SUPPLEMENTARY
WRITTEN EVIDENCE
FROM THE
KING'S
FUND (PEX 12A)
ESTIMATE OF FUTURE SOCIAL CARE FUNDING GAP
FOLLOWING SPENDING REVIEW 2010
Note prepared for the Health Select Committee inquiry
into public expenditure by Professor John Appleby and Richard
Humphries, November 24 2010[58]
The estimates of the gap in funding—actual
spending minus that required to meet demographic needs and some
increases in unit costs—we report in Table 1 and Figure
1 need to be interpreted with caution. The estimates depend on
various assumptions—not least future decisions by Councils
on their spending priorities following their allocations to be
announced next month and the impact of the government's public
sector pay freeze policy on councils' social care wage bills.
Table 1 (and figure 1) provides an illustration
of the possible gap between future social care spending following
the CLG local authority settlement plus other changes announced
in the 2010 spending review; for example, moving the Personal
Social Services grant currently administered by the Department
of Health to the general local government formula grant, real
increases in the PSS grant and the earmarking of part of the NHS
settlement for social care.
The estimates of the funding gap are based on
three scenarios arising from the 27% real reduction in the central
government grant to local authorities (HMT, 2010)—that between
2011/12 and 2014/15 social care spending will be fully protected
by all councils ie a real terms cut of 0%; some protection—a
real terms cut of 7% and no protection, a real cut of 14%.
The estimates assume that a 4% real increase
each year in the social care budget will be needed to meet growing
care needs due to changes in demography and a rise in unit costs
(around 2%) (ADASS 2010)[59]
without any improvements in quality or coverage ie existing eligibility
criteria remain unchanged. Given the government's two year pay
freeze to 2012-13, the 4% increase has been reduced to 2.5% for
the period of the freeze.
The funding "gap" (columns 7-9) is
the difference between estimated actual funding (column 5) and
that required to meet increased demographic demand and some increase
in unit costs (column 6). On the assumption of average reductions
in baseline spending (not including the PSS grant) of 7% over
four years, 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.
The last two columns vary the baseline assumption
concerning real changes in social care spending. 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.
TABLE 1
ESTIMATE OF SOCIAL CARE FUNDING "GAP":
2011-12 to 2014-15
| Social care spending
| Middle
scenario
7% real
cut by
2014-15
| Plus PSS
real
growth
above
2010-11
| Plus
NHS
transfer
to Social
Care
| Required
funding to
meet
needs
| Funding "gap"
7%
real
cut
(col 5-col 6)
0%
real
cut
|
14%
real
cut |
| | | |
| | | |
|
| Cash
(£m)
| 2010-11
prices
(£m) |
2010-11
prices
(£m) | 2010-11
prices
(£m)
| 2010-11
prices
(£m) |
2010-11
prices
(£m) | 2010-11
prices
(£m)
| 2010-11
prices
(£m) |
2010-11
prices
(£m) |
| Col 1 | Col 2
| Col 3 | Col 4 |
Col 5 | Col 6 | Col 7
| Col 8 | Col 9 |
2004-05 | 11,530
| 13,403 | | |
| | |
| |
| 2005-06 | 12,330 | 13,945
| | | |
| | | |
| 2006-07 | 12,810 | 14,230
| | | |
| | | |
| 2007-08 | 13,130 | 14,111
| | | |
| | | |
| 2008-09 | 13,850 | 14,470
| | | |
| | | |
| 2009-10 | 14,489a | 14,731
| | | |
| | | |
| 2010-11 | 15,072a | 15,072
| | | |
| | | |
| 2011-12 | | |
14,831 | 15,389 | 16,174
| 15,449 | 725 | 966
| 484 |
| 2012-13 | | |
14,590 | 15,490 | 16,353
| 15,835 | 518 | 1,000
| 36 |
| 2013-14 | | |
14,349 | 15,286 | 16,315
| 16,468 | -154 | 569
| -876 |
| 2014-15 | | |
14,108 | 14,986 | 15,897
| 17,127 | -1,230 | -267
| -2,194 |
| | |
| | | |
| | |
Notes: a: Spending estimated as average growth over 2004-05
to 2008-09: 3.8% per annum.
Data sources/definitions/assumptions
Col 1 Net social care expenditure, including Supporting People
grant and Personal Social Services Grant.
The Health and Social Care Information Centre (2010) Personal
Social Services Expenditure and Unit Costs England, 2008-09 Table
3.1.
Personal Social Services grant: Department of Health (2009) Department
Annual Report
http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_100667
Col 2 Social care spending at 2010-11 prices, deflated using GDP
deflator.
Col 3 Estimated future social care spending assuming 7% real cut
by 2014-15 (assumes PSS grant element not subject to 7% cut).
Col 4 as above plus real growth in PSS grant over and above 2010-11
level.
Col 5 as above plus NHS contribution to social care.
Col 6 Estimated future social care spend required to cover growth
in needs and unit costs (Adass/LGA, assumes 4% real growth per
annum for 2013-14 and 2014-15, but for 2011-12 and 2012-13 2.5%
on assumption of the impact of public sector pay freeze).Col 8-9
Funding gaps calculated on alternative assumptions about future
social care funding. Spending figures not presented in the table,
but are based on: no real cut (0%) and 14% real cuts over four
years.
FIGURE 1
ESTIMATE OF SOCIAL CARE FUNDING "GAP": 2011-12
to 2014-15
Closing the gap?
The aggregate average national picture presented above suggests
that the outcome of the spending review (coupled with 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.
Clearly, the scale of the potential funding gap at local
level and hence options for addressing this will depend on local
circumstances, history and priorities. One option is to use resources
more productively. Efficiency savings of around 2% a year each
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.
References
Adass (2010) Adass submission to Health Select Committee
http://www.adass.org.uk/index.php?option=com_content&view=article&id=314&Itemid=252
HM Treasury (2010) Spending Review 2010. Cm 7942. London TSO
http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf
December 2010
For the purposes of this submission a working figure of a 4% increase
per annum has been assumed. We believe that this understates the
likely pressures on local authorities over the medium term."
p15-16 (Adass (2010)).
58
This note has been revised to correct an arithmetic error in calculations
of the impact of efficiency gains on the funding gap and also
to allow for government policy on public sector pay over the two
years from 2011-12. Back
59
"The financial impact of this demographic growth will be
significant. In the impact assessment to the Green Paper it is
stated that the funding for the social care system needs to increase
by 3.7% to "maintain the current support offer to all people
with needs above the current eligibility threshold into the future",
assuming that unit costs increase in real terms by 2% a year.
The 3.7% increase also assumes no productivity gains and is for
spend on older people only. Back
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