Updated: quick guide to the cap on care costs

By Tim Spencer-Lane (article updated 30 November 2022)

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 announced, in September 2021, 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. In November 2021, it published additional information on how the capped costs system would work. 

In March 2022, the government published draft guidance which sets out how the cap will operate in practice.

Latest news on the care cap

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 can be required to make towards their eligible 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 that the individual needs to spend to meet their care and support needs. 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. Following the 2022 autumn statement, this is now due to be introduced in October 2025, and implemented using powers that already exist under the Care Act 2014 (although the Health and Care Act 2022 has made changes to those powers – see below).

So, from the point that the person has been assessed as having eligible needs, the clock will start ticking until their contributions towards 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 Care Act provided that when an adult receives financial support from the local authority, the amount that counts towards the cap would include a combination of the local authority and individual contribution. This has now been amended and only the amount that the individual contributes towards these costs will count towards the cap on care costs (see below). The Care Act also allows the government to set different caps for different groups of people, including a zero cap for those who reach adulthood with eligible care and support needs. However, the current plans refer to a single cap for all adults.

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 means-tested access local authority support to meet their eligible needs. Only people with capital below the upper limit qualify for means-tested 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 and the person does not need to contribute to that cost from their capital.

From October 2025, the capital limits will change. The upper capital limit will increase to £100,000; people with capital below this limit will qualify for means-tested 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.

Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support. This is based on a financial assessment which takes into account both income and capital. If individuals are not able to pay for their from their income, they will be expected to contribute up to £1 in every £250 from their chargeable assets towards the cost of their care.

Currently, the capital limits are mandatory for care home residents but for adults receiving care and support in locations other than in a care home, local authorities have discretion to set their own higher limits (provided they are no lower than £23,250 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 linked to the cap on care costs. Once a person’s capital falls below the upper limit (and the local authority starts to contribute to the costs of the person’s needs), only the amount that the individual contributes towards these costs will count towards the cap on care costs. Also, some people will become eligible for fully funded social care before they reach 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. When the reforms were due to be implemented in 2023, the impact assessment for them estimated the overall costs to local authorities being £0.41 billion in 2023-24, rising to £2.92 billion in 2031-32. These figures will need to be revised in line with the two-year delay to the policy announced in the 2022 autumn statement.

The government has also confirmed that it will ensure that all 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 arrange care if a self-funder makes a request and they need care and support outside of a care home setting. This change will extend this right to people who needs can be best met in a care home and could have a significant impact on care providers, many of whom charge self-funders at higher rates to subsidise state-funded residents. This is also now due to come into force in October 2025, though it is unclear whether the government still plans to implement the change in a staged way, starting with new self-funding care home residents before moving onto existing residents.

The consultation document recognises that local authorities will not always be able to commission care at a consistent price, meaning that people with similar needs may progress to the cap at different rates. The guidance will say that this is permissible, but that a local authority should not consistently treat self-funders differently, for instance by commissioning care at a higher rate.

Everyone will have a care account which will be maintained by the local authority and will keep track of their progress towards the cap. Local authorities will provide regular care account statements, and engage early with the person once they are close to approaching the cap to discuss how their needs will be met.

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 that 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?

The Care Act 2014 sets out the core legal duties and powers that underpin the care and support system.It includes provisions to enable the introduction of the government’s charging reforms, with section 15 of the act containing provisions to create a cap on the costs of care. The act also contains powers which allow the government to make secondary legislation (regulations) that provide more detail on how the charging system should operate. This includes a set of regulations, made under section 15, which set the level of the cap and daily living costs as well as regulations which make provisions about care account statements.

The government has amended the Care Act (via the Health and Care Act 2022) so that where a local authority is meeting someone’s needs, the costs that accrue towards the cap are the amount the individual is charged by the local authority towards the meeting of those needs. For an individual meeting their own needs, no amendment is being made and the costs that accrue towards the cap will be the amount their local authority would have paid to meet those needs.

What will and will not count towards the cap?

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

The government has confirmed that the cap will not cover the daily living costs for people in care homes, which will be set in regulations at £200 per week. It has also confirmed that ‘top up payments will not count (where the person or a third party chooses to make additional payments for a preferred choice of accommodation or care arrangements)

The following costs will also not count towards the cap:

• The costs of meeting eligible care and support needs incurred before October 2025 (unless the person is resident in a local authority that participates in the trailblazer initiative);
• Any financial contribution from the local authority towards an individual’s care package;
• Any top-up payments the person or a third party chooses to make towards a preferred choice of accommodation;
• The costs of meeting non-eligible needs;
• 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.
• Research indicates that applying the cap to client contributions – rather than the full costs to the local authority of personal care – would leave people with lower levels of wealth and in poorer regions with significantly reduced protection against “catastrophic” care costs, contrary to the purpose of the policy.
• 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.

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