How big is the social care funding gap?

13 Mar 17

While everyone agrees that there is a social care crisis there is little consensus about the size of the gap and how far new investment goes to closing it

Adult social care in England is in crisis. Between 2009/10 and 2014/15 funding fell by 9% in real-terms, and 400,000 fewer older people received publicly funded care. The 2015 autumn statement announced a new council tax precept and investment through an improved Better Care Fund. Despite this, the common consensus was that a substantial funding gap remained.

Last week’s Budget contained an additional £2bn over the next three years, with £1bn for next year. On top of changes to the phasing of the precept and a one off transfer from the new homes bonus, there is expected to be an extra £1.0bn to £1.5bn available for 2017/18, with an extra £330m for 2019/20.

But how big was the gap, and how far does this new investment go to closing it? I have explored the key estimates produced before the budget, to help you decide. All approaches except the Institute for Fiscal Studies and Age UK explore publicly funded adult social care in England, worth £16.1bn in 2015/16. Descriptions – including any mistakes – are mine.

Method 1: Association of Directors for Adult Social Services

In their representation to the 2016 Autumn Statement, ADASS quoted a funding gap in excess of £1.4bn in 2016/17, which peaks at £1.6bn before falling by 2019/20 due to the BCF. These estimates, originally conceived in response to measures announced in the 2015 spending review, are predominantly derived from projected demand estimates within the Local Government Association’s future funding outlook for total Local Authority budgets. To this, they added the cost for rising prices, and the new ‘national living wage’, which ADASS estimate will increase total costs by £610m in 2016/17, and a further £360m in 2017/18, based on their 2016 Budget Survey.

ADASS were clear that these estimates represent a best case scenario, not accounting for either the prior state of local government finances (most councils predict overspends on social care for 2017/18) or the unmet need following recent years of disinvestment. Nor does it include investment that will likely be required for local authorities to fund services at a level that providers say ‘is necessary for their sustainability and non-exit of the market’. So this is their minimum to maintain current services, and ADASS are now looking improve their method to estimate the full extent of the gap.

Method 2: Local Government Association

The LGA estimated current pressures building on data for the cost of providing care from commentators such as the UK Home Care Association and from LaingBuisson’s market reports. For the future challenge, they combined population and inflation projections with ADASS’ estimate for the ‘national living wage’, and compared these to funding available through the local government finance settlement.

They estimate that by 2019/20 an additional £2.6bn would be needed – at least £1.3bn to deal with the provider market pressure today, and £1.3bn to tackle the future funding gap. This is another conservative estimate, not accounting for unmet need and other system-wide pressures, although it does allow for some increase to help stabilise the market. Recognising this, they are now working on an update to better reflect the true cost of providing a high quality of care to all those who need it.

Method 3: Health Foundation, the King’s Fund and Nuffield Trust

Before the 2016 Autumn Statement, our three organisations highlighted the pressures facing the health and social care systems in England. We combined estimates of pressures on social care from the London School of Economics (LSE) with our estimate of the total funding available out to 2019/20. The Health Foundation have revised these figures to reflect the additional increases in minimum wage, and the updated figures on local government spending powers, but not for these more recent announcements for consistency.

The LSE have a long established model for projecting need for publically funded adult social care. In aggregate they estimate that cost pressures rise by an average of over 4% a year, above inflation. This is higher than the growth rate estimated in the future funding outlook used by ADASS and LGA.

Estimating the impact of the new funding on budgets for adult social care is not simple. While the original precept and BCF would raise around £3bn by 2019/20 (2016/17 prices), this doesn’t mean spending will be £3bn higher. Total local government budgets are falling, so we have to assume that the social care budget would have fallen without this investment. We estimated actual increase will be closer to £1bn higher, rising by around 2% a year.

There is clearly a gap between costs rising by over 4% a year and a budget rising by 2% a year. Adding to this the updated ‘national living wage’ estimate from ADASS, we estimated the gap to be in the region of £2.4bn in 2017/18, rising to 2.8bn by 2019/20.

Method 4: Health Foundation analysis of Sustainability and Transformation Plans (STPs)

Twenty five of the 44 STPs in England include estimates of the social care funding gap in their area. These areas are representative for England across a number of indicators, allowing us to gross up to an estimate for all of England. This gives an estimated gap of £2bn in 2017/18. The estimated gap for 2019/20 is much larger, around £4.4bn in current prices.

Lack of detail into methods used mean we can’t fully explain this difference. However, given that a key aim of STPs is to improve the quality of services, it’s reasonable to assume that they may have accounted for the unmet need in their areas, unlike previous methods. Crucially, the immediate challenge identified by those closest to the services is similar to other estimates that took a more macro approach. Worryingly, in our interviews with those involved with the STPs, concerns were expressed that these were underestimates – a common theme.

Method 5: Age UK

Age UK provides the largest estimate of the additional funding required, £5.75bn by 2020/21. This estimate differs from the others in three key ways: it is for care provided only to people aged 65 and over; it estimates cost pressures rather than the funding gap; and it estimates the additional cost for meeting unmet needs for all people unable to carry out at least one activity of daily living (ADL).

Estimated need for the current population from the English Longitudinal Study of Ageing were combined with population projections from the Office for National Statistics and the cost of care from NHS Digital.

Although not directly comparable with the other estimates, there is value from the estimated difference between maintaining the current system to 2021/22 (£1.6bn) and improving care to address unmet need (£5.75bn), worth over an additional £4bn for people aged over 65. This gives a strong indication of what it would cost to provide a service that truly addresses all unmet needs.

Method 6: Institute for Fiscal Studies

Rather than produce demand estimates, the IFS estimated the cost of maintaining 2015/16 spend per head as the population grows, and compared this to two estimates for future budget. They include children’s services unlike other estimates.

Initially they assumed that social care spending would change in line with overall local authority budgets, leading to a gap of £2.5bn. Secondly they recognised that councils may have protected the social care budget, as they have in recent years, which would reduce the gap to £1.3bn. Finally, they calculated that returning to 2009/10 spending per head would increase the gap by an additional £1.5bn in 2019/20 on top of these estimates.

The approaches are different, but conclusions broadly the same. The adult social care system in England needs major investment to maintain current services in the face of rising cost pressures. The announcements in the budget are therefore clearly welcome.

But whichever way you look at it, the additional funding will not close the gap next year, and will have little impact on the gap for 2019/20. At best it looks set to slow the decline in access to quality care, rather than improve it. And, importantly, this will affect the quality of life for thousands of people.

The challenge now is not about which estimate is correct, but how to achieve a truly sustainable and high quality care system to support the most vulnerable people in our society.

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