Community Care: Why council tax rise will not be enough to fill care home shortfall.

Community Care: Why council tax rise will not be enough to fill care home shortfall.

Councils will be forced to ration the extra money they get from council tax between providers in response to the cost pressures on residential care, says Ray Hart.

As expected, chancellor George Osborne announced additional funding for social care in the Autumn Statement in the form of an additional levy of 2% on council tax that can only be used to fund adult social care. In addition there will also be an additional investment in the Better Care fund of £1.5bn by 2019-20. However this will be unlikely to provide additional direct resources to providers in meeting the cost of care. 

The estimated income raised through this additional council tax will be £1.7bn a year by 2019-20 if all local authorities take it up. By 2020-21 there will be a shortfall of £1.1bn in the funding available for residential care from the public sector and the level of resource required, analysis by think-tank ResPublica has found. A third of this gap will be down to the new National Living Wage (NLW), which will come into force in April 2016.  

Thousands of beds lost

If funding for residential care remains at current levels, ResPublica estimates there will be a loss of 37,000 beds; if the NHS picked up the bill for just half of this loss it would cost it £1.5bn a year by 2020-21. With this being that case, will the additional income from council tax be passed onto providers in its entirety?

The first hurdle for the cost of care gap being funded relates to whether, and how much of, the money does indeed get added to local authority commissioning budgets to meet cost of care increases from 2016-17 onwards, and is not used elsewhere within social care. It is likely that the additional funding may also be needed to deal with overspends on council budgets and urgent unmet need. Examples include funding extra placements out of hospitals, and there will also be lots of people waiting for home care or additional community support.  

Significant variations

The second hurdle is the regional variations likely to occur from the 2% social care levy raised through council tax. Although the final details have not been shared yet, a flat 2% increase on the gross council tax taken by local authorities will lead to significant variations on the money raised regionally. The Institute for Fiscal Studies has estimated that the additional resource yielded for councils will be 11% of current adult social care budgets, but will range from 4% to 17% between areas.

As central government grants are formulated towards the neediest areas, conversely the council tax percentage levy will raise the least money in the areas with theoretically the most need.

To compound the problem, these areas are likely to have the lowest staffing hourly rates and will therefore be the most effected by the uplifts required in April 2016 and beyond by the living wage.  

Expect rationing

With this in mind, the most likely scenario is that councils will not have enough funds to meet providers’ demands to compensate for the possible underfunding of residential care rates and the living wage. So, unfortunately it is likely that the money will need to be increased on a rationed basis.

Working out which providers and how much they receive is a complex and detailed business. Councils can pre-determine how much each category of care will receive through re-examining of the current usual rates paid or they may deal with each case on an individual basis.

Either way this will involve a significant amount of additional work for commissioning and finance teams with the knowledge that challenges could be made to the calculations and that, because the pie is not big enough, there may be a lot of noise about who gets the biggest slice.  

1st December 2015
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Community Care: The Care Act 2014 places new responsibilities on local authorities

Community Care: The Care Act 2014 places new responsibilities on local authorities

From April 2015, councils will come under a duty to provide information and advice to people in their areas to enable them to plan for their care and support, including in relation to how they can benefit from independent financial advice.

A year later, the cap on care costs will come into force, enabling self-funders to receive state-funded care and support after accruing a certain level of cost, as measured by what the local authority would have spent on meeting their needs, calculated through regular assessments. 

At the same time, in April 2016, councils will come under a duty to arrange residential care for people who are not eligible for any financial support from their authority but ask the council to make arrangements for them. This duty comes into force a year earlier – in April 2015 – for non-residential care, though its biggest impact will be in the residential sector.

It seems the most relevant information a local authority could provide to its citizens, under the information and advice duty, are the rates at which the council can procure services for them – which is often substantially less than what a self-funder would have to pay. This information will become available to anyone assessed for the cap in any case from April 2016. And the duty on the council to arrange care, regardless of a person’s financial status,will give self-funders the power to have care arranged at council-procured prices, in return for an administration fee. This could potentially save people hundreds of pounds a week in care home fees.

The cost survey and negotiations service undertaken by Valuing Care for councils has highlighted self-funders who arrange and pay for care themselves, with no or little state support, pay a far higher price for a service than their local authority pays for the same service.

This may be a known fact in the market but the evidence from these cases is that this goes way above the expected 10% additional costs attributed to dealing with a number of single individuals compared to one council. Price discrimination between rates offered to councils and those offered to private citizens sometimes rises to 50% more for the same care.

For example, Valuing Care recently heard of an example of a person funded by a council in a care home at £650 per week. When the older person’s home was sold and they had sufficient means to pay for their own care, they became a self-funder charged £1,050 per week for exactly the same bed and facilities.

The local government funding squeeze has exacerbated the problem as councils choosing not to inflate their fees has encouraged providers to apply above-inflation increases to their self-funding residents who are signed up to the providers contract, under which they have limited or no protection.

The reforms coming into force in April 2016 – the care cap and the duty to arrange care for self-funders – create a ticking time bomb for authorities that would be better defused now. For councils that are prepared to grasp the nettle there are options to deal with the market issues. These include:

  • Conducting their own validations of Older People’s residential costs to get to the bottom of the problem and increase transparency.
  • Providing information and advice lines that provide much more than general signposting and support services.
  • Market managing current vacancy rates and mapping supply to the needs of individuals.
  • Providing direct advice and support on how to get the best price for their care, not just how to best fund it.
  • Providing simple contract support for self-funders through standard contracts.
  • Providing readily available and competitively priced alternative support packages in the community through proactive contract management.
  • Brokering preferred supply deals for self-funders with willing providers.

Acting in the financial interest of self-funders requires a significant change of thinking within councils who have historically overlooked their financial interests, whilst at the same time benefitting from the cross subsidisation of council funded residents. Councils embracing the new act should be recognising the enormous financial benefit they may be to their self-funding residents, and putting in place the necessary systems and processes to act on their behalf. It will be interesting to see which councils are ready and willing!

9th December 2014
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Community Care: Councils risk driving good social care providers out of business

Community Care: Councils risk driving good social care providers out of business

Councils will be forced to ration the extra money they get from council tax between providers in response to the cost pressures on residential care, says Ray Hart.

Councils risk driving good social care providers out of business and propping up bad ones by making blanket cuts to the fees they pay for services, a consultant has warned.

Less efficient services would be able to bear such cuts more easily than those that provide good value, said Ray Hart, commercial director at OLM Financial Management. OLM works for councils and primary care trusts to negotiate lower placement costs with providers by comparing their spending on overheads, such as property, insurance or electricity, against market averages.

Hart said 60% of more than 4,250 placements studied by OLM failed to offer value for money, but the rest offered commissioners a good deal. But he warned: “Certainly, every council is [at most] freezing fees for next year. Some are doing less than that. That’s a mistake. This could drive value-for-money providers out of the market.”

But he warned: “Certainly, every council is [at most] freezing fees for next year. Some are doing less than that. That’s a mistake. This could drive value-for-money providers out of the market.”

Hart said OLM had found massive variations in costs charged to commissioners, with a maximum price of £9,137.42 for each bed each week and an average of £1,734.16.

He claimed OLM’s service had cost £2m since it began three years ago but it was saving commissioners £9m a year through reduced fees. He said OLM was paid a fixed fee, not a commission.

However, Hart admitted it was unpopular with some providers and their umbrella organisations.

4th February 2011
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