The Liberal Democrats have called on the government to exempt the social care sector from the increase in national insurance in Labour’s budget, as an organisation representing many smaller care providers warned that the impact would be substantial.
In the biggest fiscal measures of Wednesday’s budget, raising an additional £25bn a year by the end of the parliament, Rachel Reeves announced an increase of 1.2 percentage points on the national insurance paid by employers, with the salary threshold at which this begins falling from £9,100 a year to £5,000.
While the chancellor said that public sector organisations including the NHS would be reimbursed the extra payments, most care providers are run privately, and will thus be liable.
Nadra Ahmed, the executive co-chair of the National Care Association, which represents smaller and medium-sized care providers, said many members were worried about the increased costs.
“The impact on small providers, who are small businesses, is substantial,” she said. “We currently have a provider with 350 staff, where the impact will be an additional £250,000 a year. I think it has to be funded.”
Ed Davey, the Lib Dem leader, said: “Hammering small businesses with a tax hike is the wrong choice. It will hit people’s wages and jobs, but it also risks worsening the NHS crisis by hiking costs for care providers and pushing some to the brink.
“It just shows that yet again the government seems to have forgotten about care. At the very least, the chancellor should be exempting social care from this costly jobs tax.”
Reeves has defended the changes to national insurance, which make up more than half the £40bn extra tax take set out in the budget, while saying she accepted that the impact on businesses was likely to mean smaller pay rises for workers.
“I recognise there will be consequences,” Reeves told BBC Breakfast. “It will mean that businesses will have to absorb some of this through profit and it is likely to mean that wage increases might be slightly less than they otherwise would have been.”
The Office of Budget Responsibility (OBR), which provides independent fiscal oversight, said it assumes companies will “pass on most but not all of their higher tax costs to employees”. In 2025-26 it estimates 60% of these costs will be passed on to workers and consumers via lower wages and higher prices.
