Members only
The Homecare Association strongly supports Care England’s analysis of the impact of frozen Income Tax and National Insurance thresholds on care workers’ take-home pay.
While the National Living Wage continues to rise, those increases are no longer fully reaching workers’ pockets.
Frozen tax thresholds mean a growing share of each pay rise is taken back through higher deductions. In effect, tax policy is quietly cancelling out part of the progress made on pay.
Frozen Income Tax and National Insurance thresholds are operating as a silent pay cut for care workers. The impact is cumulative and grows each year. Fiscal drag removes the equivalent of around 0.7% of pay in 2026/27, 1.5% in 2027/28, 2.3% in 2028/29 and 3.1% in 2029/30, before any application of a Fair Pay Agreement uplift.
Put simply, minimum wage increases only partially compensate for the extra tax being taken. Headline pay rises may look significant, but once higher tax and National Insurance deductions are applied, take-home pay rises much more slowly and, in real terms, may barely improve at all.
Even at the very lowest end of the pay scale, the impact is clear and measurable. Based on government-confirmed tax rates and inflation assumptions:
- In 2026/27, frozen thresholds cost a care worker around £134 in take-home pay.
- In 2027/28, the loss rises to around £227.
- In 2028/29, the annual loss reaches around £302.
That adds up to a cumulative loss of approximately £663 in take-home pay by 2028/29 for a care worker paid at the National Living Wage - purely because the government has frozen Income Tax and National Insurance thresholds, before any change in hours, role or responsibilities.
Crucially, fiscal drag bites now, while the Fair Pay Agreement does not begin until 2028/29. As a result, care workers will enter pay reform already worse off, having absorbed years of lost income that they cannot recover. Without action, there is a real risk that the Fair Pay Agreement delivers headline pay increases without delivering meaningful improvements in take-home pay.
As Care England’s analysis makes clear, unless tax thresholds are addressed and funding is sufficient, pay reform risks being undermined before it even begins.
Dr Jane Townson OBE, Chief Executive of the Homecare Association, said:
“Care workers are being told their pay is rising, but many are not feeling better off. Minimum wage increases are being steadily undermined by frozen tax thresholds, which quietly take a growing slice of each pay rise. This amounts to a silent pay cut for a workforce already under intense financial pressure.”
“In effect, care workers are being asked to fund their own ‘fair pay’ through higher Income Tax and National Insurance caused by frozen thresholds. If the Fair Pay Agreement is to succeed, it must improve the amount care workers actually take home, not just a headline pay rate. That requires alignment between pay policy, tax policy and funding.”
The Homecare Association is calling on Government to act now through a coherent, integrated package of reform to ensure pay reform delivers real improvements in care workers’ take-home pay and a sustainable homecare system. This is vital now that international recruitment in social care has effectively ceased. This must include:
- Reforming Income Tax and National Insurance thresholds for low-paid workers, so pay increases translate into genuine improvements in take-home pay rather than being eroded by fiscal drag.
- Fully funding pay reform in adult social care, recognising that frozen tax thresholds increase the level of gross pay - and therefore funding - required to deliver real pay parity in practice.
- Addressing the homecare funding deficit through increased central government investment. Our analysis shows we need £3.25 billion to achieve pay parity with NHS band 3 roles with 2+ years’ experience. This figure does not yet account for the additional erosion of pay caused by frozen tax thresholds, which further increases the funding required to deliver genuine pay parity in practice.
- Introducing a National Contract for Care Services, establishing a transparent, evidence-based minimum price for homecare that applies consistently across councils, the NHS and private purchasers.
- Reforming commissioning and contracting, moving away from fragmented, time-and-task purchasing towards models that support planned capacity, continuity of care and workforce stability.
Adult social care reform will succeed only if pay policy, tax policy and commissioning design are aligned. The way care is funded and purchased determines both moral and practical outcomes for workers and people drawing on care. We get the system we design.
ENDS
For media inquiries, contact:
Email: [email protected]
Mobile: 07917 853 568
