Rising Fees, Falling Headroom: Why the Cost of Care Is Still Outrunning Provider Income

At first sight, the latest published fee figures appear positive.

Average local-authority fees paid to external providers increased across every care category included in the government’s 2025/26 reporting.

The provisional England average for externally commissioned home care rose to £25.05 per contact hour, an increase of 5.3%.

The average weekly rate for residential care without nursing for people aged 65 and over rose to £956, also an increase of 5.3%.

For nursing care for the same age group, excluding NHS-funded nursing care, the average increased by 4.9% to £1,089 per week.

Supported-living fees rose by an average of 5.6% to £22.95 per blended hour.

These increases matter.

Providers have spent years warning that publicly commissioned rates were failing to keep pace with the reality of delivering care.

Higher fees can support:

• better pay;
• stronger staffing;
• training;
• property investment;
• digital systems;
• safer equipment;
• and greater organisational resilience.

But a percentage increase in income should not be confused with an equivalent increase in financial capacity.

A provider receiving 5% more revenue is not necessarily 5% better off.

It may have more income entering the organisation while having less usable headroom after the costs required to deliver care have been paid.

That is the tension at the centre of the first part of The True Cost of Care.

Fees are rising. The financial room available to providers may still be falling.

Understanding why requires the sector to look beyond the headline uplift and examine the complete cost of safe, sustainable care.

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The Published Fee Is an Average—not a Statement of Sustainability

The national fee figures provide an important picture of how payments moved across England.

They do not establish that any individual provider is receiving a sustainable rate.

They are weighted averages covering different:

• local authorities;
• regions;
• service types;
• contract structures;
• workforce markets;
• property costs;
• levels of dependency;
• and operating models.

The government’s published residential and nursing figures also relate to broad care categories. They cannot fully capture the variation between:

• a lower-dependency residential placement;
• advanced dementia care;
• complex behavioural support;
• nursing care requiring substantial clinical oversight;
• or a placement involving enhanced one-to-one staffing.

A home-care rate of £25.05 per contact hour is equally different from £25.05 available to pay the employee.

The provider must deliver the complete service surrounding that hour.

That may include:

• recruitment;
• travel planning;
• supervision;
• training;
• holiday cover;
• sickness;
• payroll;
• management;
• quality assurance;
• technology;
• insurance;
• and periods of paid or operational time that are not attached directly to a billable contact hour.

The national average describes what authorities reported paying.

It does not determine what a particular service costs to operate.

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The Largest Cost Has Moved Again

Adult social care is labour-intensive because care is relational.

People need:

• attention;
• judgement;
• reassurance;
• observation;
• skilled support;
• and continuity.

Technology can assist the workforce.

It cannot remove the need for enough capable people to be present.

This makes changes in employment cost particularly significant.

From 1 April 2026, the National Living Wage for workers aged 21 and over increased by 4.1%, from £12.21 to £12.71 per hour.

Skills for Care estimated that, as of December 2025:

• 48% of filled posts in the independent adult social care sector were paid below the incoming £12.71 rate;
• around 640,000 filled posts would therefore be directly affected;
• and approximately 90% of independent-sector providers were paying at least some workers below the new statutory minimum.

That does not make the wage increase undesirable.

Care work requires skill and responsibility, and employees need pay that supports a sustainable working life.

The provider challenge is that the increase applies across a very large proportion of the workforce, while the income intended to fund it varies according to:

• commissioner decisions;
• contract timing;
• self-funder pricing;
• occupancy;
• delivered hours;
• and whether the complete increase reaches the service.

A legally required wage increase is immediate and certain.

A corresponding improvement in provider income may be partial, delayed or distributed unevenly.

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The Hourly Rate Is Only the Starting Cost

A care worker paid £12.71 per hour costs the provider more than £12.71.

The organisation may also need to fund:

• employer National Insurance;
• pension contributions;
• paid annual leave;
• sickness;
• induction;
• mandatory and specialist training;
• supervision;
• recruitment;
• uniforms;
• occupational-health support;
• and the management infrastructure required to employ and support the worker properly.

The employer National Insurance rate increased from 13.8% to 15% from April 2025, while the annual earnings threshold at which employer contributions begin fell from £9,100 to £5,000. The maximum Employment Allowance also increased to £10,500, providing some protection for eligible employers, particularly smaller organisations.

The effect will differ by provider.

Employment Allowance may reduce the pressure for some organisations.

Larger employers with extensive payrolls will still face a substantial recurring employment cost.

The important point is that provider leaders should never compare a commissioner’s hourly fee directly with an employee’s hourly wage and treat the difference as margin.

Between those two figures sits the complete employment and service-delivery model.

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Pay Compression Creates a Second Cost Pressure

The new wage floor does not affect only employees who were previously earning less than £12.71.

Providers must consider what happens to workers already earning slightly more.

Skills for Care found that the median independent-sector care-worker rate was £12.60 in December 2025.

It also found that experienced care workers with five or more years in the sector were earning only around 10 pence per hour more on average than workers with less than one year’s experience.

This creates pay compression.

Imagine a workforce structure containing:

• new care workers;
• experienced care workers;
• medication leads;
• senior carers;
• team leaders;
• deputy managers;
• and registered managers.

When the lowest rate rises, the provider has a choice.

It can increase only those employees who have fallen below the new legal minimum.

Or it can attempt to protect meaningful differences for:

• experience;
• qualifications;
• additional responsibility;
• unsocial hours;
• specialist skills;
• and leadership.

The first option may reduce the immediate cost.

It can also create a workforce in which an employee carrying significantly greater responsibility receives little more than a new starter.

That can weaken:

• motivation;
• progression;
• retention;
• and willingness to take on additional duties.

The second option preserves a clearer pay structure but requires funding beyond the direct statutory uplift.

Skills for Care notes that workers already earning at or above £12.71 may also require increases where providers want to preserve differentials between roles and remain competitive with other employers.

The true workforce cost is therefore not simply:

How many employees must receive 50 pence more?

It is:

What does the complete pay structure now need to look like if we want people to join, stay, develop and accept responsibility?

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Workforce Cost Is Also About Stability

Two providers can pay the same base rate and experience very different total workforce costs.

One may have:

• stable teams;
• low absence;
• strong retention;
• effective rotas;
• experienced managers;
• and limited agency use.

Another may have:

• repeated vacancies;
• high early turnover;
• constant recruitment;
• agency dependency;
• overtime;
• weak continuity;
• and managers regularly covering shifts.

The second provider carries a much higher cost even where the hourly wage appears identical.

Care England and Sona’s February 2026 research described short staffing, rising care complexity and financial strain as part of the everyday operating environment for many providers.

It also found services relying on:

• overtime;
• agency workers;
• task redistribution;
• and managers stepping into frontline shifts

to maintain continuity, creating additional cost and long-term fragility.

This is why workforce investment should not be assessed only as an expense.

Effective:

• recruitment;
• onboarding;
• rostering;
• training;
• wellbeing support;
• and manager infrastructure

can reduce avoidable costs elsewhere.

A provider should understand whether spending more in one part of the workforce model will reduce:

• agency;
• turnover;
• sickness;
• recruitment repetition;
• missed care;
• or management overload.

Financial discipline is not always spending less.

It is spending in the place most likely to create a sustainable result.

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Increasing Complexity Can Change the Cost Without Changing the Contract

A placement may begin with one set of assumptions.

Over time, the person may require:

• additional staffing;
• more intensive night support;
• specialist equipment;
• greater clinical oversight;
• behavioural support;
• increased medicines management;
• additional appointments;
• or enhanced risk-management arrangements.

The service continues.

The cost changes.

The rate may not.

Care England and Hempsons highlighted this growing tension in June 2026, noting that providers can find themselves supporting significantly increased need while the funding attached to the placement remains unchanged.

They identified enhanced staffing, one-to-one support, specialist equipment, workforce competency and clinical oversight among the areas capable of increasing the cost of delivery.

Providers often absorb the pressure initially because the immediate alternative feels unacceptable.

They do not want to:

• disrupt the person;
• damage commissioner relationships;
• appear unable to cope;
• or create instability for the workforce and family.

But temporary absorption can become permanent.

A few additional hours become the normal staffing pattern.

A manager provides extra cover.

The organisation funds equipment before agreement is reached.

Agency use rises while reassessment is delayed.

The service may remain safe because the provider is carrying the difference.

That does not mean the placement remains financially sustainable.

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Care Complexity Must Be Evidenced Early

Waiting until a service has lost money for several months makes the problem harder to resolve.

Providers need evidence capable of showing:

• what the original package assumed;
• how needs have changed;
• which additional support is now required;
• when the change occurred;
• which risks have increased;
• what workforce capacity has been added;
• and what the extra provision costs.

This information may come from:

• care plans;
• dependency assessments;
• incident patterns;
• staffing records;
• clinical recommendations;
• one-to-one logs;
• night records;
• risk assessments;
• and professional feedback.

The aim is not to turn the person into a financial calculation.

It is to make sure the resources surrounding their care remain adequate.

A care package that no longer reflects need can place pressure on:

• the individual;
• the staff team;
• other people using the service;
• and the organisation expected to deliver it.

Early, evidence-led review protects care better than waiting until the service reaches crisis.

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Fixed Costs Do Not Wait for Occupancy or Hours

Some care costs move according to activity.

Others continue regardless.

A care home may still need to fund:

• management;
• heating;
• lighting;
• insurance;
• registration;
• maintenance;
• core staffing;
• software;
• security;
• and debt commitments

when a room is empty.

A home-care branch may continue paying for:

• management;
• office infrastructure;
• recruitment;
• technology;
• quality assurance;
• and on-call arrangements

when commissioned hours fall below plan.

This means a provider’s cost per bed or delivered hour can rise even if its underlying bills remain unchanged.

Where occupancy or utilisation weakens, the same fixed-cost base is spread across less income.

A fee increase may therefore be overtaken by:

• empty beds;
• cancelled packages;
• reduced commissioned hours;
• delayed starts;
• or rooms unavailable because of maintenance or staffing.

The headline fee tells leaders what the service receives when income is generated.

It does not show how consistently the available capacity converts into revenue.

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Headroom Is Not the Same as Excess Profit

Adult social care debates sometimes treat any provider surplus as money unnecessarily removed from care.

That misunderstands the role of financial headroom.

A sustainable service needs enough capacity to:

• replace equipment;
• refurbish rooms;
• upgrade heating and lighting;
• maintain buildings;
• invest in technology;
• fund staff development;
• withstand delayed payments;
• respond to emergencies;
• meet debt obligations;
• and manage periods of lower occupancy or demand.

It also needs confidence that it can continue paying employees and suppliers when unexpected pressure arises.

This is not excess.

It is resilience.

A service operating at break-even may appear efficient during a stable month.

It has no protection when:

• the boiler fails;
• an insurance claim arises;
• a manager leaves;
• a major client pays late;
• an agency premium is required;
• or the property needs urgent work.

The absence of headroom eventually becomes operational risk.

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Financial Sustainability Is a Care-Continuity Issue

CQC’s Market Oversight scheme exists because the financial failure of large or specialist providers can interrupt people’s care and create serious continuity challenges for local authorities.

The scheme assesses the financial sustainability of providers considered difficult to replace and is intended to provide warning where business failure could disrupt services.

Most providers will never enter that scheme.

The principle applies across the wider market.

When a service becomes financially unsustainable, the effect is not limited to an organisation’s accounts.

It may result in:

• reduced investment;
• staffing pressure;
• contract handback;
• closure;
• ownership change;
• or people having to move.

Financial sustainability is therefore not separate from quality.

It is one of the conditions that allows quality to continue.

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The Funding Direction Recognises Cost and Demand—but Local Reality Still Matters

The government’s 2026/27 adult social care priorities recognise that councils must manage changes in cost and demand and state that local-authority expenditure on adult social care will likely need to rise at least in real terms across the multi-year settlement.

At the same time, the funding structure is becoming less ring-fenced, with existing grants being consolidated and councils given greater discretion over local allocation decisions.

That flexibility may help councils respond to different local pressures.

It also means provider sustainability will depend heavily on:

• local budget choices;
• commissioner priorities;
• market conditions;
• and the quality of evidence presented during fee discussions.

National funding announcements do not translate automatically into a defined uplift for every provider or service.

The route from government settlement to provider invoice contains several decisions.

Providers therefore need to understand both:

• the national funding environment;
• and their local commissioning position.

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Why the Fee Uplift Can Disappear Before It Reaches Care

Consider a simplified provider receiving a 5% uplift.

Before the increase can create additional headroom, it may need to absorb:

• the National Living Wage increase;
• employer National Insurance;
• pay adjustments above the wage floor;
• pension and holiday consequences;
• higher agency rates;
• increased care complexity;
• insurance renewal;
• utilities;
• software costs;
• maintenance;
• and higher professional fees.

Not every provider will face every pressure at the same level.

The principle remains:

The relevant comparison is not this year’s fee against last year’s fee.

It is this year’s income against this year’s complete cost of delivery.

A provider can receive its largest fee increase in years and still find that the surplus available for investment has narrowed.

That is falling headroom.

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Providers Need Service-Level Visibility

Organisation-wide accounts can conceal where the real pressure sits.

A group may appear financially stable overall while one:

• care home;
• home-care branch;
• supported-living contract;
• or specialist package

is operating below a sustainable level.

Another service may be carrying the shortfall.

That cross-subsidy can be intentional.

It becomes dangerous when leaders cannot see it.

Providers should understand, at a minimum:

• income by service;
• funding source;
• current fee;
• workforce cost;
• agency and overtime;
• occupancy or delivered hours;
• property and service overhead;
• debt and payment delay;
• and contribution after direct cost.

The purpose is not to reduce every service to a profit target.

It is to recognise where:

• the funding does not reflect need;
• action is required;
• a contract should be reviewed;
• costs are unusually high;
• or a service depends on support from elsewhere in the organisation.

Without this visibility, the provider may discover the problem only when cash becomes tight.

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The Monthly Provider Headroom Dashboard

A useful financial-sustainability dashboard should bring care, workforce and commercial information together.

It might include:

Income

• invoiced income;
• recognised income;
• fee changes;
• funding source;
• self-funder rates;
• and unpaid or disputed amounts.

Workforce

• payroll;
• employer costs;
• agency;
• overtime;
• sickness;
• vacancies;
• turnover;
• and management cover.

Delivery

• occupancy;
• delivered hours;
• cancelled hours;
• one-to-one provision;
• dependency;
• and additional support beyond the funded package.

Operating cost

• food;
• utilities;
• insurance;
• maintenance;
• clinical supplies;
• technology;
• telecoms;
• waste;
• and professional support.

Cash and resilience

• debtor days;
• cash balance;
• borrowing;
• upcoming renewals;
• capital requirements;
• and forecast headroom.

The dashboard should not sit only with finance.

Registered managers and operational leaders often understand the reasons behind the numbers.

Finance may identify increasing agency expenditure.

The manager may know that the cause is:

• a delayed recruitment campaign;
• one individual’s changing need;
• a long-term absence;
• or an unresolved rota issue.

The strongest response comes from combining both perspectives.

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What Providers Can Control, Influence and Escalate

The financial challenge should not be reduced to a message that providers simply need to manage better.

Structural underfunding cannot be solved permanently through operational efficiency.

A useful response distinguishes between three categories.

Costs providers can control more directly

These may include:

• unnecessary duplication;
• weak contract management;
• avoidable software licences;
• poor purchasing visibility;
• billing errors;
• and inefficient administrative processes.

Costs providers can influence

These may include:

• agency reliance;
• workforce turnover;
• energy consumption;
• maintenance planning;
• rota efficiency;
• occupancy;
• delivered-hours conversion;
• and debt collection.

Costs requiring commissioner or system action

These may include:

• insufficient fee rates;
• increased dependency;
• one-to-one support;
• delayed reassessment;
• statutory employment-cost increases;
• rural travel;
• and the transfer of complex health responsibilities into social care.

This distinction protects the series from implying that every financial pressure is a management failure.

It also allows providers to direct energy towards the areas where action can create a realistic result.

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Cost Control Must Not Become Care Reduction

When headroom narrows, providers may feel pressure to act quickly.

Not every saving is a sustainable saving.

Reducing:

• management time;
• training;
• maintenance;
• staff overlap;
• activities;
• quality assurance;
• or preventive investment

may improve the immediate accounts.

It may create a larger future cost through:

• incidents;
• agency use;
• breakdowns;
• regulatory concerns;
• employee turnover;
• or avoidable deterioration.

Every significant financial decision should therefore include a quality test.

Ask:

1. What care outcome could be affected?
2. What workforce pressure could increase?
3. Which regulatory responsibility relies on this resource?
4. Is the saving recurring or merely deferred?
5. What is the likely cost if the risk later materialises?

The cheapest immediate option is not always the lowest-cost decision.

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What Should Providers Expect from Financial and Workforce Partners?

The pressure on provider headroom creates a legitimate role for organisations supplying:

• accountancy;
• payroll;
• workforce analytics;
• rostering;
• recruitment;
• HR support;
• employee benefits;
• management reporting;
• cost modelling;
• and financial consultancy.

But providers should expect outcome-led support.

A credible partner should be able to explain:

• which cost or visibility problem it addresses;
• what information it requires;
• how the provider will use the resulting insight;
• which management burden it reduces;
• how quality will be protected;
• and what measurable improvement should follow.

That improvement might include:

• more accurate workforce forecasting;
• reduced agency reliance;
• earlier identification of unsustainable packages;
• improved payroll control;
• stronger commissioner evidence;
• clearer pay modelling;
• or more reliable service-level reporting.

The provider does not need another dashboard containing numbers nobody acts upon.

It needs insight that supports a decision.

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A Practical 30-Day Headroom Review

Providers can begin strengthening financial visibility without waiting for a complete cost-of-care exercise.

Week 1: Compare the uplift with the cost movement

For each service, record:

• last year’s fee;
• current fee;
• percentage increase;
• current wage floor;
• employer-cost movement;
• and any further pay adjustments.

Do not assume the national average is the rate your service received.

Week 2: Identify unfunded care

Review:

• one-to-one support;
• additional night staffing;
• changed dependency;
• specialist equipment;
• clinical oversight;
• and services provided beyond the original contract assumptions.

Agree which packages require review or escalation.

Week 3: Examine workforce leakage

Review:

• agency;
• overtime;
• sickness;
• vacancies;
• turnover;
• onboarding loss;
• and managers working frontline shifts.

Identify whether the answer is:

• recruitment;
• retention;
• rota redesign;
• wellbeing support;
• or a fee discussion.

Week 4: Establish the real headroom

Calculate the position after:

• direct workforce cost;
• service delivery;
• overhead;
• property;
• finance;
• and required reinvestment.

Select three actions with:

• a named owner;
• deadline;
• expected financial effect;
• and explicit quality safeguard.

The aim is not to complete the provider’s full financial transformation in one month.

It is to replace assumption with visibility.

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Ten Questions Care Leaders Should Be Asking

1. What fee increase did each service actually receive?
2. How does that compare with the total movement in employment cost?
3. What will pay compression do to experienced and senior roles?
4. Which care packages now require more support than they fund?
5. Where are agency, overtime and management cover increasing?
6. Which fixed costs are being spread across too little occupancy or activity?
7. How much headroom remains after necessary reinvestment?
8. Which services are being subsidised by other parts of the organisation?
9. Which pressures can we control, influence or must escalate?
10. What quality or continuity risk emerges if the current financial position continues?

The final question connects the numbers to the purpose of the organisation.

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What Does Sustainable Headroom Look Like?

Sustainable headroom does not mean maximising profit at the expense of care.

It means the service has enough financial capacity to:

• pay people properly;
• maintain safe staffing;
• invest in competence;
• keep buildings suitable;
• replace equipment;
• adopt useful technology;
• manage emergencies;
• and remain available to the people depending on it.

It allows the provider to plan rather than react.

It supports honest conversations with commissioners.

It makes improvement possible.

And it gives the organisation time to respond when a placement, contract or service begins moving away from viability.

That is why headroom matters.

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Rising Fees Are Progress—but They Are Not the Complete Answer

The increase in reported local-authority fee rates should be recognised.

It demonstrates that the cost of care has moved and that authorities have attempted to respond within an intensely pressured funding environment.

But the provider experience cannot be understood from the uplift percentage alone.

During the same period:

• the National Living Wage increased;
• a large proportion of the workforce required direct pay adjustment;
• employer costs remained higher;
• pay structures became more compressed;
• care complexity continued to rise;
• and organisations still needed to fund the infrastructure surrounding every bed, hour and package.

The central issue is not that care workers are being paid too much.

They are not.

It is that the system must recognise the complete cost of employing a skilled workforce and delivering safe care around them.

Providers also have responsibilities.

They must understand their own figures.

They must identify unsustainable arrangements early.

They must challenge evidence gaps in funding.

They must examine avoidable cost without weakening quality.

And they must choose workforce, financial and operational partners according to the outcome they need to achieve.

The fee is the income line.

It is not the sustainability judgement.

That judgement depends on what remains after the real cost of care has been met.

For too many providers, the headline fee is rising while that remaining room is becoming smaller.

That is why the sector must move beyond asking:

What percentage uplift did we receive?

and begin asking:

Is this service now financially strong enough to continue delivering the care people need?

Because when headroom disappears, quality does not fail immediately.

Providers compensate.

Managers stretch.

Staff give more.

Investment is delayed.

Risks are carried.

The service keeps going—until it cannot.

The true cost of care must therefore include not only what it takes to deliver today’s support.

It must include what it takes to protect tomorrow’s care.

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Frequently Asked Questions

Did adult social care fees increase in 2025/26?

Yes. The latest nationally published fee data showed average increases across all six reported categories. Home-care and older-person residential fees increased by 5.3%, older-person nursing by 4.9% and supported living by 5.6%. These were England-wide weighted averages and do not establish whether an individual provider’s rate was sustainable.

What was the National Living Wage from April 2026?

The National Living Wage for workers aged 21 and over increased to £12.71 per hour from 1 April 2026, a 4.1% rise.

How many social care roles were directly affected by the new wage floor?

Skills for Care estimated that around 640,000 independent-sector filled posts were paid below the incoming £12.71 rate as of December 2025. Around 90% of independent-sector providers employed at least some people below that level.

Why does a 5% fee increase not create 5% more profit?

The uplift must absorb changes in wages, employer costs, pensions, holiday, sickness, training, agency, care complexity, utilities, insurance, maintenance and other service expenditure. The relevant comparison is the movement in total cost against the actual income increase.

What is pay compression?

Pay compression occurs when increases at the lowest end of the pay structure reduce the difference between new, experienced, specialist and senior roles. Skills for Care found only a 10-pence average hourly difference between experienced and new care workers in December 2025.

What should a provider do when someone’s needs increase?

The provider should document the change, identify additional staffing or specialist requirements, calculate the effect on cost and seek an early package or fee review. Continuing to absorb unfunded complexity can undermine service sustainability.

Is financial sustainability relevant to CQC?

Financial failure can affect continuity of care. CQC operates a statutory Market Oversight scheme to monitor the financial sustainability of large or specialist providers considered difficult to replace.

What should providers measure monthly?

Useful measures include fee income, workforce cost, agency, overtime, occupancy or delivered hours, care complexity, operating expenditure, outstanding debt, cash flow and the amount available for necessary reinvestment.

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Editorial sources

This feature has been developed using evidence available by 15 June 2026, preserving the integrity of its backdated publication position.

• Department of Health and Social Care, Market Sustainability and Improvement Fund: Provider Fee Reporting 2025 to 2026.
• Skills for Care, Pay in the Adult Social Care Sector in England as at December 2025.
• Low Pay Commission, The National Minimum Wage in 2026.
• HM Revenue and Customs, Changes to Employer National Insurance Contributions from April 2025.
• Department of Health and Social Care, Adult Social Care Priorities for Local Authorities: 2026 to 2027.
• Care England and Sona, Adult Social Care Insights: Workforce Stability, Digital Impact and Financial Confidence.
• Care England and Hempsons, The Growing Gap Between Care Delivery and Commissioner Funding.
• Care England and Hempsons, The Unresolved Financial Problem in Adult Social Care.
• Care Quality Commission, Market Oversight of Adult Social Care.