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The state of the care sector: ‘winter is coming’

This article was written by Jamie Cuffe, Partner in our commercial team. It featured within the October Caring Times issue

The popular slogan from HBO’s hit series may seem an odd title for an article on the state of the care sector. However, as Oscar Wilde observed, “Life imitates Art far more than Art imitates Life”. Practitioners in the care sector know that the last few years have been tough. However, the Competition and Markets Authority (“CMA”)’s concerns over consumer rights and Brexit’s seemingly inexorable advance show the care industry’s own ‘pain of homes’ saga is likewise building to a crescendo with multiple threats massing at the industry walls.

CMA raises several issues

Despite the welcome news that the CMA has decided not to make a market investigation reference in relation to the care home sector, the material issues raised in the CMA’s market study update paper, and its decision to pursue what it describes as potential consumer rights’ breaches highlight serious structural weaknesses in the care homes market which must be addressed sooner rather than later.

The CMA’s “Care Homes Market Study Update Paper” reflects inadequacies in the current fee rates and uncertainty over future funding as well as rising staff costs and the difficulties in recruitment. These are longstanding issues in the sector but Brexit appears to be exacerbating the problem. While no clear political consensus has yet emerged on how employment of non-UK (EU) nationals will operate post Brexit, it appears that the uncertainty is driving vital resource from front line care.

Recruitment struggles

In 2016, there were 209,000 EU workers in the UK care sector. Figures from the Office of National Statistics show that 27,000 fewer non-UK EU nationals (13%) said they worked in the UK public sector between January and March 2017. Figures from Skills for Care show that EU nationals make up 7% of the adult social care workforce (90,000) in England. In this context, such an exodus from the UK is a concerning additional pressure on an already stressed sector.

The pressure manifests itself in two key areas. Firstly, it adds to the already increasingly fraught recruitment environment, adding to existing scarcity of suitable recruits. Secondly, the knock on effect of market economics is that scarcity drives up costs as those remaining workers are in greater demand, leading to wage inflation. This rising market in salary costs (making up to 60% of the operating costs of a home according to the CQC) has, and will be, further exacerbated by the implementation of new national employment policy.

All care home providers will be aware that during the past five years, local authority funding has been reduced by 31% in real terms (approximately £4.6 billion). However, this withdrawal of state funding has been implemented in the context of the introduction of the National Living Wage (“NLW”) and requirement of auto enrolment in a workplace pension scheme.

The rising cost of employment

The NLW was introduced on 1 April 2016 for all working people aged 25 and over. It is currently set at £7.20 per hour but it is intended to rise to £9.00 per hour by 2020 (a 25% increase). At the same time, Parliament dictated that by 2018 all employers must offer a workplace pension scheme and automatically enrol its eligible employees in it. Currently, employers must contribute a minimum of 1% of employee’s earnings However, this minimum figures is set to increase rapidly to 3% April 2019.

An opportunity for innovation

Together, this combination of fewer staff, higher salaries and greater employment costs in an environment of decreasing state funding does not appear to be sustainable in the longer term without some innovative thinking from those in the care sector. That innovation is hard to come by in these straitened times. However, the care home and wider health vanguards started in response to the Five Year Forward View point to some potential solutions. Scale, whether by acquisition (increasingly perhaps from international investors attracted by the fall in sterling post the 23 June 2016 vote), care home chains, shared services / outsourcing back office functions and better use of technology signpost ways to cut cost without affecting frontline services.

What does the future hold?

However, the future of the sector, and by extension society’s ability to care for those in need, may require more fundamental change. This may require a deeper reassessment and focus on the actual funding that is required to deliver care services. What it will certainly rely upon, however, is a continuation of the quality that characterises almost all those who work in social care – perseverance in the face of challenge. As Newt Gingrich (the former Speaker of the United States House of Representatives) said, “perseverance is the hard work you do after you get tired of doing the hard work you already did”. The sector has been working hard for years, but for the sake of all of us it must continue – winter is coming after all.

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