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

By 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.

Ray Hart is managing director of Valuing Care, a company that analyses and negotiates care home fees on behalf of councils and self-funders.

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2 Responses to Why council tax rise will not be enough to fill care home shortfall

  1. dreamer December 1, 2015 at 4:31 pm #

    The government were never going to sort this out. It is down to market forces now.

    When 10% of the market folds, which is inevitable, and the remaining homes are bursting at the seams, watch what happens to fees.
    It is already happening in certain areas with bed shortages.

    Want a bed?? Council fee £550/week our price?…….today £800……maybe tomorrow £900, and next week it may be £1100.

    We will be called unreasonable !!. Sorry?? What like the local authorities and central government have been for 15 years.

    This is coming home to roost. Its going to get very messy indeed.

    Hope I don’t need to go to hospital, doubt I will get in.

    Welcome to the 21st century. We are now in the bottom 10 %of europe for Health and social care. What an achievement. Better than bottom I hear you say Georgie boy.

  2. Gerald December 2, 2015 at 1:36 pm #

    What Ray is saying is correct but it is not new, ever since the Councils were given the job (in 1993),Labour controlled councils have been applying pressures to reduce funding to the Private Sector.The object of this blatant political policy (according to the Councillors)is to bankrupt the private sector, so that the Public Sector Homes could be preserved. This policy has been succesfull in varying degrees depending on the Public themselves, fortunately, Countrywide, the Public have supported the Private Sector by topping up the shortfall, I am sure Ray knows of many examples where this has happened. Why the Public have supported the Private Sector is simple, they, obviously , think the Private Sector do a better job and is better value for money. The latest example of Political interferance is the fixing of the criterions for Nursing Care (Free under the old NHS system) so that more and more people find themselves under the Means tested system of the Councils, yes as Ray has stated, this is saving the NHS millions, but surely this is making the public pay for for services already covered by the NHS ??