Rachel Reeves’ Budget measures will devastate care providers, leaving vulnerable disabled and elderly people without care next year, healthcare experts are warning.
The disastrous scenario could also bankrupt local authorities, care providers say.
The rise in employers’ national insurance in April, together with increases in the minimum wage and national living wage, will threaten the future of care companies, according to the Homecare Association, a membership body for care providers.
It follows a report by industry analysts LaingBuisson that found a widening gap between the profits of providers reliant on privately paying customers and those of providers dependent on clients funded by the state or NHS.
The care sector is especially sensitive to minimum wage changes because care worker pay is among the lowest in the UK, statistics show, and most workers are on low wages.
The association says that if care providers fold, the UK risks widespread failure of care provision, which could “leave people without care, overwhelm family carers and cripple NHS services”.
The Homecare Association and Care England, which jointly commissioned the report, warned the chancellor, health secretary Wes Streeting and deputy PM Angela Rayner in a letter: “Local authorities could not cope with contract hand-backs or failure of multiple providers.
“Councils would have to provide the care themselves. This would cause insolvency of councils.”
The care sector is already in a precarious financial state, even without the extra costs, the association says.
Companies serving people whose needs are state-funded are “most at risk”.
Local authorities and the NHS buy up to 80 per cent of care services, and the fees they pay are said to be too low to cover costs, while the small, local providers that provide most of the care “operate on thin margins, lack financial resilience and are very vulnerable”.
But councils have already warned that local authorities in England face a funding shortfall of £54bn over the next five years, leaving them at risk of becoming insolvent.
Directors of adult social services have warned government promises on increases in funding for social care fall short of the estimated £1.8bn in extra costs facing councils, chiefly driven by the chancellor’s October Budget measures.
The Homecare Association estimates that employment costs will surge by at least 10 per cent in the next financial year.
Martin Green, chief executive of the charity Care England, said: “When care providers fail, it’s not just businesses that collapse. It’s entire support systems for people needing and receiving services. The human and economic cost will be devastating.”
Jane Townson, chief executive of the Homecare Association, said: “We risk a significant reduction in care and support services. This could leave thousands of older and disabled people without essential support; force family members to quit their jobs to provide care; and increase NHS waiting lists.”
She called on the government to invest at least £2.8bn in care, saying evidence showed that every £1 invested saved £3 in longer-term costs, and to make care providers exempt from changes to employers’ national insurance.
A Department of Health and Social Care spokesperson said: “We are tackling the challenges facing adult social care and taking the first steps towards building a National Care Service by introducing legislation that will establish the first ever fair pay agreement for care professionals and increasing the Carer’s Allowance earnings threshold by over £2,300 – the biggest rise since the 1970s.
“We are giving local authorities an additional £3.5bn in 2025-26, including a £680m increase in the social care grant to support the sector.”