The impact of the Spring Budget on the health and social care sector

Heralded as the final fiscal event pre-election Budget, Tim Godfrey, Head of Healthcare Sector at Bishop Fleming, reflects on the impact on the sector.

With limited fiscal headroom delivered by the Office for Budget Responsibility many of the key points had already been preannounced with no specific mention in the speech of the wider social care funding pressures. Despite this Tim highlights below several areas which will have some impact on the health and social care sector.

National Insurance

A further reduction in National Insurance had been widely anticipated with its reduction heralded to support more people into work aligning with the mantra of ‘making work pay.’

There were several mentions of migration not being the answer to workforce capacity, with a reduction in taxes now and in the future, aimed at staffing and retaining UK based skilled workers.  Both the health and social care sectors continue to face staffing challenges and the Budget heralded various policies to encourage more people to work across the generations, reducing the ‘penalty on work’ as quoted by the Chancellor.

As a result of curbing inflation, from the 6 April 2024, National insurance is being reduced to 8% from 10%, with the self-employed also benefiting from a reduction in class IV national insurance to 6%.  The decrease is expected to save £450 for someone on an average salary thus £900 in total considering the Autumn Statement 2023 reduction.  These rates apply for annual earnings between £12,570 and £50,270 with excess earnings above £50,270 continuing to be charged at 2%.

However, with the average salary of a UK carer being in the region of £23,000, based on the National Living Wage of £11.44 per hour from April 2024 (for a full-time position), the benefit will be lower than stated.

Thresholds for national insurance and income tax remain unchanged, with the result that more people will be drawn into paying income tax and national insurance despite the reduction in national insurance.  Increasing personal allowances would have had a greater impact on the much-needed take home pay of people working in the health and social care sector.

NHS

The NHS was referred to as having ‘antiquated systems’ with productivity issues to be addressed by a new productivity plan including the move to full digitisation and increased use of Ai.  Social care is already addressing these issues with 80% of care providers targeted to move to digital care plans by March 2024, with AI support in care planning and other areas already being widely discussed by consultants and  the care associations.

The NHS App is to be improved to enhance patient choice and integration, with all hospitals to use electronic healthcare records moving towards full digital transformation, reducing administration, and increasing operational capacity.

Life Sciences

Impacting an ageing and more complex society and a reaction in part to the pandemic, we can expect greater investment in the life sciences, helping all to potentially live longer, healthier lives.  Increased medical research and new investment in to the life sciences company AstraZeneca and Cambridge Biomedical Campus and a new vaccine hub in Liverpool.

Child Benefit and Childcare

Continuing the theme of increasing the domestic workforce policy changes were announced for child benefit and childcare.

More people are expected to enter the workforce or extend their hours due to the changes in child benefit, with the threshold to be increased in the interim to £60,000 from £50,000 before the claw back is crystallised. The clawback of the benefit will now be tapered between £60,000 and £80,000 (the point at which it is 100% clawed back). Previously this was between £50,000 and £60,000 so a much-improved position.

There was also the guaranteed support for childcare providers with the intention to extend this for working families with children from 9 months old. However, there is concern that, much like adult social care, without proper funding the support will not cover the rising costs of care.  This debate continues…….

Rental Accommodation

The abolition of the beneficial tax treatment for Furnished Holiday Lettings, from April 2025, could in theory increase accommodation capacity for carers as properties losing this status are made available to longer term tenants. This is a real issue for care businesses operating in rural or coastal locations when sourcing staffing solutions.

There was continued mention of ‘levelling up’ with a boost to new affordable housing and investment, which in turn could result in increased generational family units. An example of this was 8000 new homes for the regeneration of Canary Wharf.

Is growth just around the corner?

The word recession was not mentioned but growth and investment were a constant thread throughout the Chancellors Spring Budget. With inflation falling and projected to hit the 2% target in the coming months and interest rates expected to head downwards, this was hailed as a good sign for business investment.  This should give confidence to the health and social care sector, allowing providers of care homes, supported living and domiciliary care to be more positive when looking at their strategy for investment going forwards.

The Chancellor talked about economic growth and productivity, with the expectation of higher wages and lower taxes driving investment.  The mantra of ‘no sound growth without sound finances’ is okay as long as the sector remains viable and sustainable. Funding solutions need to support the sector and not hold it back.

Green Energy

The journey to a greener planet continues with clean energy growth via the great British Green Growth Accelerator to represent a quarter of electricity by 2050, building supply chains for example in offshore wind and carbon capture.

As a sector Health and Social Care needs to improve the pace in adopting a green approach to a sustainable future. The regulator in England, the Care Quality Commission, are getting ready to rate care provisions on their sustainability in the future, and funders are now including this in lending propositions.

With demographics continuing to demonstrate a rapidly ageing population, care home providers whether new to the sector or scaling up are increasingly discussing how to make their care homes fit for purpose and sustainable for the long term. Retrofits, extensions and new care home developments are now actively taking ESG on board.

VAT

Care providers know too well the cost of VAT to their business, adding 20% to their costs which cannot always be recovered. There was hope that the exempt welfare services sector could have received a special VAT dispensation, allowing recovery of this additional tax!

The increase in the VAT threshold from £85,000 to £90,000 does nothing for a sector being hit from all sides although there is hope that some local suppliers will benefit dropping out of VAT and passing this on to providers by way of reduced costs.

VAT recovery in the sector requires expert advice and support.

So is this a Budget for the Health Care Sector?

The Chancellor heralds the Spring Budget as “a budget of ‘people power’ to ‘make work pay, drive growth up & taxes down’ with ‘permanent lower taxes for higher growth and more opportunity for public services.’ 

An ambitious statement which now needs to be focused on delivering for our aging population.