Public Expenditure - Health Committee Contents

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.[2] 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.[3] This represents 12% of local authorities' total net current expenditure of £113.1 billion.[4] 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".[5] 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[6]

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.[7] 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 formula grant:

Source: Committee Office Scrutiny Unit


Personal Services Grant is part of the Local Government Formula Grant
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'.[8] This was supported by the Local Government Association.[9]

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'.[10] Other witnesses took a different view: Adass told us there would be "a moral imperative"[11] 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".[12]

16. Although 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 social care.

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 Budget

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[13]) 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'.[14]

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.[15] In the meantime, we have been told that the funds will be 'effectively ring-fenced'[16] and 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".[17] 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".[18] 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'.[19]

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 suffer—even before any funding cuts".[20]

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 criteria are.[21]

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'[22] 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'[23] (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 Government Association:

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.[24]

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.[25] 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.[26]

  1. 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'.[27] 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]

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,[29] 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'.[30] 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'.[31] 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.[32]

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%'.[33] 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.[34]

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'.[35] 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.[36] At the same time, the social care sector has already tackled much of the low-hanging fruit in reaching its earlier, substantial, efficiency gains.[37]

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'.[38]

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 the Parliament.

2   HM Treasury, Spending Review 2010, Cm 7942, October 2010, p 50. Back

3   Ev 86 Back

4   National Audit Office, Briefing for the House of Commons Health Select Committee - Health Resource Allocation, December 2010, paragraph 4.1 Back

5   Q 321 Back

6   HM Treasury, Spending Review 2010, Cm 7942, October 2010, p50 Back

7   HM Treasury, Spending Review 2010, Cm 7942, October 2010, paragraph 2.15 Back

8   Q 321 Back

9   Q 220 [Mr Sparks] Back

10   Q 297 [Dr Carter] Back

11   Q 217 Back

12   HC Deb, 11 November 2010, col 186WH. Back

13   HC Deb 11 November 2010, col 184WH Back

14   Q 326 Back

15   Q 327 [Mr Lansley] Back

16   Q 324 [Mr Douglas] Back

17   Q 312 Back

18   Q 321 Back

19   Q 312 Back

20   Ev 110 Back

21   Q 330 Back

22   Q 346 Back

23   Q 345 Back

24   Q 197 Back

25   Ev 131 Back

26   Ev 131-132 Back

27   Ev 133 Back

28   Ev 133 Back

29   Ev 125 Back

30   Ev 111 Back

31   Ev 126 Back

32   Ev 127 Back

33   Ev 88 Back

34   Q 318 Back

35   Q 389 Back

36   Health Committee, Public Expenditure on Health and Personal Social Services 2009, HC (2009-10) 269-i, Table 34b. Back

37   Ev 110 Back

38   Q 198 Back

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Prepared 14 December 2010