The 2.4% Problem

There is a number that most supported living providers have never calculated. It does not require a finance degree. But once you know it, it changes how you think about every contract you hold.

The number is 2.4.

That is the percentage point gap between what the National Living Wage increased by in the April 2024 uplift — 9.8% — and what the average local authority fee increase came in at for 2023–24, at approximately 7.4%. Providers absorbed that gap. Every year. On top of the year before. In a sector where 65 to 75% of all revenue goes directly to staff costs, these are not abstract figures. They determine whether you end the year in a viable position or a precarious one.

The April 2025 NLW uplift of 6.7% took the rate to £12.21 per hour. Alongside it came an increase in employer National Insurance contributions from 13.8% to 15% — adding a further layer of employment cost pressure that the headline wage figure alone does not capture. From April 2026, the NLW rises again to £12.71. These changes are not isolated events. They are part of a structural trend that rewards providers who manage their numbers precisely and penalises those who do not.

Why Thin Margins Cannot Absorb This Gap

The median trading profit for a supported living provider sits at around 7 to 8% of revenue. On £1 million in turnover, that is roughly £70,000 to £80,000 before interest, tax, and anything else is taken out.

Now apply the April 2024 gap to that. If your staff costs rose by 9.8% but your LA rate only went up 7.4%, you absorbed 2.4% of your entire staff cost base from that margin. On a typical staff cost base of £700,000, that is £16,800 absorbed in year one — before the NI increase is factored in. In year two it compounds. The staff base is higher. The LA rate still lags. By year three, providers who started with comfortable margins are operating at the edge — not through any failure of management, but because the structural maths have been running against them throughout.

The Real Cost of a Support Worker

Most operators think about staff cost in terms of the wage rate. The actual cost is materially higher than that figure suggests.

A support worker earning the NLW of £12.21 per hour costs an employer closer to £15.50 to £16.50 per hour once all employment costs are properly included. That means employer NI at 15% on earnings above the secondary threshold, a minimum 3% employer pension contribution, supervision and management time allocated to that service, training costs, and DBS renewal. When you calculate your rate this way — and compare it to what your LA is actually paying you per hour — the gap becomes visible. That visibility is what allows you to act on it.

If your package rate was set on a cost model from eighteen months ago, before the April 2025 NLW uplift and before the NI increase, you are already absorbing the gap between what you were promised and what care actually costs you to deliver.

Most providers feel this. Very few have built the number that proves it to a commissioner. That single figure — your fully loaded cost per support hour — is the foundation of any credible fee review conversation.

What Local Authorities Are Not Telling You

Local authorities are under sustained budget pressure of their own. Many are operating under Section 114 notices or near-equivalent financial strain. Their instinct is to hold fee uplifts as low as possible for as long as possible. They will not initiate a review of your rate.

The providers winning fee reviews are the ones who go to commissioners with a clear, evidence-based cost model — a precise breakdown of their real cost per support hour, a demonstration of how the combination of NLW increases and rising employer NI has affected their specific business, and a proposal tied directly to the actual cost of delivering the commissioned support. Not a letter saying costs have gone up. A professional submission backed by figures that a commissioner cannot reasonably dismiss.

That is the difference between a fee review that succeeds and one that goes nowhere.

Three Things to Do This Quarter

First: calculate your real cost per support hour for each service you deliver. Not the headline wage. The fully loaded cost including employer NI at 15%, pension, supervision time, management overhead allocated to that service, and training budget. If you have never done this exercise, it is the single most important financial calculation you can make this year.

Second: compare that figure to your current LA package rate. If your rate was set more than twelve months ago, the gap is almost certainly wider than you think.

Third: use that data to request a formal fee review. Bring the evidence. Commissioners who receive a clear, precise cost submission take it seriously. Providers who ask for more money without substantiation rarely get it.

How RDA Helps

We work with supported living providers to build exactly this financial clarity. We model the real cost of care for each service, identify the gap against current LA rates, and help operators prepare the evidence needed for a serious fee review conversation. We also help providers understand where the funding gap intersects with their staffing structure, property costs, and contract terms — because these pressures rarely operate in isolation.

If you want to understand where your margins actually stand, book a free 30-minute call with Dan Daly at supportedlivingfinancials.co.uk or email ddaly@rdaaccountants.co.uk. No obligation. Just a clear view of your numbers.