As we step into the new financial year, care providers across the UK are once again facing a familiar yet evolving challenge: a structural funding gap that continues to test the resilience of the sector. Recent data from the ADASS Autumn Survey 2025 shows councils projecting a £623 million overspend for 2025/26 — the highest at this point in the year since the pandemic — and modelling £869 million in savings for 2026/27 just to meet statutory duties. When layered with sector-wide operating cost rises averaging 9% in 2025/26, the picture points to a persistent gap now routinely described in provider briefings as exceeding £1 billion in unfunded pressures.
Yet this is not a story of constraint alone. It is an opportunity for providers who approach 2026/27 fee negotiations with clarity, evidence, and a solutions-focused mindset. By understanding exactly where non-pay inflation, insurance, and energy costs are landing hardest — and by translating that insight into robust, commissioner-ready business cases — forward-thinking leaders are securing uplifts that protect quality, support their teams, and strengthen long-term sustainability.
The Real Cost Drivers Behind the Gap
While headline CPI sits around 3%, the care sector is experiencing a very different reality. Bradford Care Association’s latest 2026/27 briefing (widely referenced by provider networks) identifies a blended non-pay inflation rate of 6.5% — a weighted average that reflects actual increases in fuel, utilities, insurance, digital systems, food, and compliance costs. These are the areas where general inflation forecasts simply do not capture the sector-specific pressures providers face every day.
Add to this two statutory changes landing on 1 April 2026:
- The National Living Wage is rising to £12.71 (+4.1%).
- Employment Rights Bill reforms to Statutory Sick Pay — payable from day one with expanded eligibility — adding an estimated 0.8% to payroll costs for a typical 7% sickness rate.
Together, these create a minimum “stand-still” requirement of 5.38%–5.67% across most service lines (per BCA modelling), before any consideration of pay progression, recruitment, or quality improvements. Yet many local authority proposals remain anchored to lower general CPI assumptions, leaving providers to bridge the difference.
Insurance and energy — topics we explored in depth in our recent features — remain two of the sharpest non-pay pressures. Providers who completed early reviews and hedging in March are now seeing the benefit; those who haven’t are carrying higher exposure into negotiations. The good news? These are fully evidenced, controllable levers that commissioners increasingly recognise when presented with clear data.
What This Means for Your Organisation in 2026/27
For most providers, the gap translates into three practical realities:
- Margin compression unless uplifts fully reflect the blended cost base.
- Recruitment and retention risk if wage differentials cannot be maintained.
- Quality and compliance pressure as digital, safeguarding, and CQC expectations continue to rise without corresponding resources.
However, the flip side is equally real. Providers who treat fee negotiations as a strategic conversation — rather than a one-off annual ask — are reporting stronger relationships with commissioners and more predictable income. The ADASS data and provider association briefings make one thing clear: local authorities are under equal pressure to demonstrate value and sustainability. A well-prepared provider who can show how a fair uplift delivers better outcomes, lower long-term system costs, and market stability is in a strong position to be seen as a partner, not just a supplier.
Your Practical Playbook: Turning Insight into Better Outcomes
Here is the actionable framework that leading providers are using right now to secure positive results:
1. Build Your Evidence Pack Early (and Share It Proactively) Use a simple, transparent cost-of-care template that breaks down your 2025/26 actuals against the 6.5% non-pay benchmark. Include:
- Line-by-line energy and insurance cost movements (reference your own March 2026 data where possible).
- SSP impact modelling (the BCA £268.68 per FTE calculation is a useful ready reckoner).
- Workforce data showing how NLW and differentials support retention and reduce agency spend. Many providers are now attaching anonymised benchmarking from sector networks rather than raw accounts — a respectful and effective way to demonstrate sector norms without breaching commercial sensitivity.
2. Frame the Conversation Around Shared Outcomes Lead with the positive: “A fair uplift allows us to maintain the quality you value, invest in our teams, and reduce pressure on your statutory duties.” Highlight how your service contributes to hospital discharge, rehabilitation, or prevention — outcomes that commissioners are measured on. Providers who link their ask directly to local priorities (e.g., neighbourhood team integration or TEC adoption) consistently achieve better engagement.
3. Request a Full Cost-of-Care Exercise for 2026/27. Several associations (including Care England and regional bodies) are calling for this as standard. Position it as a joint commitment to long-term fairness rather than a one-year fix. Even if not delivered immediately, the request itself signals strategic thinking and often unlocks improved interim uplifts.
4. Leverage the Tools You Already Have
- Energy hedging or consortium membership (as launched in our 24 March feature) can be presented as evidence of proactive cost management — strengthening your case for recognition.
- Insurance reviews completed in the last 30 days provide fresh data that commissioners respect.
- Training funding utilisation (our 24 March piece) shows how you are already turning available resources into workforce stability.
5. Time Your Engagement Strategically. With many councils finalising 2026/27 rates in the coming weeks, early, solution-oriented dialogue is key. Offer to co-host a short briefing for commissioners on your cost base — it builds trust and positions you as a market leader.
Looking Ahead: Resilience Is the New Competitive Advantage
The funding gap is unlikely to disappear overnight, but the providers who thrive in 2026/27 and beyond will be those who turn cost pressures into evidence of partnership and professionalism. By focusing on data-driven, outcome-focused negotiations, you not only protect your margins — you strengthen the entire local care ecosystem.
Care Circle Network will continue to bring you the latest benchmarking, templates, and expert commentary to support these conversations. If you would like a ready-to-adapt cost-of-care evidence pack or would value an introduction to regional provider networks already running successful negotiation clinics, simply reply to this feature or reach out via our contact form.
The sector’s challenges are real — but so is the opportunity for providers who lead with insight, evidence, and a clear focus on positive outcomes. The conversations you start in the next few weeks will shape not just your 2026/27 results, but the sustainability of quality care for years to come.
We’re here to help you make them count.
