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National living wage could cost councils £1bn

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Introducing a ‘living wage’, as announced in last week’s Budget, could cost councils more than £1bn a year by the end of the decade with the bulk of the pressure coming from the care sector, the Local Government Association has calculated.

Chancellor George Osborne announced a new national living wage of £7.20 an hour would be introduced from next April, rising to £9 an hour by the end of the decade.

The LGA calculated it would cost £340m a year for local authorities to introduce this in 2016. Just £6.8m of this would come from pay rises for the 5% of local government staff currently paid less than the national living wage.

The LGA estimates the remainder would be needed to cover increased contract costs to home care and residential care providers in order for them to pay staff the national living wage.

The LGA said based on current staffing levels, the annual cost for employees directly employed by councils would rise to £111m in 2020. The cost pressures in the care sector are estimated to rise by about £1,709m a year, reaching £1bn a year by 2020, the LGA said.

Gary Porter (Con), LGA chair and leader of South Holland DC, said the sector supported the proposed national living wage with almost half of local authorities already paying an equivalent. However, he said it must be funded.

“Local authorities have made £20bn in savings since 2010 and are likely face further funding reductions and spending pressures over the next few years,” he said.

“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.”

A spokesman for the Department of Communities & Local Government said: “Street cleaners, school dinner staff and care workers have as much of a right to a fair wage as anybody in this country and local government employers will recognise this and the contribution made by these hardworking people in their areas.”

He added: “In the run up to the spending review and next local government settlement ministers will continue to listen to the views of councils, Local Government Association and others about the best way of distributing funding to achieve fairness, efficiency and local growth.”

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