Councils fear care loans will put a massive strain on their budgets

A scheme to provide council loans to older people to pay for their care could put local authorities under financial stress, the Local Government Association has claimed.

The LGA said the amount of debt held by councils in England and Wales in 2024-25 from the deferred payment scheme could be more than £1.1bn – nearly five times more than the LGA calculates is allowed for by government assumptions.

The deferred payment scheme, included in the Care Bill, allows older people to take out a loan with their council to cover the cost of their care, which is repaid from the sale of their home after their death.

The LGA’s £1.1bn figure for outstanding debt by 2024-25 is the mid-point between an estimate it made based on the government’s impact assessment of the scheme (£230m) and calculations provided to it by a London council.

The LGA said the main reason for the difference between the £1.1bn and £230m estimates was that the government expected the average loan under the scheme to last for 1.5 years before being repaid, while the LGA assumed it would be taken out for 2.7 years.

It said councils will always hold some outstanding loans at a given point in time and so they would need to find ways of raising money to lend, either by borrowing or releasing money from elsewhere in their budgets.

Costs ‘massively underestimated’

“The costs for running the deferred payment scheme have been massively underestimated by the government,” warned LGA chairman Merrick Cockell. “With costs likely to exceed £1.1bn, councils are at real risk of incurring costs that they simply can’t meet.”

Instead, the LGA and the Association of Directors of Adult Social Services (Adass) wants the government to set up and underwrite an agency similar to the Student Loans Company to handle the administration and cost of the loans. The LGA said a government-backed scheme would reduce the financial risk to councils of holding the debt and could reduce the cost to the taxpayer by creating economies of scale.

But the Department of Health disputed the figures and said councils would not be left out of pocket by the scheme.

A DH spokesperson said it disagreed with the LGA’s assumptions on how long the loans would last and said it was “misleading” of the LGA to refer to the outstanding debt as the cost of the scheme.

She said the department’s assumptions were based on a survey by the department and Adass. The government was confident of its figures and was working with the LGA and others to refine them, she added.

She said the scheme would be cost neutral – meaning the cost to councils of making the loans would be covered by the repayments.

‘Misleading’ 

The DH spokesperson added: “We do not recognise these misleading figures.  The universal deferred payments scheme will be cost neutral and we have committed to fully funding any upfront costs – so councils won’t be out of pocket as a result of the scheme.

“Having an additional body to run the deferred payments scheme would just create additional and unnecessary layers of bureaucracy and costs.”

She said the DH would provide £110m in 2015-16 to cover the additional costs of the scheme in its early years, which could be used by councils to provide some of the first loans. But the LGA said the sufficiency of this sum would depend on demand for the loans.

A DH impact assessment of deferred payments estimated that overall benefits of the scheme would exceed the costs by £254m over 10 years when factors like the reduced stress to people who pay for their own care, set-up costs and interest payments on the loans were taken into account.

The DH has not yet published its estimate of the outstanding loans that would be held by councils in 2024-25.