3 Social care |
The Spending Review settlement
for social care
10. The Local Government formula grant as a whole
is being reduced, by an average of 26% in real terms over the
Spending Review period.
Social care is not funded solely from the Local Government formula
grant: it is also funded from revenue from council tax and client
contributions. Department of Health figures indicate total local
government spending on adult social care was £13.631 billion
in 2008-09. This represents
12% of local authorities' total net current expenditure of £113.1
billion. In his evidence
the Secretary of State for Health, Rt Hon Andrew Lansley MP, was
at pains to emphasise "it is important to understand that
the headline overall real-terms reduction in formula grant over
four years does not necessarily translate into a corresponding
reduction in the resources available for social care".
The Spending Review document stated:
the Spending Review settlement means that while on
average, central government funding to councils decreases by around
26 per cent over the next four years, councils' budgets decrease
by around 14 per cent once the OBR [Office for Budget Responsibility]'s
projections for council tax are taken into account
11. The implications of the spending settlement on
social care will differ significantly between local authorities
and the total picture will not become clear until individual authorities
know their settlement and have taken decisions on Council Tax.
12. The Local
Government Spending Review settlement is a tough one (though in
line with many others across government) that cannot fail to pose
a challenge for the successful delivery of social care. Although
councils do have the additional revenue stream of council tax,
this will only dampen the cuts to a certain degree, with the Spending
Review itself placing the actual decrease in funding at around
14%, still an enormously challenging figure. It would also be
unwise to regard this level of social care income as 'safe', at
a time when councils will be trying to divide scarce resources
between competing priorities, and when councils' ability to seek
additional revenue from council tax payers will be limited and
could lead to variation.
13. The Personal Social Services (PSS) Grant is being
moved into the formula grant element of the Local Government budget
from 2010-11, and will increase by £1 billion in real terms,
reaching a total of £2.4 billion by 2014-15.
Although this £1 billion of funding is frequently described
by the Government as 'additional' funding for social care, it
should be considered in the context of the much decreased overall
Source: Committee Office Scrutiny Unit
Personal Services Grant is part of the Local Government
Excludes ring-fenced grants and funding for Council tax freeze
14. Other than the rise in funding, the major change
to grant funding for social care is that those elements that had
previously been protected areas of spending have now had their
ring fences removed. The Secretary of State explained to us that
this was because 'we take the view that local authorities, in
the context of having to deliver unprecedented levels of efficiency,
have to be given the flexibility to be able to make those decisions,
to be sure that they can do it most effectively'.
This was supported by the Local Government Association.
15. The obvious consequence of this approach is that
there can be no guarantee that actual changes in spending on social
care will reflect the changes in the PSS grant. Dr Peter Carter
of the RCN warned that 'the problem with not ring-fencing [...]
is that it is often the budgets for people who are most vulnerable
and most impoverished and are least able to fight for themselves
that are raided'.
Other witnesses took a different view: Adass told us there would
be "a moral imperative"
to spend on social care sums earmarked as such in the grant, while
Simon Burns MP, Minister of State at the Department of Health,
told a Westminster Hall debate on 11 November "there will
be a determination and a positive attitude to ensure that the
money is appropriately spent on what it is designed for".
we welcome the Government's identification of additional resources
for social care, through the mechanism of the Personal Social
Services Grant, the fact is that this funding is now part of the
general local authority revenue grant which will reduce from £28
billion this year to £21.9 billion in 2014-15. Given the
pressures on local authority spending overall, the majority of
our witnesses expressed serious concern that changes in the PSS
grant will not be reflected in changes in actual spending in social
care. The decision to end ring-fencing of PSS grants means that
the total level of social care spending is now at the discretion
of local authorities. Even though this may be welcome in principle
it has the practical effect of introducing an additional element
of uncertainty into the plan for meeting demand for health and
17. We urge
the Government closely to monitor the relationship between the
level of PSS grant and actual social care spending. In the meantime
the Government must shore up the 'positive attitude' to spending
of social care funds by clearly communicating its expectations
to local government.
The £1 billion from the NHS
18. A further sum of £1 billion per annum (starting
at £800 million for the first year of the Spending Review
period) is also being made available from the NHS Resource budget
to fund social care. The Secretary of State told us that, from
this sum, £150 million in 2010-11 (rising to £300 million
per year for the rest of the Parliament)
will be spent on reablement, providing services such as physiotherapy,
occupational therapy and home adaptations to those returning home
after a hospital stay. The remaining sum will, Mr Lansley told
us, be spent on 'a much wider range of activity done fundamentally
in a preventive character'.
19. We understand that the new Operating Framework
for the NHS, due to be published shortly, will set out to PCTs
and local authorities the basis on which this latter sum will
be distributed. In
the meantime, we have been told that the funds will be 'effectively
will "formally be transferred from primary care trusts to
local authorities on the basis of an agreed plan as to how this
is to be spent".
Mr Lansley also told us that "there will be a line of accountability
to ensure that they are spent for purposes that deliver improvements
in health gain as well as social care support".
But when asked whether the distribution would be conditional on
an improved interface between departments, the Secretary of State
said he would not use the term 'conditional'.
20. We strongly
support working towards an improved interface between health and
social care, and we recognise the efficiencies and improvements
in the quality of care that could result from this process (see
Chapter 4). The distribution of this sum for social care from
the NHS revenue budget is a key opportunity to drive positive
change in this interface. The Secretary of State's description
of a formal transfer of funds based on a jointly-agreed spending
plan suggests an approach based on the provision of particular
services in isolation. It will be an opportunity missed if this
sum is not distributed with the primary aim of developing a better
overall interaction between health and social care which could
have a much wider impact on efficiency, prevention and reablement
than the more limited funding of certain services. We expect that
the distribution guidelines set out in the Operating Framework
will grasp this opportunity.
Making funding meet demand
21. The social care sector is facing additional pressure
from demographic changes, as an increasing proportion of the country's
growing population reach an age where they are likely to need
care. The generally accepted figure for this demographic pressure
(agreed to by the Department of Health and the LGA) has been a
4% cost increase per year. In its memorandum the LGA told us "the
reality is therefore that if local authorities cannot achieve
this additional 4% then services will suffereven before
any funding cuts".
22. The Secretary of State assured us repeatedly
that the social care settlement would be enough for councils to
meet social care demand without tightening their eligibility criteria.
It was suggested to him that his view was that 3% compound efficiency
gains by local authorities over four years, combined with the
two year pay freeze, the £1 billion transfer from the NHS
and the extra £1 billion from the PSS grant, would be sufficient
to reconcile the pressures of supply and demand for social care.
I wouldn't disagree with that, but you say "sufficient".
In my view and on the basis of the discussions we have had with
local authorities on their ability to sustain current eligibility,
the risk is that I agree with "sufficient". It is not
sufficient to do everything; it is sufficient to sustain the position
we are in. Sometimes that is difficult. There are still difficult
decisions being made in local authorities about what their eligibility
23. In later exchanges, Mr Lansley qualified his
remarks somewhat, stating that 'there is, in our view, generally
no need for local authorities to reduce eligibility to social
care' and, 'local
authorities are very much aware of the demands for their social
care. They do not regard cutting eligibility for social care support
as something that they will immediately resort to in order
to fund other priorities'
(our emphasis). In addition, as Mr Lansley made clear, the fact
that he considers the resources provided as adequate for maintaining
current eligibility levels will not necessarily be reflected at
a local level: 'we have given them the resources: I am explaining
to you why I think that those resources are consistent with them
not having to cut eligibility to social care, but we are not taking
powers to require that or to control it'.
24. This was underlined by David Sparks of the Local
Each individual local authority will be in a different
position and because you are talking about money that largely
comes from the settlement, i.e., the general pot as opposed to
ring-fenced money, it will inevitably be linked to all kinds of
decisions that will be made over the next couple of months in
relation to individual council budgets. So there is absolutely
no guarantee that we can make in relation to any of your questions
[about maintaining eligibility criteria]. Some local authorities
might consider all of those as potential options. It depends on
the circumstances of those local authorities.
25. The King's Fund has prepared a note for the Committee
setting out the potential social care funding gap following the
Spending Review 2010.
The analysis is necessarily based on various assumptions, but
seeks to take into account the Spending Review settlement, the
increase needed to meet growing care needs, and the impact of
the Government's two year pay freeze. The analysis presents the
likely funding gap based on three scenarios: that between 2011-12
and 2014-15 social care spending will be fully protected by councils
(i.e. a real terms cut of 0%); that there will be some protection
- a real terms cut of 7%; and no protection at all, a real cut
of 14% (in line with the Spending Review assumption set out in
paragraph 10). The King's Fund concluded:
On the assumption of average reductions in baseline
spending (not including the PSS grant) of 7% over four years [the
middle scenario], by 2014-15, the funding 'gap' will be around
£1.23 billion - about 8% of estimated spend in that year.
Over the whole four year period, the gap is equivalent to around
2% on average per year.
[...] On the assumption that there is no real cut
(that is, spending increased in line with the GDP deflator), then
increasing demographic needs and rising costs are more than covered
over the first three years, but leaves a shortfall of around £270
million in 2014-15. However it is unlikely that most Councils
could afford to completely protect adult social care spending
in this way given that it is the largest area of their controllable
spending. The worst case scenario is no protection at all - with
a 14% real cut in spending. On this basis, by 2014-15, the funding
gap widens to around £2.2 billion - about 15% of the actual
spend in that year.
- The analysis concludes that
the Spending Review settlement (coupled with the public sector
pay freeze) 'should ensure sufficient funding to more than cover
assumed funding needs in 2011-12 and 2012-13. However, under an
assumed 7% real cut in social care spending over the Spending
Review period, in 2013-14 a gap starts to open, reaching an estimated
£1.23 billion in 2014-15'.
The following graph sets out this analysis:
27. Any potential funding gap will obviously vary
at local authority level, as will the options for addressing it.
The main option, if, as stated by the Secretary of State, eligibility
criteria are to remain unaffected, would be to use resources more
productively to produce efficiency savings to cover the gap. The
King's Fund analysis states 'efficiency savings of around 2% a
year for the period of the Spending Review would be enough to
close the estimated funding gap under the 7% scenario. If the
baseline scenario is closer to a real cut of 14% however, then
efficiency gains of around 3.5% per year would be required'.
28. The question is whether local authorities are
capable of producing genuine efficiency savings at these levels.
Local authorities have a track record which demonstrates their
ability to deliver cash releasing efficiency savings of between
2 and 3% each year,
and the LGA argued that it would be 'reasonable' for adult social
care departments to offer 3% cash releasing efficiency savings
per year, but noted that 'to do this councils would need to squeeze
every last potential pound [...] and pursue other ideas ruthlessly'.
Adass noted that the Local Government submission on adult social
care to the Spending Review had warned that cash releasing savings
of 3% per annum were possible but challenging, and that this would
'include genuine efficiencies but to get to 3% would also have
to include measures such as raising the level of income collected
from charges and in some cases eligibility criteria'.
In supplementary evidence, Richard Douglas, Director-General,
Policy, Strategy and Finance at the Department of Health, made
clear that the Government's assumptions include increases in charges
in line with inflation.
29. We note that the Government's evidence quotes
Adass figures for 2009-10 which demonstrate efficiency gains limited
to 2.5%. Furthermore, the Government notes that 'this figure should
be treated with some caution, as it includes savings from service
reduction and income generation. If only value for money savings
are considered, the efficiency rate falls to 1.8%'.
Against the background of the requirement for an efficiency gain
of between 2% and 3.5%, this evidence calls into question the
Secretary of State's assertion that the necessary efficiency gains
could be made without restrictions on eligibility criteria. Indeed,
the Secretary of State noted that this state could only be achieved
with 'unprecedented' efficiency gains in social care.
30. The Secretary of State argued that the NHS would
be able to make its own unprecedented efficiency savings because
it was starting from 'a relatively high platform of resources'
and a period of declining productivity. He said 'you have a more
realistic prospect of delivering greater productivity in the years
ahead than if you started with a relatively low level of spend
when you had been increasing productivity'.
Unfortunately the position which the Secretary of State describes
in the NHS does not prevail in the social care sector. Although
overall gross expenditure on adult PSS rose in real terms by 57.4%
between 1997-98 and 2007-08, this is in contrast to spending on
the NHS, which doubled in the same period.
At the same time, the social care sector has already tackled much
of the low-hanging fruit in reaching its earlier, substantial,
31. The ability to make this level of efficiency
gain will also vary significantly across different councils. Andrew
Cozens of the LGA noted that some local authorities would have
more scope to make savings than others, depending on the current
structure of their social care systems. In particular, he said
that 'the quantum [of efficiency savings] is achievable but it
is not spread evenly across the country'.
32. The evidence
submitted to us, including the evidence submitted by the Government
itself, does not allow us to conclude that the Spending Review
settlement, coupled with the pay freeze, is enough to allow councils
to 'sustain' care levels without restricting eligibility criteria.
Our analysis shows that, depending on spending decisions by individual
councils, the social care sector will need to deliver efficiency
gains of up to 3.5% per annum throughout the Spending Review period
to avoid reducing their levels of care. We intend to monitor the
delivery of these key objectives on a regular basis throughout
2 HM Treasury, Spending Review 2010, Cm 7942,
October 2010, p 50. Back
Ev 86 Back
National Audit Office, Briefing for the House of Commons Health
Select Committee - Health Resource Allocation, December 2010,
paragraph 4.1 Back
Q 321 Back
HM Treasury, Spending Review 2010, Cm 7942, October 2010,
HM Treasury, Spending Review 2010, Cm 7942, October 2010,
paragraph 2.15 Back
Q 321 Back
Q 220 [Mr Sparks] Back
Q 297 [Dr Carter] Back
Q 217 Back
HC Deb, 11 November 2010, col 186WH. Back
HC Deb 11 November 2010, col 184WH Back
Q 326 Back
Q 327 [Mr Lansley] Back
Q 324 [Mr Douglas] Back
Q 312 Back
Q 321 Back
Q 312 Back
Ev 110 Back
Q 330 Back
Q 346 Back
Q 345 Back
Q 197 Back
Ev 131 Back
Ev 131-132 Back
Ev 133 Back
Ev 133 Back
Ev 125 Back
Ev 111 Back
Ev 126 Back
Ev 127 Back
Ev 88 Back
Q 318 Back
Q 389 Back
Health Committee, Public Expenditure on Health and Personal
Social Services 2009, HC (2009-10) 269-i, Table 34b. Back
Ev 110 Back
Q 198 Back