Making fair pay work for social care

The government’s commitment to a Fair Pay Agreement (FPA) in adult social care is welcome recognition that the sector’s market-led approach to setting wages has been ineffective in reducing churn, improving quality and boosting productivity. Moving towards sector-wide ‘collective bargaining’ – ie negotiations between workers and employers on pay, terms and conditions – offers a genuine opportunity to reset the employment offer for a long-undervalued workforce. 

Previously, we took a closer look at the FPA policy and inadequate government funding for the first FPA – a serious concern for the care sector. Funding may fuel the system but incentives, such as pay scales, enforcement and contracts, steer the course. 

The government has been consulting on the design of its social care pay policy in England. If the FPA is to deliver on its promises it must be designed to encourage and discourage certain behaviours. Without careful calibration, even a well-funded policy can have unintended consequences.

Alongside providing adequate funding, to ensure the FPA works in practice, policymakers must address three critical incentive risks.

1. The incentive to stay and progress 

Social care already suffers from an overly flat pay structure. Data from Skills for Care from December 2024 show that the ‘experience pay gap’ between new care workers and those with over 5 years’ experience is just 4p per hour, down from between 26p and 37p per hour in 2017. This reduces incentives to take on more senior roles with more responsibility and may lead skilled people to change jobs/sectors for higher pay.

The FPA policy’s core promise is to reduce churn and stabilise teams. But if it focuses narrowly on raising the wage floor, without considering pay differences between roles and based on experience, it risks exacerbating ‘wage compression’.

If the FPA raises the entry-level rate without mandating wider differentials, the financial incentive to build a career in the sector would be reduced. The unintended signal to the workforce is that there is a very limited premium on experience in the sector and specialist skills are not valued. To solve what is a recruitment and a retention crisis, the negotiating body’s remit must extend beyond a minimum rate to include a banded pay structure that rewards progression.

2. The incentive to ‘game’ the system

The second challenge is scope. In a fragmented sector with thousands of independent providers, ambiguity around who the rules apply to can create perverse incentives. The government’s consultation acknowledges the difficulty of defining who counts as an ‘adult social care worker’ when staff often perform multiple roles.

This creates a financial incentive for providers to manage costs by ‘re-badging’ or reclassifying roles to fall outside the FPA’s mandatory higher rates. This could mean renaming care roles as ‘domestic’ or ‘hospitality’ staff, or shifting workers onto self-employment models that bypass the agreement entirely.

Even if only a minority of providers were to exploit this, it creates an uneven playing field and pushes some workers into less secure arrangements. To address this, the FPA’s scope must be defined by the substance of duties, not job titles, and backed by robust auditing and enforcement.

Enforcement depends on basic oversight of who is working in adult social care and in what capacity. Currently, there is no mandatory registration for most roles in social care in England, unlike other UK nations. Without comprehensive workforce registration, it becomes easier for providers to reclassify roles as out of scope and harder for regulators to spot patterns across employers. Alongside FPAs, the government could consider introducing the registration of care workers (or a comparable system of mandatory workforce identifiers).

3. The limit of pay as a standalone incentive 

Finally, the government’s impact assessment bets heavily that higher pay alone will trigger a large influx of workers, relying on a high ‘wage elasticity’ estimate of 1.8 (meaning a 1% pay rise boosts supply by 1.8%). 

There is some evidence underlying this estimate. It is, however, somewhat higher than other studies that have looked at other low-paid sectors. Broader economic evidence, such as analysis by the IFS and RAND Europe, has found that pay increases in low-paid sectors have limited impacts on overall employment levels. In reality, social care competes with retail and hospitality – sectors often perceived as less demanding for similar pay.

Pay is a necessary condition for recruitment, but it is not sufficient. If the job itself remains tough and stressful with inadequate levels of support, wages will not be enough to pull people in or keep them there. The government has left it open for FPAs to cover agreements on other terms and conditions for workers in social care, such as sick pay, pensions and working hours – it is equally important that providers and unions look at these areas. 

Even then, the FPA policy should sit within a workforce strategy that sets the overall direction for the social care workforce in England. Failing to integrate FPAs into a broader workforce strategy risks a lack of policy coherence that may lead to unintended consequences. International evidence suggests changes to social care terms and conditions should be designed alongside other workforce policies to improve aspects such as progression, oversight, development and international recruitment. 

Getting incentives right

Done well, FPAs could create a virtuous cycle of better pay, lower turnover, higher productivity and greater continuity of care. Funding is vital but this cycle won't result automatically from a bigger settlement. It will have to be baked into the infrastructure of the policy itself – ensuring that the funding available to deliver this policy creates the right incentives to join, the right incentives to stay and the right incentives for providers to comply.