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November 6, 2015

Consequences of the national living wage

Allied Healthcare was the first care business to ban compulsory zero hours and exclusive contracts; and we have long called for better pay and conditions for care staff so they can be properly rewarded. The care sector needs to attract, train and retain the best. I believe it is wrong that the care of the nation’s most vulnerable is in the hands of dedicated care workers who are often rewarded more poorly than those who might stack shelves in a supermarket. At the heart of the problem is the need for society to properly value and fund care.

 
The positive aspects of introducing the NLW are that it will raise the pay and boost the spending power of low-paid workers. It will also increase the Government’s tax take and cut spending on in-work benefits for those who retain their jobs. However, the policy will also have negative consequences – the Office of Budget Responsibility (OBR) estimates that up to 110,000 people will lose their jobs.

 
Sectors such as care will see their wage bills and Employers National Insurance Contributions (NICs) rise substantially. Social care is not a particularly profitable sector and does not have the ability to substantially improve productivity in personal care, nor pass on increased costs to hard-pressed local authorities.

 
Job losses in this and other sectors will translate into higher welfare spending, but more importantly will put the care of many thousands of vulnerable people at risk as firms decline to bid for contracts or simply cease trading. If this happens the perverse effect will be even higher costs for local authorities as they will have to provide these services directly.

 
The Government have steered the economy through very turbulent times and created a huge number of new jobs, it would be a shame to put the brakes on a great record of job creation. The Government has previously recognised the harmful impact the jobs tax that is Employers National Insurance Contributions has on job creation and introduced sensible exemptions for younger workers and also a NI allowance for small firms. An extension of this targeted approach could help stave off catastrophe in the care sector by throwing a jobs lifeline to thousands of care workers who would otherwise lose their jobs. It would also help provide some certainty for those they care for, who fear being left without the support they need.

 
Increasing the threshold at which care firms pay Employers National Insurance by £5,000 would cost some £154 million in 2016 rising to £257 million in 2020. This would recycle some of the gains Government will make with the higher tax take as a result of the NLW. It would also throw a lifeline to the care sector, and would save 15,000 care workers jobs as well as providing certainty for those for whom they care.

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