LGA: Osborne’s living wage could cost councils £1bn

13 Jul 15

Introduction of a National Living Wage could cost councils more than £1bn a year by 2020/21 through additional payments to staff and to contractors, an analysis by the Local Government Association has concluded.

The group called for central government to meet the extra costs placed on town halls by the new wage level announced by George Osborne in last week’s Budget.

When it is first introduced at £7.20 from next April, the National Living Wage will cost local authorities £340m, according to the analysis. This is made up of a £6.8m cost for councils having to increase wages for the estimated 5% of town hall employees who do not receive this level – mostly part-time council employees – and £330m to meet the costs from home care and residential care providers who provide council care.

The annual cost rises to more than £1bn a year by 2020/21 once the wage level hits the £9 target set by Osborne.

LGA chair Gary Porter said councils supported the proposal for a National Living Wage to ensure staff receive “a fair day’s pay for a fair day’s work”. However, the costs of the change would keep growing for councils to the end of the decade, he added.

“Local authorities have made £20bn 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.”

The £1bn total is based on the additional cost for employees for the £9 living wage level rising to £111m in 2020, while the additional payments that need to be made to contracted staff will rise by around £170m a year. This is based on 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.

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