Departments to get compensation for social care levy, but contract costs could rise

Public bodies with directly employed staff will be compensated from a £2bn pot for the 1.25% NICS rise
Photo: PA

Departments will not have to foot the bill for the National Insurance contributions, the Treasury’s spending chief has said, but it is unclear whether outsourced services will become more expensive if contractors’ costs rise.

Cat Little, director general of public spending at the Treasury, said departments whose NICS employer contributions increase as a result of the health and social care levy approved by parliament this week will have those costs reimbursed from a £2bn pot for public services.

“Our assumption is that there will be compensation for all government departments who are directly employing individuals [for whom they] have to pay higher employer NICS as a result of last week’s announcement,” Little told MPs on the Public Accounts Committee this week.

She said she expected public services will have to pay around £2bn extra as a result of the levy – which will see NICS employers contributions rise from 12% to 13.5% from next April – but that she would write to the MPs to confirm the final figure.

This cost to taxpayers of covering this £2bn has been “factored into SR assumptions”, she said, insisting that it will not come out of the £12bn the government has said the levy will raise to clear NHS backlogs and support social care reform.

She later clarified that the gross impact of the levy is in fact £14bn – including the reported £12bn it will raise and the £2bn needed to cover costs to public services.

She confirmed that schools, the NHS and “any government body who has directly employed staff who, as a consequence, are paying higher employer NICS contributions, will have compensation made available as part of the Spending Review”.

It will be up to the relevant departments to determine how to administer the compensation, she said. For example, DfE will be in charge of ensuring schools are reimbursed.

However, Little was unable to confirm whether government bodies could see their spending on external services rise if contractors pass on extra costs they incur paying more NICS contributions.

PAC member and Conservative MP Geoffrey Clifton-Brown challenged the spending DG to answer a real-world example where costs to public services could rise, adking: “A waste collection company providing 100% of their service to the local authority – will they or will they not have all their NICs reimbursed?

Little said only that “all direct employees of the public sector will be compensated for”.

Pressed further on the impact on contracted services, Little said the question was a “very important subject” but one that has not yet been answered by the Treasury. “There’s more work that needs to be done” ahead of the Spending Review to determine how these costs will fall, she said.

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