‘Clear clarity’ needed as labor costs impact council budgets

The government has not yet confirmed whether it will fund the increases in national insurance contributions and councils’ national living wage announced in yesterday’s budget.

Chancellor Rachel Reeves announced in her budget speech that employers’ contribution to national insurance will increase by 1.2% to 15% from April 2025. In addition, the national living wage will also rise to £12.21 per hour, with full-time workers receiving benefits of up to £1,400.

Local Government Association (LGA) President Louise Gittins (Lab) said councils needed “clear clarity” on whether they would be protected from these rising costs.

He said: “Councils and the services they provide to their residents still face an unstable future in the short and long term. The government needs to provide clear clarity on whether councils will be protected from extra cost pressures due to increases in employer national insurance contributions.”

“But with greater funding certainty through multi-annual agreements and greater clarity on financial reform, councils can protect services, meet the needs of residents and work in partnership on government priorities, from social care to housing, inclusive economic growth and tackling climate change.”

Patrick Melia, finance spokesman for the Local Government Association’s chief executives and chief executives, said: “Demand is increasing, caseloads are more complex and costs remain high. The local government finance system is broken and requires urgent attention.”

Mr Melia, chief executive of Sunderland City Council, added: “The LGA estimates the sector faces a gap of £2.3 billion in 2025-26 and this gap could grow further depending on how the employer share is increased. A potential huge Budget-pressured National Insurance contributions will be applied to local government alongside national living wage increases, which will increase the cost of many services provided by local government.”

Melanie Williams, Chair of the Association of Directors of Adult Social Services (Adass), said the increase would lead to further pressure on council budgets and councils were overspending on adult social care, despite £600 million of new grant funding for social care. He said it had been raised by £586 million a year and that it was “vital” that the government “fully fund” increases in the national living wage to prevent “financial pressures on adult social care from increasing further”.

He said: “The new money announced in effect could be used to cover national insurance increases for employers and pay rises across providers. On that basis, we look forward to further discussions with the government on the high demand for adult social care.” what we are facing and how this relates to the NHS and SEND.”

Vic Rayner, chief executive of the National Care Forum, said adult social care providers would be “particularly hit hard” by the increase in national insurance contributions.

He added: “Unless fully funded, these increases, alongside the welcome increase to the national living wage, will put enormous financial pressure and undermine the ability of providers to focus on essential needs to improve care workers’ wages, terms and conditions.

“70% of the spending of local authorities responsible for social services goes to social care. Even if the full £600 million were allocated to cover the additional cumulative costs that social care employers would face, this is unlikely to cover the increases required.”

Liberal Democrat leader Ed Davey also weighed in on these calls, calling on the government to exempt social care from the “dealings tax”.

LGC contacted MHCLG for comment but a response was not received at the time of publication.