Council left to pay preserved rights bill

In R (Liverpool Council) v Secretary of State for Health (18
August 2003) a row erupted as to who should meet the full cost of
services for thousands of people with “preserved
rights” to income support to pay for residential care. The
result has left Liverpool Council £1.5 million (plus legal
costs) out of pocket.
When the community care regime was introduced with the NHS and
Community Care Act 1990 (which came into force in April 1993) local
authorities took over responsibility for funding placements in care
homes under part III of the National Assistance Act 1948, and were
provided with additional funds to do so. However, almost 300,000
people were excluded from the new regime. These were the people who
were already in care homes and were paid for by increased income
support awards. They were said to have “preserved
rights” to these awards.

However, over the years income support failed to increase fast
enough to meet rising care home fees and residents often had
difficulties in paying. Legislation prevented local authorities in
most cases “topping up” these fees and cases of
hardship were common.

In 2001 the government decided to make local authorities
responsible for preserved rights residents in the same way as they
are for all others in part III accommodation. Government
calculations showed that the extra nationwide cost should be about
£614 million. This pot had to be divided up between all
councils. A formula was used which estimated costs, taking into
account amongst other things how many preserved rights residents
lived in a council’s area. Mortality rates were also
calculated – in other words the amount awarded would be
reduced on an estimate of how many residents would die per

Unfortunately,  Liverpool found itself £1.5 million
overspent at the end of the first year of the new regime and
decided to challenge the government’s failure to make good
the shortfall. It was argued that the government’s approach
was based on insufficient consultation with local authorities and
was irrational.

But the ruling from the court cleared the government of
unlawfulness. The judge (Stanley Burnton J) decided that the
government had carried out sufficient consultation with
representatives of local authorities both as to the amount
available and the method of dividing up the pot, and that it was
not irrational  to adopt an approach that estimated costs for
councils rather than promising to reimburse them.

Comment: A number of councils were worried
about the effect these transitional arrangements might have, but
only Liverpool chose the expensive option of going to court. The
problem in this case was that when dividing up such a big pot even
a small error in calculation could mean a large deficit for
councils’ already overstretched social services budget.
Although, the government required councils to repay any sums they
received that were unspent, they did not promise to make good any
shortfall suffered by councils at the end of the financial year
because, for example, fewer older residents had died than had been
predicted. The court effectively decided that the government had
done the best it could in the circumstances – although this
would have been small consolation for Liverpool!

Stephen Cragg
Doughty Street Chambers

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