Quick guide to the cap on care costs

Lawyer Tim Spencer-Lane sets out what the government's proposed adult social care reforms mean for people needing care and for practitioners

The front cover of the Care Act 2014
Photo: Gary Brigden

By Tim Spencer-Lane

Unlike the NHS, social care is not a free, universal service; local authorities have always been able to charge for services. This means that service users are sometimes exposed to potentially very high and unpredictable care costs and face the prospect of losing the majority of their income and assets.

In an attempt to address this issue, the government has recently announced that it intends to introduce a cap on care costs, which will apply to all adults in receipt of adult social care in England, no matter their age.

What is a cap on care costs?

The cap costs system is sometimes described as a ‘limited liability’ model, whereby individuals are potentially liable for paying for their own costs up to a certain point, but after that point the state should pay. The cap on care costs is the maximum contribution that anyone may need to make towards their care costs over their lifetime. For those who are less able to afford this contribution, a means test ensures the state helps them so they will not have to pay the full amount.

The government has announced that it will introduce a cap of £86,000. In general terms, the costs that will count towards the cap are the costs to the local authority of meeting the person’s eligible needs as set out in their personal budget. This will mean that, where the person has significant assets and is self-funding their care plan, they will not need to spend more than £86,000 on their personal care over their lifetime. This will be introduced in October 2023, and implemented using legislation already in place under the Care Act 2014.

So, from the point that the person has been assessed as having eligible needs, the clock will start ticking until the cost of meeting their eligible needs hits the £86,000 cap. Then, the state will be required to fund all of the person’s eligible needs.

Previously, the Dilnot Commission proposed different caps for different groups of people, including a zero cap for those who reach adulthood with eligible care and support needs. It is not so far clear if the government intends to implement this; the current plans refer to a single cap for all adults.

Case study – Peter

Peter is in his late 60s and has dementia. Peter was first referred to adult social care services for an assessment due to a deterioration in his condition which meant he was no longer able to remain at home. The local authority assessment found that he was in need of care home accommodation and arranged for a suitable placement. He has substantial assets and self-funds the entirety of his care package. His personal budget estimates the costs of meeting his eligible needs are £700 per week (which doesn’t include Peter’s daily living costs).

Under the capped costs system, Peter would reach the cap after two years and 19 weeks. After then, he would not be liable for paying towards his care and support needs.

How does the cap relate to the capital limits?

The financial limits, known as the ‘capital limits’, exist for the purposes of the financial assessment. The upper capital limit sets out at what point a person is entitled to access local authority support to meet their eligible needs. Only people with capital below the upper limit qualify for financial help to meet their care and support needs. Currently this is set at £23,250. The lower limit is £14,250. If a person’s capital falls below this, the state will pay for the person’s care and support needs.

From October 2023, the government has announced that the capital limits will change. The upper capital limit will increase to £100,000; people with capital below this limit will qualify for financial help to meet their care and support needs. The lower capital limit will be increased to £20,000; anyone with assets of less than £20,000 will not have to make any contribution for their care from their savings or the value of their home. A person with assets below the lower capital limit will pay only what they can afford to from their income.

Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support. The government has said that people will not be required to contribute more than 20% of their chargeable assets per year. Whilst it is not entirely clear, it seems likely that the intention is to maintain the current tariff income system, whereby a person is charged £1 per week for every £250 in capital between upper and lower limits.

Currently, the capital limits are mandatory for care home residents but for adults receiving care and support on locations other than in a care home, local authorities have discretion to set their own higher limits (provided they are no lower than £25,250 for the upper limit and £14,250 for the lower limit). Whilst government policy under the capped costs system has not yet been confirmed, it is likely that the same distinction will apply to the new limits.

The capital limits are separate to the cap on care costs. But they do mean that some people will become eligible for fully funded social care before they reach the cap.

Case study – Fiona

Fiona is 67 and has motor neurone disease. She has assets of £150,000. The local authority has assessed that she needs a care package in the community that costs £1,000 per month. When her assets fall below £100,000, Fiona will become eligible for financial help for her care and support needs. At first, the financial help provided by the local authority will be relatively small. But this will increase as her assets diminish.

When her assets fall below £20,000, Fiona will become eligible for fully funded care and support from her local authority.

Fiona will reach the £86,000 cap in just over seven years’ time. It is likely that her assets will fall below £20,000 before Fiona reaches the cap.

The impact on local authorities

The funding reforms will have considerable resource implications for the public sector. It is likely that many more people will be coming into contact with their local authority – for instance, people will want to be assessed to start progressing towards the cap and more people will qualify for help as a result of the extension to means-tested support.

The government has also confirmed that it will ensure that self-funders are able to ask their local authority to arrange their care for them. Currently, section 18(3) of the Care Act 2014 only requires local authorities to respond to such a request if the person does not need care home accommodation. This change could have a significant impact on care providers, many of whom charge self-funders at higher rates to subsidise state-funded residents.

Local authorities will be expected to assess and monitor self-funders as they progress towards the cap. It is likely that people will receive regular statements of the costs of their care and local authorities will be required to contact people before they reach the cap.

Where a person is in a care home and top-up payments are being made for a preferred choice of accommodation, the local authority will need to be clear that if the person wishes to remain in the accommodation they (or a third party) would continue to be responsible for meeting those costs or the person could move to accommodation within the cost of their personal budget.

What does the Care Act say about the cap on care costs?

Section 15 of the Care Act 2014 provides for a limit on the amount that adults can be required to pay towards eligible care costs over their lifetime. Eligible care costs are the costs of meeting eligible needs that a local authority would meet under section 18. These costs are either specified in a personal budget (section 26) where the local authority is meeting the person’s needs, or in an independent personal budget (section 28) where the person has decided that they do not want the local authority to meet their needs. Most of the detail of the care cap would be set out in regulations which are subject to the affirmative procedure (section 125(4)(b)), meaning they must be approved by both Houses of Parliament.

What will and will not count towards the cap?

In general terms, the costs that will count towards the cap are the costs to the local authority of meeting the person’s eligible needs as specified in the personal budget or independent personal budget.

Whilst the government’s detailed proposals have not yet been published, it is likely that the following costs will not count towards the cap:

  • The costs of meeting eligible care and support needs incurred before October 2023;
  • The costs of meeting non-eligible needs;
  • Daily living costs (for care home residents these are the costs at the level set in the regulations);
  • Top-up payments the person or a third party chooses to make, for example, for a preferred choice of accommodation;
  • Costs of services not included in the personal budget such as prevention and reablement services;
  • Interest or fees charged under a deferred payment agreement;
  • Needs which are being met, and will continue to be met, by a carer;
  • NHS-funded nursing care and continuing healthcare, and
  • After-care under section 117 of the Mental Health Act 1983.

Criticisms of the cap on care costs

There have been criticisms of the government plans. The main criticisms of the capped costs system can be summarised as follows:

  • It is focused on the needs of self-funders and those who want to pass on inherited wealth to the next generation.
  • People will continue to face rising charges up to the cap.
  • It will be overly complex for local authorities to administer because they will need to track each self-funder from the time the clock starts ticking to make sure that their independent personal budget continues to adequately reflect the costs of meeting their eligible needs.
  • The cap only applies to the costs of meeting the person’s assessed eligible needs.
  • The costs will only be based on what the local authority would pay for that level of care, which in many cases will be lower than the amount individual self-funders currently pay.
  • The reforms do not address the key issue of equity, such as why conditions like dementia are viewed largely as a social care issue and heavily means tested, even though its impact can be at least as devastating as cancer.
  • There will be increased tension between local authorities and service users (and their families) seeking to establish eligible needs, since at that point the meter will start to tick towards the person’s cap. The assessment decisions of local authorities will have significant financial implications for many people, and it is likely that authorities will face an increase in challenges if they determine that a person’s needs fall below the eligibility threshold or over the level of a person’s personal budget.
  • People may try to stay in the community inappropriately in order to reach the cap before moving into residential care in order to avoid the value of their property from ever being included in their financial assessment.

How will the capped costs system be funded?

The government has said it will make available an additional £12bn per year for health and social care on average over the next three years. This will be funded by a new, UK-wide 1.25% health and social care levy, ringfenced for health and social care. This will be based on national insurance contributions and will also apply to individuals working above state pension age. The levy is due to be introduced from April 2022. The government will also increase dividend tax rates by 1.25 percentage points.

A “Union dividend” means that Scotland, Wales and Northern Ireland will benefit by around 15% more than is generated from their residents, equivalent to around £300m every year on average.

Tim Spencer-Lane is a lawyer specialising in adult social care, mental capacity and mental health, and is legal editor of Community Care Inform. 

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3 Responses to Quick guide to the cap on care costs

  1. Jane September 24, 2021 at 11:08 am #

    The problem with the Government’s proposals, and with this article, is that they don’t address the income-based means test. Many disabled people without any savings are forced into poverty as a result of social care charges that take some or all of their non-means-tested benefits, usually personal independence payment (PIP). So disabled people with no savings whose only income is from benefits may still have to pay towards their care, leaving them without enough money to live on. I’m surprised there isn’t greater criticism of the failure of the Government’s proposals to address this in any way. Everyone seems to ignore this completely!

  2. Stephen Corlett September 24, 2021 at 7:37 pm #

    It’s more peculiar than that, if the Care Act provisions are implemented in their current form. Some people paying charges from their income, who have high-cost care plans, would pay charges for a while, but then abruptly stop having to pay, because the cumulative cost to the local authority has exceeded £86K. Others might have to pay charges for years, though their income is the same. And if someone has family members who provide a lot of the care they need, they might pay charges for much longer than someone who has the same needs but relies entirely on publicly-funded services. The Care Act mechanisms for charging people who aren’t self-funders are thoroughly dysfunctional.

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