Increase in National Insurance (NI) contributions

The House of Lords agreed to several amendments to the National Insurance Contributions Bill 2024-2025 proposed by the current Government. The consideration of the Lords amendments in the Commons is scheduled to take place on the 19^th March. The House of Lords agreed to 20 amendments to the original Government Bill and one change. Now, when the bill is re-read in the House of Commons on the 19^th March, the Lords amendments will be discussed and either dismissed or applied.

The Bill proposes to:

The bill would implement the following changes to employer NICs from 6 April 2025:

• an increase in the rate of NICs paid by employers on their employees’ earnings, from 13.8% to 15%
• a decrease in the secondary threshold (the threshold after which employers start paying NICs on their employees’ earnings) from £758 a month to £417
• an increase in the employment allowance from £5,000 to £10,500, and a removal of the £100,000 eligibility cap

This means the bill would increase the NICs rate that employers pay on an employee’s earnings. The level at which employers start paying employer NICs would decrease, meaning employers would pay employer NICs on the wages of employees on lower salaries (when they previously did not have to).

Employers would also be able to offset a higher amount of their employer NICs liability due to the increase in the employment allowance. The discount available would increase to £10,500. Any employer (subject to eligibility criteria) would be able to use the allowance, regardless of their NICs liability, due to the removal of the £100,000 cap.

Here’s how the change in NI rates could affect the Adult Social Care Sector, and significantly impact local providers who deliver vital local care community support:

1. Increased Operational Costs

• Higher Employer Contributions: Social care providers, like many other businesses, must pay National Insurance contributions for their employees. An increase in these contributions means higher wage-related costs for employers. This is particularly burdensome in a sector that already faces tight margins and funding pressures.
• Additional Strain on Margins: Many social care providers operate on limited budgets, often funded by local authorities at agreed hourly rates or through private clients. The increase in employer NI contributions may not be fully compensated by funding increases, which can lead to a squeeze on operating margins.

2. Impact on Staffing and Recruitment

• Wage Pressure: Adult social care workers, who are often low-paid, may see limited benefit from the increase in National Insurance contributions, as their pay might not increase accordingly. Providers might struggle to recruit and retain staff if wages do not keep up with inflation and rising costs. Increased NI contributions could exacerbate this challenge, especially when combined with low pay and high job demands.
• Increased Pressure on Providers: With recruitment difficulties already being an issue in the social care sector, with the shortage of trained and experienced staff, this additional cost might discourage providers from hiring more staff or force them to cut hours or services.

3. Quality of Care Concerns

• Reduced Investment in Care Services: The increased operational costs may leave less funding available for investment in care quality, staff training, and other essential services. This could lead to a deterioration in the quality of care provided to vulnerable adults, impacting residents’ outcomes and overall satisfaction with services.
• Capacity Constraints: Providers may face pressure to reduce services or limit their capacity in response to the increased financial burden, which can lead to longer waiting times for care or reduced availability of services for people in need.

4. Impact on Local Authorities and Funding

• Increased Budget Strain: Local authorities, which are key funders for social care, may also struggle to balance their budgets as they face increased costs, including the need to raise funds to cover the higher NI contributions for the care providers they commission services from.
• Potential for Less Funding for Care Providers: With local authorities already facing funding cuts, the increased National Insurance costs could mean that providers receive less funding per service user, leading to a decrease in the overall quality of care delivered.

5. Additional Administrative Burden

• Managing Increased Contributions: The increased complexity of managing payroll and the additional financial reporting requirements tied to the increase in National Insurance contributions may add to the administrative burden for care providers, especially small and medium-sized businesses. The need for more resources in HR and payroll departments can divert attention from care delivery.

6. Potential Benefits of the Health and Social Care Levy

• The increase in National Insurance contributions was partly intended to fund the NHS and social care, including increased social care funding. While some providers may benefit from long-term improvements in care sector funding, there are concerns that the immediate financial pressures caused by the higher contributions could outweigh any potential benefits in the short term.

7. Overall Financial Impact

• The cumulative effect of increased staffing costs, administrative burdens, and squeezed budgets could lead to some social care providers facing financial instability, particularly smaller or independent providers. Larger providers may be able to absorb the costs better, but there is still a risk of consolidation in the sector, reducing competition and choice for service users.

Conclusion:

The increase in National Insurance contributions is a significant challenge for adult social care providers, adding to their existing financial and staffing pressures. While the intention of the policy is to bolster funding for social care, the immediate effect is likely to be an increased financial strain, which could have negative consequences for the quality and availability of local care services.

On Tuesday February 25^th, thousands of people gathered outside the Houses of Parliament for the Providers Unite rally, a demonstration against the financial strain placed on the Social Care sector – most recently by the Government’s Autumn Budget.

The movement was spearheaded by a grassroots coalition of care providers, calling for urgent reforms to what many fear could be a systemic collapse of social care services across the country.

Initially prompted by the budget’s unsupported Employer National Insurance hikes and National Living Wage increases, the movement may actually be a signal of a wider shift in the long over-burdened sector.

Analysis by the Nuffield Trust estimates that these changes will add £2.8 billion in additional costs to independent care providers in 2025-26 alone. While the government has provided £880 million in extra social care grants, this falls far short of the £2 billion needed by councils to cover the shortfall in provider costs.

For many care providers—particularly small and medium-sized businesses—this could be catastrophic, leading to closures, loss of capacity, and increased pressure on family carers and the NHS

More can be read about the bill here

National Insurance Contributions (Secondary Class 1 Contributions) Bill 2024-25: Progress of the Bill (Lords stages) – House of Commons Library