The Good
Let’s dive into the positives first!
Chancellor Reeves has unveiled a £22.6 billion boost to the “day-to-day” health budget over the next two years.
For many healthcare service providers, a portion of their income relies heavily on public healthcare funding. Over the past few years, these providers have faced challenging negotiations with local authorities over price increases. This increase in funding should provide a welcome relief, making it easier to secure those much-needed price adjustments.
The budget sets aside a significant £4.1 billion for operational investments, aimed at essential improvements to primary care facilities and GP IT systems. Maximizing the impact of this funding is crucial to delivering positive results for healthcare providers, their staff, and, most importantly, the patients they serve.
The Bad
Following hospitality and retail, the healthcare sector stands as one of the largest employers of minimum wage workers in the UK.
The upcoming rise in the UK Minimum Wage, combined with the increased employer contributions to National Insurance, is expected to significantly affect the profit margins of care providers.
For example, UK care home operators typically allocate around 55% to 60% of their revenue toward staffing expenses. These costs have been steadily rising, especially in the post-Brexit landscape where finding new staff has become increasingly difficult.
The announced 6.7% hike in the Minimum Wage will directly impact a large portion of the typical care home workforce. Consequently, this is likely to reduce EBITDA margins, leading to lower rent cover ratios for healthcare property investors, assuming all other factors remain constant.
The Ugly
Where’s the promised growth?
Labour’s campaign focused heavily on delivering economic growth—but does this budget live up to that promise?
The Office for Budget Responsibility has marginally increased its growth projection for 2025 by 0.2 percentage points, bringing it up to 2% following the budget announcement. However, this growth uptick is entirely attributed to increased government spending rather than a boost from the private sector. The OBR also cautions that near-term inflation and rising interest rates could impact these forecasts, meaning the predicted growth may ultimately prove negligible.
Lastly, buy-to-let property investors, who have already been facing challenges, are now dealing with an increased stamp duty surcharge, which has risen by 2 percentage points to a total of 5%.
Summary
Labour’s manifesto promised some ambitious changes in the healthcare space:
- Cutting NHS waiting times with an additional 40,000 appointments per week
- Establishing a National Care Service
- Increasing national wages
This budget takes steps towards fulfilling two out of these three commitments, though we’re yet to see any concrete plans for a National Care Service.
For healthcare property investors, the news is a mixed bag. The increase in public health funding is a long-awaited positive change. However, the hike in the Minimum Wage and employer National Insurance contributions will squeeze healthcare provider profits, particularly impacting landlords in the care sector.
Curious to see how we manage these changes for our clients? Reach out to learn more!
