Rachel Reeves has been warned she risks putting care homes out of business with her “devastating” tax on jobs. There are strong concerns the tax hike will push up the cost of care and force providers to close or make cutbacks. Her decision to hike up employers’ National Insurance contributions has been denounced as “madness” in the crisis-hit sector.

Shadow Chancellor Mel Stride warned the tax will be “really devastating” and risks fuelling both inflation and unemployment. He fears people trying to secure care for their loved ones will find “diminishing supply” and “increased cost”.

The National Care Association says “about a quarter of care services” will be at risk of closure. The Nuffield Trust has warned the National Insurance increase could cost the adult social care sector more than £900million.

Mr Stride said this is likely to result in “higher unemployment” and less affordable care because “it’s more expensive to employ people”.

Mike Padgham, executive chair of Saint Cecilia’s Care Group, described the situation as “madness”, saying: “The government position on this beggars belief… Many care providers will not survive and this will only then pile more pressure on the NHS.”

He warned that Treasury decisions mean they cannot give the “bigger pay rises to staff we had planned” and “will have to cut back in our plans for refurbishing the homes”.

Nadra Ahmed, executive co-chairman of National Care Association, warned that people who rely on care services will face an “uncertain future”. She said recruitment is a “huge cause for concern” and this will be “critically impacted” by the hike in National Insurance contributions.

Shadow Chancellor Mr Stride said: “If you want to grow an economy you want to have more jobs, not fewer jobs.”

The warnings come as the Chancellor prepares to deliver her update on the state of the national finances in the Spring Statement on Wednesday. Government departments are braced for cuts and Government borrowing in February hit £10.7bn – much higher than the £6.5billion which had been expected.

Mr Stride turned his guns on Ms Reeves, saying the country’s problems are “of the Chancellor’s making”.

He said: “Her tax decisions sit right at the centre of why the economy has not been growing. This tax on jobs, this tax on employment, is also feeding into inflation because employers are in part passing on these additional costs by way of higher prices. That in turn means interest rates stay higher for longer.”

Looking ahead to Wednesday, he said: “I think she is going to have to take some big decisions and I think a lot of those are going to be very painful for a lot of people.”

Changes to the benefits system intended to save £5billion annually by 2030 have already been announced.

Mr Stride – a former Work and Pensions Secretary – said that when it came to welfare spending the Government was “scrabbling around with much haste and not much thought” to “try and save some money”.

“Of course we need to save money,” he said. “We need to control that budget but you do that through fundamental, principled reforms which actually, I believe, could have achieved larger savings and also been fairer to people because they would have been properly thought-through.

He warned that if the markets do not find her spending plans credible then debt costs could rise further and the country could go into a “difficult spiral”.

A Department of Health and Social Care spokesperson said: “We inherited an extremely damaged economy, NHS and social care sector. We are turning this around through our Plan for Change and have already taken action to deliver an extra £26billion for health and social care.

“We’ve brought in a £3.7billion funding boost, 7,800 new adaptations to help disabled people live independently in their own homes, and we are also introducing the first ever fair pay agreement for care professionals.

“Dame Louise Casey is leading an independent commission to build cross-party consensus for a National Care Service to build a system fit for the future that is fair and affordable for all.”