By identifying the specific challenges facing the care sector, Christie + Co has offered potential mitigating solutions to the issues and analysed the expected impact the NLW will have on these labour intensive segments.
Richard Lunn, Head of Care at Christie + Co commented: “The introduction of the #NLW adds yet another cloud on the horizon for an industry where staff costs are the single biggest item of expenditure, particularly for adult social care. Based on an analysis of care homes which Christie + Co has appraised this year, we estimate that net wages will increase by around 5% when pay rates for staff below the Living Wage level are increased. This increases to nearly 10% if current wage differentials for more senior staff are maintained.
“Within the Care sector, those care operators with leased models at full market rent will need to renegotiate their rental obligations to avoid the risk of forgoing their leases. The National Audit Office states that local authority budgets have been reduced by nearly 40% in real terms over the last five years with statutory funding for social care decreasing by £4.6bn during the same period. This comes at a time when the UK population is getting older, living longer and suffering from a range of increasingly-complex health conditions.”
Christie + Co estimates that approximately £1.2 bn of additional public funding would be required by 2020 to cover the cost of the NLW. Over the last five years, local authority fee rate increases have been nominal and in many areas, operating margins have been eroded as operators have had to absorb the impact of operating cost inflation or, where possible, to leverage privately-funded resident fee rates as a way of cross-subsidising clients on much lower local authority rates.
Richard added: “It is positive that the Autumn Spending Review raised the possibility for local authorities to increase council tax by 2% per year which could generated approximately £550m in extra funding next year. However, how additional Public Care Spending will be distributed and how much will actually reach care home providers remains unclear.”
Download “Is the National Living Wage Creating National Living Rage? – The perspective from UK Businesses” from http://www.christie.com/en/publications/243.pdf