Council funding cuts force care homes to pay less than the minimum wage 120 providers to be investigated by HM Revenue & Customs over contract bids that are too cheap to pay legal minimum

Council funding cuts force care homes to pay less than the minimum wage

Care homes in Britain are bidding for contracts with councils at such low rates that they are trying to avoid paying workers the minimum wage, says the Low Pay Commission Photograph: Sipa Press / Rex Features

Cuts in council funding mean that rising numbers of care firms are having to break the law by employing workers at below the minimum wage, the head of the Low Pay Commission has warned.

David Norgrove told the Guardian that councils were “sometimes dramatically” slashing the rates that they paid care companies to wash, feed and dress the elderly and frail; and this was happening so fast that the firms concerned were using ruses to get round the £6.31-an-hour minimum pay rate.

The commission has been told that Her Majesty’s Revenue and Customs has identified 120 care providers – almost equivalent to one in every English local authority area – for investigation. “HMRC are working on this as a priority. People should not be bidding for contracts at rates which cannot pay the legislated national minimum wage,” said Norgrove, the chair of the commission.

To cut costs, he added, care companies were in “increasing numbers” hitting on a number of tactics, such as not paying for travel time between visits. He could not condone this behaviour, but added: “We are hearing from companies who say that they cannot pay for travel time on the rates that local authorities are paying them. This is a growing problem which is a consequence of rates being dropped, sometimes dramatically, by councils.”

Care workers interviewed by the Guardian confirm that companies are blaming cuts in local authority funding for deteriorating pay. Alex, 21, is a carer in the West Midlands who left college two years ago because the money “was real good a few years ago. I was earning £1,300 a month”.

However, after cuts in social care budgets, his employer has squeezed his wages to just £900 a month by using zero-hour contracts and tracking devices to ensure that the time, location and duration of visits are logged. In Alex’s case, this means he is paid by the minute.

“I am only paid for the time I spent with the client. So even though my timesheet says I am booked for a 30-minute slot, if I work 21 minutes then that’s all I get paid for. With the travel time I am making less than the minimum wage,” he said. “The company just says it’s the council who are to blame because they are cutting their spending.”

United Kingdom Homecare Association, which represents private firms, estimates that a homecare company needs to be paid a minimum of £14.95 an hour by a council to comply with wage law and meet all costs of training. It said that one in five councils were now paying £11 or less, the lowest being £8.98 an hour.

The association said that nine out of 10 councils had cut fees paid to its members in the past year, meaning firms “face a constant struggle to comply with minimum wage law. The alternative will be for them to cease trading with councils, or go out of business.”

Norgrove said ministers had promised a £4bn cash injection to bail out social care in 2016, using NHS money. “That’s a long time to wait. Too long really.”

Councils say they are facing cuts at a time when the population is ageing at an unprecedented rate, a demographic problem requiring an extra £400m each year just to maintain services at current levels. Instead of extra cash, they are seeing a 43% drop in funding from central government.

Katie Hall, chair of the Local Government Association’s community wellbeing board, said: “Until something is done to put council finance on a sustainable footing social care will remain significantly underfunded and services will suffer as a result. The bottom line is that the standard of care will not be substantially lifted until more money is put into the system.”

Even before Norgrove’s intervention, the scale of such law-breaking on pay is breathtaking in an industry that supports millions of vulnerable, elderly people. One a study in 2011 by King’s College London’s social care workforce research unit estimates that there are between 150,000 and 220,000 care workers are being paid below the minimum wage.

Unions also warn that the sector, unusually, has been hit by a rash of strikes against the paring back of pay. In Rochdale, the council’s decision to let a contract on a reduced rate saw a new care company, Future Directions, spring up which employed staff on 30% less than they had previously been earning. More than 2,900 days have been lost to industrial action after employees went on strike. The previous firm, MacIntyre Care, walked away from the deal, warning that it was unable to carry on without “service quality cuts and significant cost reductions” and that it was already making a loss because of the fixed staff wages that were protected by law.

Other councils have decided to just charge vulnerable adults to full price of care – after years of slashing budgets. Cornwall council, which put through wage cuts of 50% for care workers over the past two years, is now proposing to lift the cap of £250 in fees a week for the elderly and the ill as it had to find another £40m in savings by 2016 and have a total of £100m by 2018.

Think tanks are warning of a Britain “drifting towards a permanent two-tier workforce in which many people are at risk of becoming stuck in low-paid, often part-time, service roles – with little chance of progressing to better-paid work”. James Plunkett, director of policy at the Resolution Foundation, said: “The wages of thousands of care workers are being squeezed tight by an underfunded system of social care which piles pressure on them because of a drive to reduce costs. We need proper enforcement of the minimum wage for this overlooked workforce as well as improved funding for social care.”

Ministers have also attempted to draw the sting from the charge that the poorest workers in society are bearing the biggest burden of austerity policies. Norman Lamb, the care minister, told the Guardian that he had asked the Care Quality Commission to see whether staff “who often have to work over their hours for below the minimum wage” could ensure the elderly and disabled got good quality care. Lamb accepted that “there are still too many examples of employers paying people less than the minimum wage by not taking account of travel time”, which was “intolerable”.

However, ministers have stopped short of regulating council contracts to ensure there is enough money to pay more than the minimum wage. Lamb said ministers “expect local authorities to commission services effectively, to reward excellent care and ensure staff are paid fairly”.

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