No nasty surprises please: the budget hopes of a sector under pressure

As the Autumn Budget approaches, those involved in commissioning and delivering social care might understandably be feeling anxious. Last year’s budget ushered in unexpected changes to Employer National Insurance Contributions (ENICs) that added to the financial woes of this fragile sector, which was not entitled to the support afforded to public sector bodies. For a sector under considerable financial pressure, any further shocks could have serious consequences for its stability.

So, just how pressured are finances in this sector and what are some of the things to look out for in next week’s budget that could impact social care?

Current funding outlook

The combination of ENICs changes and increases in National Living Wage rates in the 2024 Autumn Budget led to an almost 10% ¹  rise in social care workforce costs in 2025/26 (£2.8 billion), more than wiping out the £880 million in additional funding made available for social care. Councils ended the 2024/25 financial year having overspent their social care budgets by an estimated £774 million and few have been able to uplift the fees they pay to providers to the same extent as costs increased – home care fees rose by an average of 5.3% and care home fees by 4.9% this year.

Looking forward, the Comprehensive Spending Review (CSR) in June delivered a promised multi-year settlement for social care by making available a cumulative increase of up to £4 billion by 2028/29. On the face of it this figure looks generous, but when set against the magnitude of spending pressures coming down the track, it rapidly starts to look challenging. The Health Foundation estimate that simply keeping pace with demand would require an additional £3.4 billion in 2028/29. To also meet the cost of any improvements in access and workforce pay, they estimate additional funding in the region of £8.7 billion would be needed.

Known knowns: workforce measures

The government has committed to ensuring the National Living Wage (the minimum hourly wage for everyone 21 years of age and over) does not fall below two-thirds of median earnings, so we can expect the new higher rate to be confirmed in the budget. Employers should be planning for a rise in the region of 4.1% from April 2026 according to the latest estimates. With almost a quarter of the 1.5 million strong care workforce paid within 10 pence of the National Living Wage in 2024, even small increases in the rate can have a significant impact on the cost of delivering care.

These rising employment costs will start to erode the leeway available for wider workforce reforms. Employers are already preparing for the implementation of the government’s Employment Rights reforms that are set to take effect from April 2026. These economy-wide measures, intended to strengthen workers' rights and offer greater stability to those on insecure contracts, have the potential to positively impact people working in the social care sector, where 29% of workers are on zero-hours contracts and access to sick pay is inconsistent.

Longer-term ambitions to bring about a sector-specific Fair Pay Agreement (FPA) to tackle the long-standing issue of low pay and associated challenges of recruitment and retention in social care are set to land towards the tail end of the budget period, from April 2028.

The government has indicated that no new funding will come on stream for these reforms – instead notionally allocating £500 million of the £4 billion in the CSR to fund the first year of FPA implementation in 2028/29. When year-on-year National Living Wage rises are factored in, the £4 billion pot is looking increasingly stretched.

Known unknowns: tax changes

One of the persistent complexities in assessing whether any funding announcement is ‘enough’ for social care rests on the fact that the headline figures rely heavily on the council tax raising abilities of local authorities. 

Successive governments have sought to reduce reliance on national grant funding, placing greater expectations on councils to raise more money via local taxes. Indeed, the £4 billion increase for social care in the CSR is a hypothetical figure based on the assumption that all councils will raise their council tax and social care precepts by the maximum available year on year.

With big shifts in the political landscape and relatively untested Reform-led councils still taking shape, it remains to be seen whether local council leaders will be prepared to hike council tax to meet rising costs of care in what could be an unpopular move among their voters. Social care already accounts for almost 40% of a typical council’s spending, yet almost one-third of the population mistakenly believe care is funded as part of the NHS, rather than via a strictly means-tested system. With satisfaction with council services on the decline, persuading voters of the need to pay more for social care via their council tax may be an uphill struggle. 

And, of course, social care does not exist in a vacuum. People who draw on care and those who work in it are impacted by changes to benefits, immigration, employment and business policy. Additional taxes on employment or small businesses risk pushing the costs of providing care up beyond what many provider organisations can withstand. Changes to benefits tend to significantly impact the social care workforce, 15% of whom rely on universal credit.

Gradual decline

The fiscal backdrop to this coming budget is bleak, and social care is unlikely to see any additional funding coming its way. But the growing pressures are hard to ignore. The impact of last year’s budget measures are gradually beginning to bite and we are likely to start to see the real effect of the magnitude of cost pressures in the next financial year.

Some organisations in this vast diverse market – those that are larger or more able to attract self-funders – may be better able to weather the storm, but many of the small- and medium-sized enterprises that make up the majority of providers will start to struggle. As a result, we could see providers employing fewer staff, closing or handing back local authority contracts or hiking up the fees they charge to self-funders. Ongoing pressures on council budgets may see them further tighten access to state-funded care or seek to reduce the size of care packages. Ultimately, people who need care and support will feel the impact.

The government’s 2024 manifesto promised to “undertake a programme of reform” to address the fact that “hundreds of thousands of people suffer without the care they need for a dignified life”. It is difficult to see how current levels of investment will stretch to deliver even the workforce reforms that are in train, let alone to leave enough for wider reform to address the dysfunctions of England's broken social care system. The Casey Commission has been tasked with defining a National Care Service by the time it reports in 2028. The task of building a coherent National Care Service may be made considerably harder if the system it is intended to reform is allowed to continue to decline in the interim.