Analysis

Care homes may close due to cost of national living wage

Minimum pay rate of £7.20 per hour set to increase operators’ overheads
Care_Home

In April this year, a compulsory national living wage (NLW) for people over the age of 25 was introduced across the UK. The NLW increases minimum hourly pay from 6.70 to 7.20, a figure that is due to rise to 9 by 2020.

Picture: Alamy

Ahead of the NLW coming into force, consultancy Deloitte announced that, with staffing representing on average about 60% of care homes costs, the new legislation will significantly increase operators overheads.

The NLW could be the last straw for care homes already at risk of closure owing to financial pressures, high attrition rates and recruitment difficulties.

Analysis by consultancy firm Christie & Co indicates that council fee rates would have to increase by about 5% to offset the effect of this years NLW. However, before 2016, fee rates have centred on a three-year average annual increase of 1.8%.

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In April this year, a compulsory national living wage (NLW) for people over the age of 25 was introduced across the UK. The NLW increases minimum hourly pay from £6.70 to £7.20, a figure that is due to rise to £9 by 2020.

Care_Home
Picture: Alamy

Ahead of the NLW coming into force, consultancy Deloitte announced that, with staffing representing on average about 60% of care homes’ costs, the new legislation will significantly increase operators’ overheads.

The NLW could be the last straw for care homes already at risk of closure owing to financial pressures, high attrition rates and recruitment difficulties.

Analysis by consultancy firm Christie & Co indicates that council fee rates would have to increase by about 5% to offset the effect of this year’s NLW. However, before 2016, fee rates have centred on a three-year average annual increase of 1.8%.

‘Our fee rates are not enough to cover our increase in costs,’ argues Registered Nursing Home Association chief executive Frank Ursell who says there ‘is a genuine fear’ that homes could de-commission beds or even close altogether.

Not viable

‘Any area that has not increased their local authority fees by 6.5% will have great difficulty,’ he explains. ‘We know that some of the larger care provider groups are already looking at the homes they have that are not viable anymore and are either selling them off or closing them down.

‘A substantial number of self‑payers in homes will have to pay more to subsidise the care that has not been paid for by increase in local authority fees.’

Deborah Sturdy, nurse adviser to Care England, says the effects of the NLW are unlikely to be seen until the next 12 to 24 months, but that some homes are already de-commissioning beds. However, she stresses: ‘No one disputes that paying the living wage is a good thing for people who have difficult and complex jobs.

Funding

‘The issue is around getting appropriate funding from local authorities for residential care. It seems to me that social care is seen as a second-class service even though the complexity of the needs of people living in care homes is increasing.’

Ms Sturdy fears that the existing problems with recruiting and retaining staff will worsen in the aftermath of the Brexit vote as some care homes are already seeing European nursing staff withdrawing their job applications.

‘The EU referendum result is going to have massive ramifications for care homes,’ she says. 

Around one third of 500 businesses surveyed by Ipsos MORI on behalf of think tank Resolution Foundation reported that the NLW has increased their wage bill this year. A further 16% have not yet seen their wage costs increase but expect them to rise in the near future. 

Collaboration

Cliff Kilgore, chair of the allied health professionals and nurses group at the British Geriatrics Society and a nurse consultant for intermediate care in Dorset, says that to offset increasing financial pressures, social care and the NHS could work more closely together.

He hopes that closer working will encourage care homes to feel confident in taking more patients with complex needs and speed up discharge processes from hospital.

‘Older people with complex care get referred back to the trust over years because of difficulties in giving them the right support in care homes,’ he says. 

‘Locally, we are looking at how we can use care homes as step-down facilities so people who need to come out of acute hospitals, but are not safe enough to be in their own property can go into a care home for two weeks. 

‘We are looking at how we in the [acute and community trusts] can provide extra support to enable them to go into the care home. 

‘We cannot change the financial pressures and challenges facing care homes, but we can work more closely with care homes and see them as an extension of the NHS.’

 

Council tax precept failed to cover cost of NLW
Charging residents extra council tax to help pay for social care is insufficient to cover current funding gaps and has failed to cover the cost of the national living wage (NLW), a report warns.
Published by the Association of Directors of Adult Social Services (ADASS) in July, the report highlights that the precept, which was introduced in the Autumn Statement 2015 to give councils the option to raise council tax by 2% for adult social care, will generate less than two thirds of the more than £600 million needed to cover the NLW this year. 
ADASS’ survey of all 151 adult social services directors in England found that only 8% were confident they could meet their statutory duties next year.
Just over eight in ten directors thought that the quality of care was being undermined by the funding cuts, which have left a gap of around £940 million just to keep services operating at last year’s levels. 
Meanwhile, 80% of directors reported that care home owners and homecare providers were facing financial difficulties and closing care homes or handing back contracts to councils, despite 82% of councils increasing fees to providers.  
Complex needs
ADASS president Harold Bodmer (pictured), who died after publication of the report, said that with more people with complex needs requiring care, combined with the effect of the ‘welcome’ NLW and other cost pressures, services were being cut and fewer people were getting help.
‘Adult social care should be given the same protection and investment as the NHS. Services are already being cut, and the outlook for future care is bleak,’ he said.
‘We are at a tipping point where social care is in jeopardy and unless the government addresses the chronic underfunding of the sector, there will be worrying consequences for the NHS and, most importantly, older and disabled people, their families and carers.’
The survey revealed wide variation between councils’ financial health, with 70 of 151 reporting a fall in budgets. Furthermore, 62 councils had to draw on reserves last year to fund budget shortfalls, while 52 had to cut services to balance budgets. 
Growing demand
Responding to the ADASS survey, Local Government Association senior vice chair Nick Forbes said: ‘The growing demand of our ageing population, as well as increasing costs following the introduction of the NLW, are squeezing care home and domiciliary care providers to the point of collapse. 
‘A lack of funding is already causing providers to pull out of the publicly funded care market and shift their attention towards people who can fully fund their own care.’
Carers UK chief executive Heléna Herklots said: ‘Little more than a year after the Care Act came into force, adult social care leaders are losing confidence in their ability to be able to afford to deliver basic services to older and disabled people and those who care for them.
‘With an ageing population, the continued downward pressure on adult social care spending is unsustainable. Urgent and significant investment in social care is needed, not only to stop the strain on families, but also to reverse the potentially devastating repercussions for the NHS and to ensure the viability of care providers that support some of the most vulnerable people in our society.’

Harold_Bodmer
ADASS president Harold Bodmer

 

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