Councils need cash injection to stabilise care home market ahead of Care Act changes

Care homes at risk from low council fees and likelihood that Care Act will reduce compensatory high fees from self-funders, warns County Councils Network

Councils need an immediate injection of cash to address risks to the care home market created by low local authority fees and the impact of the Care Act 2014.

That was the warning from a report published today from the County Councils Network (CCN), which said that as “a direct result” of inadequate social care funding there was a growing gap between council fees and the levels required by providers to sustain viable markets for older people’s care in many areas.

Markets were being kept afloat by the substantially higher fees paid by self-funders than local authoirities for care. However, under the Care Act’s second phase reforms, due to come into force in April 2016, many more self-funders are likely to have their care arranged by councils at reduced fees. To keep markets viable, councils would have to raise their own fees – something the CCN said they could not do without extra resources from government

The CCN asked care market experts LaingBuisson to assess the sustainability of care home markets in 12 areas, representing a fifth of the older people’s social care market in England.

LaingBuisson compared the fees paid by councils and self-funders using a “care cost benchmark” – its estimate of the cost to providers of delivering care and support to stay in business and earn sufficient return to invest in the new capacity needed to meet future need.

Gulf between local authority and self-funder rates

For residential care, it said the care cost benchmark across the 12 areas in 2014 was £615 per week, while councils paid £511 on average and self-funders £752, 49% above the local authority rate. For nursing homes, the benchmark was £783, the council rate £631 and self-funder rate £912, 45% above the local authority fee.

The CCN report said that the substantial reduction in government funding for councils since 2010 had forced councils to squeeze lower and lower fees out of providers, forcing companies to rely on greater levels of cross-subsidy from self-funders.

LaingBuisson calculated that there would be a £256m gap in the 12 areas between the fees paid by councils and the care cost benchmark in 2016. The report estimated that, across the 37 council members of the CCN, the gap would be £684m.

Care Act impact

Three aspects of the reforms due to come into force under the Care Act in April 2016 are likely to drive down the fees paid by self-funders:-

  1. The extension from £23,250 to £118,000 in the assets threshold below which homeowners may receive council help with their care home charges will directly increase the number of current self-funders receiving council funding and benefiting from council fees.
  2. Self-funders will be incentivised to approach their council for an assessment to take advantage of the new cap on care costs; those with eligible needs will receive an independent personal budget setting out what the council would have spent on meeting their needs, making transparent the lower care home fees paid by councils compared with self-funders.
  3. Under section 18(3) of the act, self-funders will be able to ask the council to arrange care for them in exchange for an administration fee, something that is likely to result in them paying a lower fee than they would were they to arrange care for themselves.

The CCN report said this “fee erosion” for self-funders would have a “severe negative impact on the profitability of providers”, meaning councils would have to raise fees to sustain a functioning market and prevent providers from existing.


To tackle the problem, the CCN called for government to:

  • Provide additional money in the current financial year to county councils and countywide unitary authorities to reduce the reliance on cross-subsidy and help sustain local care markets.
  • Use the forthcoming government spending review to provide sufficient funding to local authorities to sustain care markets over the longer term.
  • Further delay the implementation of section 18(3) in relation to care home placements and ensure that further regulations and statutory guidance issued under the act do not lead to more unsustainable pressures on local care markets.

Were additional funding not to be provided, the report said government should delay the implementation of the second phase of the Care Act while a detailed market analysis is carried out to ascertain the impact of these reforms on care markets across England.

Government response

In its response, the Department of Health said it was local authorities’ responsibility to set reasonable free rates for providers.

A Department of Health spokesperson said: “We want to make sure local care markets are sustainable and offer high quality care for the people who need them, but ultimately the buying of services for tax-payer funded people is the responsibility of local authorities – who should assure themselves the fees they pay are reasonable. That’s why our Care Act introduces new duties for the first time for local authorities to work to ensure their local care markets remain sustainable.”

This is a reference to section 5 of the act, which came into force in April 2015, and places a duty on councils to promote a diverse and high-quality market in local care and support services. As part of this they must have regard to the importance of ensuring the sustainability of the market and that sufficient services are available locally to meet needs.

In providing detail on how councils should implement section 5, the Care Act statutory guidance states: “Local authorities must not undertake any actions which may threaten the sustainability of the market as a whole, that is, the pool of providers able to deliver services of an appropriate quality – for example, by setting fee levels below an amount which is not sustainable for providers in the long-term.”

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