Simon Stevens, the head of NHS England, has some interesting proposals to plug the social care funding gap, arguing that a portion of the funding currently spent on generous increases in the state pension should be re-directed to prop up the social care system. It is likely that Stevens felt the need to suggest sources of new money for care because the government’s plan, presented at the Spending Review in November, contained little new money for social care.
Why is this important? Well, it’s become increasingly apparent that adult social care faces a substantial gap between the resources it needs to continue providing its current level of service, and the amount of funding it is likely to get. It needs more money because the population is ageing and the number of adults with learning disabilities is growing, and because the introduction of the National Living Wage is likely to have a profound impact on the financial viability of independent social care providers. All told, social care needs an additional £4.9bn a year in by 2019/20 to cope with rising demand and with pay increases.
But government projections of local authority income, out of which social care is funded, suggest that councils face a loss of £3.5bn in resources over that period. Councils are primarily funded from three sources; business rates, council tax and grants from central government. Despite a healthy forecast for business rates and council tax revenue, the rate at which central government is withdrawing grants means they would need to cut other services by a total of £8.4bn, or almost a fifth of total council services spending, in order to keep up with rising demand for social care.
The government does have some idea of how to unlock extra resources to fill the funding gap. The problem is, it’s not going to be enough. There are two key elements to the government’s plan. Firstly, they will allow councils to increase council tax by an additional 2% a year, so long as they spend the proceeds on social care. Estimates suggest this could raise £1.8bn a year by 2019/20 if all councils decide to take him up on the offer. This is by no means certain, with many areas already absorbing the pain of cuts rather than shoulder their residents with large council tax rises. If significant numbers choose not to take Osborne up on his offer, the £1.8bn on the table will get a lot smaller. Indeed, a recent survey of 50 councils by the Local Government Chronicle found that only three quarters would use the precept this year. And the size of the council tax base varies wildly between different parts of the country, bearing little relation to where the population using care is concentrated or growing. It’s by no means clear the £1.8bn will find its way to those councils most in need of the extra cash, and in all likelihood many areas with a low revenue base are unlikely to go ahead with the 2% council tax top up, as it simply won’t be worth it.
Secondly, the government also announced that councils would receive an extra £1.5bn a year from an extension of the Better Care Fund, a financial transfer from the NHS to councils. Together, these changes could bring in £3.3bn in cash terms by 2020/21, not enough to cover the £8.4bn required.
This means the remaining shortfall of £5.1bn in councils’ income will need to be found from other areas of local government spending. To put this figure into perspective, it is larger than local spending on public health, fire services and on highways and transport, and double councils’ spending on cultural services. Finding savings from elsewhere in local government budgets to plug the social care gap is possible, but will undoubtedly be painful.
And, there never being a dull moment in the world of local government finance, the chancellor also wants to totally transform the way in which councils are funded. Over this parliament, the government plans to withdraw central government grants to local government entirely, and replace them with a new system based entirely on business rates. How this policy shakes out, and which councils win or lose, will be crucial in determining the future of adult social care throughout this parliament and into the 2020s. Take a second to spare a thought for the finance departments of councils across England, and for social care providers, many of whom face collapse, as they try to plan provision under such uncertainty.
We have only limited details about the plans at this stage, but it appears that from some point in this parliament local government will be allowed to retain 100% of any additional business rate revenue generated in their area. This essentially ties growth in one of the key sources of local government income, and therefore a key determinant of social care funding levels, to the construction of new commercial and industrial floor space, rather than any measure of need. Now, there are good reasons for giving councils more of a stake in business rates, as it can encourage and reward efforts to increase economic growth. But do we really think the direction of social care funding in an area should be so tethered to local business performance?
The government’s plan fails to answer the social care question. As it stands, councils will have to attempt a combination of deep cuts to other services, restrictions in access to care, or increasing user charges to make the sums add up. And, if the business rates reform plan, expected to be unveiled at the Budget in March, doesn’t display sensitivity to these issues by equalising revenues across councils, the situation could get even worse. Simon Stevens has suggested that the government go back to the drawing board and agree a plan by 2018. Hopefully the social care system can last that long.
