A revealing correction

Policy changes announced in last month's Budget will cost publicly-funded adult social care at least £1 billion per year

Today I chanced upon a revealing correction made by the Office for Budget Responsibility to its Budget analysis on the rise in employers’ National Insurance.

On Budget Day the office’s Economic and Fiscal Outlook mentioned an offsetting allowance from the Treasury to compensate ‘public sector employers and adult social care’ for the cost of rising employer NICs. But the corrected version published on 7 November removed the reference to adult social care.

This revision reflects the actual Budget report which made no reference to compensation for adult social care.

In publishing its correction the OBR has told us how much it thinks the NICs increase will cost social care providers outside the public sector: around £800 million per year.¹ Critically, this is more than the (minimum) new grant funding promised in the Budget for social care in England. The Treasury has promised ‘at least’ £600 million for social care as part of the 2025/26 local government settlement for England. If that is all there is, every penny of the extra money (and more) will be recycled back to the exchequer as a result of the higher NICs.

We can speculate as to what happened to cause the discrepancy between the Budget report and the OBR’s original analysis. Perhaps there was just a misunderstanding between the Treasury and the office? Or did ministers decide at the last minute not to pass through money to social care, reversing previous plans on which the OBR had been briefed? Maybe the Budget document uses the phrase ‘at least’ when referring to the £600 million of new social care grant because the Treasury knew much more than this was needed, once the NIC rise was factored in… but that a deal on how much had not been struck?

Whatever the truth, if extra money is not found to compensate for the tax rise the consequences will be dire. Adult social care providers already need to spend more to fund another key Budget announcement, the increase in the National Living Wage. My crude estimate is that next April’s rise in the NLW from £11.41 per hour to £12.21 per hour next year will cost publicly-funded adult social care around £300 million per year. This is just the cost of compliance (as soon as you factor in broader pay rises for people just over the NLW, to reflect inflation, pay differentials and the tight labour market, the cost rises to £1 billion per year or more).²

If £600 million in extra grant is all the money on offer for social care, the numbers will not add up. The compliance cost from the Budget for publicly-funded care is over £1 billion - £800 million for the NICs increase and £300 million for the National Living Wage. Once you include a plausible pay increase for the whole workforce the ‘standstill’ requirement is something like £2 billion extra per year for taxpayer funded care services. And that is before you start to think about expanding support to reach more people, sustain independence and relieve pressure on the NHS.

The square needs to be circled. In December ministers will have little choice but to significantly increase how much money adult social care receives, when the local government spending settlement is announced.

1. This is presumably the cost for publicly-funded care only, as it relates to compensation from the taxpayer. The costs of the NICs increase could be 50 per cent higher once the implications for self-funding care recipients are considered.

2. The calculation uses cautious assumptions and draws on data published in The state of the adult social care sector and workforce in England, Skills for Care, 2024