Hidden cost of Labour’s social care plan revealed

Sir Keir Starmer’s commitment to ‘fair pay’ expected to cost taxpayers billions of pounds, despite given no funding

Labour’s plans to hand trade unions greater powers to negotiate social care pay are expected to cost billions of pounds despite the policy being given no funding, The Telegraph can reveal.
Sir Keir Starmer is committed to establishing a “fair pay agreement” in the sector under which state-backed collective bargaining would take place between trade unions and social care providers.
Senior Labour figures have argued the policy would increase pay for social care staff and decrease reliance on foreign workers who have been issued visas to fill vast shortages. Should it prove successful, those working on the policy say it could be expanded into other sectors.
Labour has pledged no extra funding for the collective bargaining plan, and there are understood to be no plans to announce costings before the election despite promises of a “fully funded” manifesto.
However, this newspaper can reveal that Labour shadow ministers, social care providers and think tank experts all believe the policy would require substantial new public spending.
Councils pay for much of the country’s social care provision, meaning that higher worker salaries would result in more taxpayer money being spent delivering the services.
Ben Zaranko, a senior research economist at the Institute for Fiscal Studies (IFS) think tank estimated that an increase of a pound an hour on frontline care worker salaries would cost the Treasury an extra £1bn to £1.5bn a year.
Mr Zaranko said: “A couple of pounds an hour more within a couple of years feels completely conceivable. That could be a cost of three, four, five billion pounds. That feels like a real possibility.”
Local authorities have already been complaining for years that they are not being given enough money from the central government to adequately provide adult social care.
Nadra Ahmed, the chairman of the National Care Association which represents more than 1,000 small and medium-sized care providers, said more central funding would be needed.
She said: “Talks with the unions are only likely to lead to an increase in wages.”
Ms Ahmed made clear she was supportive of higher pay for care workers but said Labour had to accept more funding would be needed, saying: “We can all promise the Earth. It is about deliverability.”
Sir Keir has come under pressure to give more detail on how he would pay for Labour policies and has been forced into a u-turn on a flagship green pledge after admitting that spending £28bn a year on energy and infrastructure projects was unaffordable.
The party leadership’s failure to acknowledge publicly that their pay talks plan would, in reality, require substantial extra funding has caused alarm among some Labour shadow ministers.
There is a concern that the current position of not detailing the funding implications cannot hold to the election. A left-wing think tank source claimed there was “disquiet” on the issue.
An ally of Rachel Reeves, the Labour shadow chancellor, denied that funding of the social care policy had been a point of contention during recent discussions about the party’s election manifesto.
Labour sources close to the policy argue that it is impossible to announce a specific funding figure before the election because the cost will depend on where the negotiations end up.
They also note that Tony Blair and Gordon Brown did not put a figure on the public sector cost of bringing in a minimum wage before the 1997 general election, making a similar argument.
The policy is being championed by Angela Rayner, the shadow deputy prime minister, and is part of the “New Deal for Working People” which has been drawn up with trade unions. Wes Streeting, the Labour shadow health secretary, also backs the plans.
The New Deal includes a number of policies long-sought by the unions such as strengthening their right to strike and banning zero-hour contracts. 
Lord Mandelson, one of the architects of the New Labour project, recently urged the party to consult businesses on the plans.
Introducing state-backed collective bargaining is seen in Labour circles as being a marked departure from decades of declining trade union power under the Tories and New Labour.
Labour figures working on the policy see the social care sector plan as a test case, with the possibility to expand it into other sectors if it proves successful.
Adult social care is considered a priority because of the difficulty in attracting enough workers to fill vacancies as the population ages, with around one in ten jobs available.
While full details of how the policy, which would apply only to England, would work are yet to be announced, trade unions representing care workers and social care providers would meet in a formalised setting to negotiate pay, conditions, terms and training.
Different pay bands could be set depending on training levels, with employers legally bound to pay agreed salaries, according to those working on the plans.
A consultation on the plans would likely be issued after Labour won.
The scale of negotiation goes far beyond anything that currently exists in the social care setting, where private providers can often dictate wage levels.
There are 1.5 million social care workers in England, whose total wage bill is around £27bn a year, according to the IFS. Average pay is around £11 an hour, around the minimum wage level in the last year.
Local authorities are legally obligated to provide social care for residents who are deemed in need of care and do not have enough money to cover the bills for themselves. Councils are often left paying for spaces in privately run care homes.
Justin Madders, Labour’s shadow minister for employment rights and protections, said: “The recruitment and retention crisis in adult social care is a key driver of the crisis currently facing our NHS, and this is only set to get worse unless action is taken to fix this broken sector.
“A fair pay agreement for the sector will help to end the race to the bottom in adult social care. Labour’s New Deal will improve standards by stabilising the workforce, professionalising the sector, and driving up productivity to improve outcomes for those receiving care.”