A Labour of Love: The impact on the future of social care under the Labour budget

It had been anticipated that things would improve for the social care sector with a Labour government but just a few months into their term, signs indicate that may not be the case. With the population of those over 85 projected to double to around 3.1 million by 2045 an additional 30,000 - 50,000 social care beds will be needed each year. It was hoped by the industry that the budget would clear the way for those in the industry to create these places but Labour's autumn budget delivered blows that could hinder developers and care providers' ability to build the required infrastructure and risk the closure of existing homes. 

The current feeling in the market is not particularly optimistic. Organisations who are jointly responsible for the care of 128,000 people in England reported that 3/10 had been forced to close parts of their organisations or hand back contracts to local authorities and 1/3 are considering leaving the market entirely. So, what in Labour’s budget is affecting the future of care? 

The cost of staffing 

Labour’s increase of the National Minimum Wage & National Living Wage is welcome news to an underfunded sector that continues to face recruitment and retention challenges. In an already understaffed sector, visa restrictions have resulted in a 70,000 drop in health and care worker applications by overseas workers so it is essential that jobs are valued. 

However, someone needs to foot the bill for these pay rises and the changes to Employer National Insurance Contribution thresholds alone will cost the adult social care sector an additional £940m in 2025-26 according to the Nuffield Trust. This is an increase that cannot be borne by the care providers alone and so an increase in care fees to councils and self-funders seems likely. The increased costs will hit care operator budgets and some care providers are concerned it has the potential to severely impact providers' ability to invest in new development. In the worst cases, it could be enough to close care homes altogether.  

Planning Reform

There was hope for planning reform making new care home development easier to push through and the results of consultations are pending. The current sentiment is that the Labour government is making the right noises about taking action to unlock the local plan stand-off and the issues preventing sites being developed. The care sector will hopefully have a proper name check, the National Planning Policy Framework compelling the consideration of “retirement housing, housing-with-care and care homes” in all areas. This could be key to pushing through an increase in care home numbers. 

Suitable land is hard to come by. The push to utilise brownfield sites is largely agreed by everyone as a wise idea, however, care properties need access to amenities within a relatively short radius and this is not necessarily found in brownfield sites. It is more often the greenfield sites on the edges of settlements that provide what is needed by the care sector and there isn’t certainty that these can (or should) be unlocked. One of the reform suggestions from the taskforce set up by the previous conservative government to assist with this is to update guidance on CIL “to encourage spending on local infrastructure which will improve the age-friendliness of the area” and this may help unlock some of the brownfield land that care home developers would previously not considered. This could be a vital lifeline to unlocking more financially viable development.

Financial Backing 

The cost of staffing, land and construction are all expensive and it seems likely that investment capital is needed to get this sector in a position to expand. The growing shortfall in fees will erode providers' profitability and could potentially hinder their ability to secure funding for capital projects or invest in long-term growth.

Those care operators with a proven track record of stable accounts and smart expansion should be in a good position. The private capital market does have an appetite for the care sector and given the sheer volume of demand predicted, it is a sector which more and more investors are considering. There was a suggestion that boosting private investment in the care sector would happen with government support, but no meaningful strides to allow the private sector to work with the government have yet materialised.

More to come

The Government’s recently announced independent commission to transform social care shows it is a priority for the Government to address the care situation and there is hopefully more to come to support the care sector to encourage and support development and growth. 

Charles Russell Speechlys has considerable experience advising operators, developers, investors and lenders in this area and is well-placed to advise on all elements of a transaction (including real estate, construction, planning, corporate structuring, joint ventures, banking and finance and tax).

This article was co-written by Ciara McEwen, Head of Marketing at Care Hires