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Government reforms will open up yawning gap for adult social care funding

And are at odds with desire for high quality services and devolved responsibilities, says Institute for Fiscal Studies

Caroline White

Friday, 23 March 2018

Reforms to local government finance risk a growing funding gap for adult social care and are at odds with efforts to provide consistent and high-quality care services across the country and the government’s plans for devolved responsibilities, finds a new report* from the Institute of Fiscal Studies.

From 2020, the government expects local authorities to draw on council tax and business rates for practically all their general funding.

But revenues from these taxes are unlikely to keep pace with the rising costs of adult social care services, leaving councils with increasingly tough choices about which services to prioritise, says the report.

Even if council tax revenues increased by 4.5% a year – more than double the rate of projected inflation – adult social care spending could amount to half of all revenue from local taxes by 2035. That is up from just 30% today, it warns.

If councils did meet these costs from their local tax revenues, the amount left over for other services would fall in real terms (by 0.3% a year, on average). In other words, there would be decades more austerity for services that have often already seen cuts of 20% or more since 2010.

Even if larger tax revenue increases could be delivered, or growth in the cost of adult social care constrained, ongoing changes to the way local government finance is allocated mean that different councils could find themselves with revenues that differ significantly from their spending needs, points out the report.

And changes in relative spending needs and revenues can be significant, warns the report. For instance, between 2006–07 and 2013–14, one in five councils saw their relative ability to raise local tax revenues fall, whilst their relative need for adult social care increased, according to official needs assessments.

Looking to the future, different councils are likely to see very different pressures from an ageing population. In one in 10 councils, the share of the population aged 75 and over is projected to grow by 6% or more over the next 20 years. But in another one in 10 councils, it is due to increase by just 1.7 percentage points or less.

If councils’ relative spending needs and their shares of revenues are moving differently, delivering consistent access to and quality of social care across England could be difficult, says the report.

Either the social care services could become increasingly dependent on where an individual lives, or the money councils have for other things could be cut.

There is no easy way to square this circle without backtracking on reforms to local government finance and reintroducing general grant funding, says the report.

If the government wanted to ensure its ring-fenced grants were spent in full on adult social care, the grants would have to fully fund these services. This would remove over one third of what councils currently spend from local control, reducing residents’ say in local spending decisions.

Full ring-fenced grants could be allocated according to spending needs. But in 2015–16, the difference between what over half of councils spent on adult social care and what the official relative needs formula suggested they would need to spend was 10% or more.

Moving to needs-based grants would therefore imply a big redistribution of spending around the country and would need to be phased in slowly.

“With increasing demand and costs, council tax and business rates revenues are very unlikely to be enough for councils to fund both adult social care services and the other services they are expected to provide,” said David Phillips, associate director at IFS and an author of the report.

“At the very least, the government will have to provide an increasingly large top-up via the Improved Better Care Fund or similar ring-fenced grants. Alternatively, it could decide to keep and, over time, increase the general grant funding for councils that it currently plans to abolish in 2020. More radically, it could devolve revenues from other more buoyant taxes, such as income tax, to councils to help fund local services.”

Co-author Polly Simpson, research economist at the Institute, added: “The government has to decide whether it thinks adult social care is ultimately a local responsibility, where councils can offer different levels of service, or a national responsibility, with common standards across England.

“If it opts for the latter, it cannot expect a consistent service to be funded by councils’ revenues, which are increasingly linked to local capacity to generate council tax and business rates revenues. In that case, centralised funding for social care would seem more appropriate, and could allow closer integration with the NHS. But it would go against the government’s devolution agenda. All in all, a difficult circle to square.”

Anita Charlesworth, director of Research & Economics at the Health Foundation, said: “The increasing pressures on the social care system are impacting on the quality of care people receive, causing additional delays in the NHS, and squeezing the budgets of other council-funded services.

"With a funding gap of £2.5bn by 2019/20, any reform to social care will require additional funding, and clear communication with the public of who will be expected to pay for it.”

* Amin-Smith N, Phillips D, Simpson P. Adult social care funding: a local or national responsibility? IFS Briefing note BN227. Institute for Fiscal Studies, March 2018.

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