sector, which have just a few short months before key announcements come into effect in 2025. One the one hand, the announcement of an additional £600 million being allocated for social care as part of the wider £1.3 billion package for local authorities was welcome news, though it being shared across adult and children’s services means it simply won’t be enough to cover the additional costs.

On the other hand, two points stood out as being of concern to charities​ providing support to vulnerable adults, however. One was the increase in the National Living Wage to £12.21 per hour, and the other was the increase in employer National Insurance Contributions to 15%, both of which will take effect from next April.

Both measures are aimed at improving workers’ pay and, like every other charity providing support in the social care sector, Milestones wants to see hard working support workers rewarded for the critical work that they do – we want to see central government provide a sustainable funding solution to this long-term issue. But unlike a commercial company that can simply pass on any increase in costs to its customers (however unpopular that might be), charities providing support for adults with learning disabilities and mental health needs are typically funded by local authorities who pay fees to cover the cost of support – and those local authorities are facing their own funding challenges…

When the costs of providing support go up, state-funded charities like Milestones are reliant on the local authorities that fund us increasing the fees they pay us to cover those additional costs.  Fee increases are usually negotiated at the start of the year to take effect from April, meaning any subsequent cost increases must be absorbed until a further increase can be negotiated the following year. But as local authorities struggle to balance their own books, they may not be able to offer fee increases that match the cost increases.

So what action can a charity take if the cost of providing a service starts to exceed the fees being paid? Well, there are very few choices and none of them ideal!

1. The charity can try to make efficiencies, for example by cutting back-office costs, and operating more leanly. But charities have been working hard to do this since the economic crisis started in 2008, and yet more ways of operating more efficiently is now incredibly hard to achieve. Note that this risks negative impacts on outcomes for people receiving support.
2. The charity can use its own reserves to make up the difference and continue to operate the service in the hope of gaining additional funding down the line. This is unsustainable and prevents forward planning for future generations of people needing care and support.
3. The charity can serve notice on the contract and hand it back to the local authority (which will then need to source a new care provider, potentially at a higher cost). For charities providing support for the most vulnerable people in society, this is a last resort as their reason for existing is to provide support to the people who need it. But support costs money, and charities cannot operate for long at a loss. And the people who will be impacted the most from this, are the people who depend on that support every day for help washing, dressing, and simply living with the choice and independence that most of us take for granted.

For some charities – those paying the National Living Wage (or close to it) – the increase in the National Living Wage will represent a huge and potentially catastrophic overnight increase in their wage bill. Others may be able to absorb the increase (or at least part of it) if they already pay above the National Living Wage, but this may come at the expense of making their pay offer less attractive and increasing the likelihood of their workers seeking better paying employment elsewhere. After all, while support work is incredibly rewarding, it can also be challenging on occasion, and if a supermarket is offering a higher wage (or indeed the NHS, which negotiates higher percentage pay increases and offers attractive benefits), many excellent support workers will consider their options.

Of more concern though, is the increase in Employer National Insurance contributions which is a new and unanticipated cost that – for some charities – will cost thousands, if not millions to fund. Charities providing social care employ large numbers of staff and deliver contracts often with a very low surplus. There is not enough time for individual organisations to restructure or change their business model before this tax rise arrives.

In the long term, the budget hints at reforms such as the potential for a fair pay agreement for support workers and a ten-year social care plan, which could provide long-term stability for the sector​.  In the short term, little hope remains that the provisional local government settlement, expected on the 19 December 2024, will address these unfunded increases.

While NHS commissioners lobby government for more funding, we don’t see this in social care. We are the ‘delivery arm’ for local authorities and want to see local authorities pressuring Whitehall to provide money that will allow them to both sustain the market, and deliver good outcomes. Nevertheless, voices from across the social care sector have been raising the alarm with government, while representative bodies such as ADASS, the VODG and the #ProvidersUnite campaign have been working to highlight this unintended consequence of the Autumn Budget, asking for charities to be made exempt in the same way that local authorities and the NHS are. To date the chancellor, while sympathetic, has ruled out a change in the government’s stance.