Let’s talk money. Because that’s what’s keeping a lot of care owners up at night right now and there’s no point dancing around it.
The NI hike landed in April. Minimum wage went up again. Fee uplifts from local authorities averaged 5.3% on home care and 4.9% on residential, which sounds reasonable until you do the maths and realise your wage bill increased by more than that.
The Nuffield Trust’s number is £2.8 billion in additional costs across independent social care providers in 2025/26. That figure lands differently when you own one of the nearly 18,000 organisations it refers to.
And in the middle of all of this, 40% of providers reported increasing their use of agency staff in direct response to workforce shortages. Which means a lot of care businesses are paying a premium to maintain capacity while their margins get thinner.
This edition is for you, the owner, the director, the person whose name is on the registration and whose bank account feels every staffing crisis personally.
The margin squeeze is real, and intensifying
Some care homes are now reporting profit margins below 3%. Local authority fee uplifts, while welcome, have not kept pace with the combined increase in employer NI contributions, minimum wage, and operational costs. The Homecare Association has calculated there is a £1.08 billion deficit between what commissioners pay and what providers actually need to cover costs and turn a modest 5% profit.
For an owner running a 20 to 30 bed residential service or a domiciliary provider with 40 staff, this is not abstract. It shows up as cash flow strain, delayed investment decisions, and a constant calculation about which cost you absorb and which you try to pass on.
The Joseph Rowntree Foundation’s February 2026 report on the hidden cost of low pay in social care made a striking point: a 10% pay increase reduces turnover by approximately 3 percentage points. Meaning the sector is caught in a trap, it can’t afford to pay more, but the cost of not paying more shows up in constant attrition and the agency spend that follows it.
40% of providers increased agency use in response to staff shortages. Agency support workers are billing at up to £22 per hour. Your directly employed staff cost less than half that. The maths is doing the maths.
Agency spend: the cost nobody talks about loudly enough
Agency support workers across standard care settings are charging £12.50 to £18 per hour in 2025/26. For complex care roles, that rises to £22. Compare that to directly employed care workers earning £11.50 to £14.50 per hour for the same work, and you’re looking at a cost premium of between 20% and 50% per shift, sometimes more for last-minute cover.
For a provider filling 10 agency shifts a week at an average premium of £6 per hour over an 8-hour shift, that’s £480 per week, £24,960 per year, over and above what you’d be paying a directly employed member of staff.
That’s not a staffing solution. That’s a structural subsidy to agencies funded by your already-thin margins. And unlike a recruitment system or a retention programme, it produces no lasting asset. The moment you stop calling, the relationship ends.
£24,960+ annual premium for 10 agency shifts per week vs directly employed staff at comparable rates.
The government’s spending review: what to expect
The government’s spending review lands in June 2026, setting public expenditure from 2026 to 2029. The Office for Budget Responsibility has already signalled this will be a tight settlement, with local government potentially facing real-terms cuts. Care England and sector bodies have been vocal that without meaningful additional funding, the market faces not just individual provider failures but systemic collapse in some areas.
The £4.6 billion additional funding promised for adult social care by 2028/29 sounds substantial until you remember it’s three years away and the sector is absorbing £2.8 billion in extra costs right now.
As an owner, waiting for government to fix this is not a viable strategy. The providers who will come through this period in decent shape are the ones reducing their cost-to-hire, cutting agency dependency through better retention, and building sustainable internal pipelines rather than relying on external supply.
Agency spend is a symptom, not the diagnosis
Most care owners frame agency spend as a recruitment problem. If we could just hire faster, we wouldn’t need to call the agency.
That’s partly true. But it’s not the whole story.
Agency spend spikes when people leave. So the real question is: why are people leaving, how quickly, and what’s happening in the first 90 days that determines whether they stay?
The Joseph Rowntree Foundation’s 2026 research found that 7 in 10 care workers cite pay as a key factor in their decision to leave. Pay is genuinely important, but it’s rarely the only thing. The same research points to job insecurity, poor onboarding, limited progression, and feeling unsupported as equally significant drivers of attrition.
For an SME owner who can’t compete on pay alone with NHS rates or larger group providers, the competitive advantage is everything else. A structured onboarding programme that makes new starters feel like they made the right choice. A 90-day check-in process that catches disengagement before it becomes a resignation. A clear progression pathway that tells people their career has a future here.
None of that costs what an agency invoice costs. But it delivers something an agency never will: a stable, experienced team that knows your service users and delivers consistent care.
Reducing your turnover rate by 5 percentage points on a 40-person team means two fewer leavers per year. At £3,000 to £5,000 per leaver, that’s £6,000 to £10,000 back in the business, before you count the agency shifts you didn’t need to fill.
One thing you can do this week
Calculate your true agency cost for the last quarter.
Pull your agency invoices from Q1. Total the spend. Then calculate what the same hours would have cost at your average directly employed rate.
The difference is your agency premium for the quarter. Multiply by four for an annual figure.
Most care owners doing this for the first time are looking at a number well north of £20,000. Some are looking at six figures. Once you’ve got the number, the conversation about investing in a retention system that reduces it becomes a lot more straightforward.
“Without a meaningful strategy to improve pay and conditions to attract domestic workers, coupled with a pragmatic approach to immigration, we will be unable to meet the ever-growing demand for care.” — Care England Chief Executive, 2025