156.Reforms to local government finance are planned to come into effect in by 2020. From then on, local government will retain 100% of business rates, leading to a rise in its funding levels by an amount estimated at £12–13 billion, the transfer of additional responsibilities to ensure the reforms are fiscally neutral and the ending of Revenue Support Grant (RSG). The set-up of the new system will be underpinned by an updated assessment of local authority need, which will inform the amount of top-up and tariff assigned to each authority. We will be contributing to the ongoing work in this area with independent research later on this year.
157.In our pre-Budget report we set out the estimates that we had received, which ranged from £1.1.billion to £2.6 billion, for the funding gap in adult social care by 2019–20 and have requested that the National Audit Office makes an independent determination of the funding shortfall. The Local Government Association is calling for newly retained business rates to be used to address the funding pressures on local government, particularly the social care funding gap, before any further responsibilities are considered. We agree that local government should be allowed to use some of the additional business rates revenue, according to need, to close any adult social care funding shortfall that exists when 100% business rates retention comes into effect, before being allocated new responsibilities.
158.After 2019–20, once RSG has been phased out, councils’ main sources of discretionary funding will come from council tax and business rates. The Care and Support Alliance said that, as a result, the landscape for adult social care would “change fundamentally”. Much of the evidence highlighted the fact that, particularly in deprived areas with higher levels of need, growth in council tax and business rates income was unlikely to match demand for social care. Ray James, Immediate Past President of the Association of Directors of Adult Social Care (ADASS), said:
As I look forward, given the relationship between deprivation and the need for social care—there is a really strong link between levels of disability and mental illness and the prevalence of [need], and also in terms of lone older households in deprived areas—it seems unlikely that local taxation alone could provide for that.
James Lloyd, Associate Fellow at the Strategic Society Centre, said:
The link between social care and business rates in particular has never been clear to me. I am not really clear why we try to fund social care through a locally administered tax that is now effectively part-hypothecated, plus business rates increasingly in the future. That feels like a very odd way of funding social care.
In the interim report from our inquiry on business rates reforms, we also concluded that there is likely to be little or no correlation between changes in business rate revenue and changes in local authority needs. We further concluded that the reformed arrangements would most likely need to be supported by a system of grants for councils affected by increases in need. When we asked our witnesses whether they also thought this was the case, they agreed. Ray James of ADASS said that it was “undeniable that the total quantum required for social care will be greater”.
159.Council tax and business rate income will not be commensurate with current and future local demand for adult social care. The Government should report on what measures it intends to use to tackle the disparity that this will create. We recommend that funding should be made available for adult social care via a central government grant linked to need and rising demand. As further insurance against future shortfalls in funding, the Government should consider giving local authorities greater flexibility on the level at which they set council tax.
160.In our pre-Budget report on adult social care, we said that there was an urgent need for a review, ideally cross-party, of the provision and funding of social care in the long-term. We therefore welcomed the Chancellor’s announcement in the Spring Budget that, later this year, the Government will set out proposals for the long-term funding of adult social care in a green paper. We also welcomed the Health Minister’s acknowledgement that there was “absolutely no question” that the total amount of GDP that we spend on adult social care will increase.
161.As we explored in paragraph 7, it is well evidenced that the demographic pressures on adult social care will continue to increase in the longer-term. Richard Humphries, Assistant Director of Social Care Policy at The King’s Fund, explained why the current system is unlikely to be able to deal with the challenges this presents:
If we go right back to the 1940s and the founding of the welfare state, what we now call social care was not an issue then very much because most people did not live long enough […] What has happened in the 60-odd years since is this fundamental change in the nature of the needs that we need both our healthcare system and social care to meet. A lot of it is around the success of an ageing population […] Our system has never really faced the question about what it needs to do differently to meet that. This is a fundamental step change in what we are asking the system to do.
The Personal Social Services Research Unit has projected that, to keep pace with demographic pressures and increases in the unit costs of care, public expenditure on care for older people would need to rise from around £6.9 billion (0.43% of GDP) in 2015 to £17.5 billion (0.69% of GDP) in 2035 at constant 2015 prices and that care for younger adults will rise from around £8.4 billion (0.53% of GDP) in 2015 to £18.4 billion (0.73% of GDP) in 2035 at constant 2015 prices. Expenditure on adult social care will need to rise as a proportion of total public expenditure.
162.We note that there have been several unsuccessful attempts at reform in the past, although most concerned the balance of responsibility for funding care between the state and the individual rather than the overall level of resources for adult social care. During this time, the funding and demographic pressures have increased. Richard Humphries of The King’s Fund observed that “When Sutherland did his Royal Commission in 1999, the costs of his reforms were £1 billion. Today, we talk about a funding gap this year of £1 billion for social care”. We further note that, in the last 30 years, most other countries—for example, Germany, France, Japan and the Netherlands—have ‘grasped the nettle’ and reformed how they fund care. We therefore agree with Stephen Dorrell, Chair of the NHS Confederation, who said that a review had become “urgent” and with the LGA that “this is the last chance we have to get this right”.
163.After successive attempts at reform and in the context of ever-increasing demographic pressures on the system, the need to find a way to fund social care for the long-term has now become urgent. The solution needs to be implemented in the next spending round.
164.The evidence we received suggested that the review would need to be inclusive. It needed to entail a “much bigger conversation as to how society should support the most vulnerable when they need care and support”; it needed to enable “transparent debate” about where the money comes from; and it needed to take place “politically on a cross-party basis” and reach a “national consensus”. During our visit to Germany, we heard that the introduction in 1994 of reforms to social care funding in the form of a mandatory system of long-term care insurance had been devised and agreed with cross-party political backing and that this had been essential to establishing a lasting solution which retained public support.
165.We heard a range of suggestions about where the money to fund social care should come from, and we have set these out in the points below. We highlight the fact that our witnesses emphasised the need to be ambitious; for example, Stephen Dorrell of the NHS Confederation said:
If we put in place a set of political choices that artificially restrain our capacity to pay for those services and, therefore, presumably to pay for other services, we do ourselves no favours at all. It is Maslow’s famous hierarchy of need. As we get richer, we should expect that a rising share of our rising income is spent on these services.
Our witnesses suggested funding would need to be drawn from a wide range of sources. James Lloyd of the Strategic Society Centre said:
There is no one solution to this. It is foolish to think that we can just flick a few switches over here—a national tax there, or maybe trim state pension expenditure—and that will solve it. There will probably have to be a suite of interventions and changes to fiscal policy.
The sources of funding that our witnesses suggested a review should consider were:
Simon Stevens, Chief Executive of NHS England, suggested that there should be a “new social contract for older people”, which would entail a move from the triple lock pension guarantee to a “triple guarantee on retirement security” which he said would:
Include income but also being able to stay in your own home, where that makes sense, and getting the care you need, including social care […] it represents an expansion in the offer to retirees. It is not about taking things away.
166.It is vital that political parties across the spectrum, together with the social care sector and the wider public, are involved in the process of reaching a solution. The importance of this was demonstrated by our visit to Germany, where decisions on reforming social care funding were supported by a political consensus, trades unions and employers and therefore attracted wide public backing. As a first step, political parties should agree to work together.
(1)Hypothecating national taxation (income tax, National Insurance Contributions, asset taxes, inheritance tax) and, in particular, the feasibility of introducing compulsory social insurance on the German or Japanese model.
Although they are likely to remain an important part of funding adult social care, local taxes, which will not grow at the same rate as need, cannot be the main funding solution. We have already called for significant reforms to council tax in our report on fiscal devolution in the last parliament and reiterated these in the report we published last year, Devolution: the next five years and beyond.
168.As well as considering future sources of funding for social care, the review should also take into account the range of uses for which social care funding is required. Over the course of this inquiry, we have identified these as including:
169.In the Spending Review 2015, the Government reiterated its commitment to introducing Phase 2 of the Care Act 2014 in April 2020. This would introduce a cap of £72,000 for people aged 65 and over on the amount they will pay towards care and support, regardless of means, and an increase in the threshold, above which people start to contribute to their residential care costs, to £118,000. The review will therefore also need to consider whether to go ahead with implementation of Phase Two of the Care Act 2014, as well as, more broadly, whether people should be means tested and, if so, how they should contribute to the costs of their care. As part of this, it should also consider the different approaches to including the value of a person’s home in the means test for residential and home care.
170.While health care will remain free at the point of use, social care will remain needs- and means-tested. We note the challenge that this lack of alignment in entitlements to health and social care poses to integration.
371 . See also , Hull City Council (), Bupa Ltd (), United Response (), Liverpool City Council (), Gateshead Council (), London Councils (), County Councils Network (), Care and Support Alliance (), Centre for Welfare Reform ()
374 Communities and Local Government Committee, First Report of Session 2016–17, 100 per cent retention of business rates: issues for consideration, HC 241
380 Personal Social Service Research Unit, Projections of Demand for and Costs of Social Care for Older People and Younger Adults in England, 2015 to 2035 (September 2015)
384 Local Government Association, , 8 March 2017
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