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LGA - National living wage to cost councils £1 billion a year by 2020/21

Introducing a National Living Wage for council staff and care workers needs to be considered in the wider debate about council funding, as analysis by the Local Government Association reveals it could cost more than £1 billion a year by 2020/21.

The new National Living Wage, for workers over the age of 25, will start at £7.20 from next April and rise to £9 an hour by 2020, the Chancellor announced in his Summer Budget.

The LGA, which represents more than 370 councils in England and Wales, supports the proposal but has calculated it will initially cost a minimum of £340 million a year for local authorities to introduce in 2016 with these costs continuing to rise significantly by the end of the decade.

Currently 95 per cent of the local government workforce earns above the proposed £7.20 National Living Wage. There are 92,820 mostly part-time council employees, which would equate to just over 30,000 full-time staff, earning less. These include street cleaners, school crossing patrol and school dinner staff. 

Increasing their pay to meet the new rate in 2016 would cost £6.8 million. The LGA estimates an additional £330 million would be needed in 2016 to initially cover increased contract costs to home care and residential care providers in order for them to pay council care staff the National Living Wage. 

Based on current staffing levels, the extra annual cost for council employees pay could then rise to £111 million in 2020 as the National Living Wage moves towards £9 and outpaces general wage inflation. The cost pressure on provider contracts will also rise by around £170 million a year reaching £1 billion a year by 2020, the LGA said. 

Cllr Gary Porter, LGA Chairman, said: 

"Almost half of local authorities already pay staff the voluntary Living Wage. This not only helps support those on the lowest pay but also improves the motivation, loyalty, productivity and retention of hard-working council staff.

"Councils support proposals to introduce a National Living Wage to help ensure staff receive a fair day's pay for a fair day's work. However, our analysis shows the cost to councils of implementing the change will keep growing and reach £1 billion by the end of the decade.

"Local authorities have made £20 billion in savings since 2010 and are likely face further funding reductions and spending pressures over the next few years. 

"It is vital that these costs are considered by the Government in the wider debate of council funding. 

"If government were to fully fund the cost of introducing the National Living Wage to council staff and care workers, councils could avoid extra financial pressure being placed on them as they continue to protect services, such as caring for the elderly, collecting bins and filling potholes."

Notes

  1. The additional home care contract pressures were calculated by comparing unit costs of home care services to the fair cost of care recommended by the Home Care Association (HCA), adjusted for the differences of the living wage component each year. In its 2015 Budget survey, the Association of Directors of Adult Social Services (ADASS) estimated that the cost of bringing contracts up to the HCA's fair cost of care benchmark based on the current minimum wage alone would be £278m. This is an additional pressure which is not included in the figures.
     
  2. Residential care contract pressures were calculated by comparing the current rates paid to care workers in private and third sector care homes to expected levels of the National Living Wage until 2019/20.
     
  3. The impact on all local authority staff has been calculated by applying the National Living Wage floor to the current pay rates of council employees. It takes no account to any adjustments to the rest of the pay structure that might be required.
    Year Residential (£m) Home care (£m) Total (£m)

    16/17 37 293 330
    17/18 135 362 497
    18/19 233 432 665
    19/20 331 503 834
    20/21 429 575 1,004

     
  4. LGA analysis of pre-Budget spending projections predicted councils in England could face a £3.3 billion reduction in central government funding for local services in 2016/17.  
     
  5. The funding gap facing adult social care is growing by at least £700 million a year. The escalating cost of caring for the elderly means councils will have to divert £1.1 billion from services like fixing potholes and running libraries and museums in 2015/16.
     
  6. The current Living Wage is an hourly rate set independently by the Living Wage Foundation and is updated annually. Employers choose to pay the Living Wage on a voluntary basis. The current UK Living Wage is £7.85 an hour (£9.15 per hour in London). It will next be increased in November 2015. A total of 157 councils have signed up so far.
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