Public Expenditure - Health Committee Contents



MEMORANDUM BY THE LOCAL GOVERNMENT ASSOCIATION (PEX 13)

INTRODUCTION

  1.  The LGA is a voluntary membership body and our 422 member authorities cover every part of England and Wales. Together they represent over 50 million people and spend around £113 billion a year on local services. They include county councils, metropolitan district councils, English unitary authorities, London boroughs and shire district councils, along with fire authorities, police authorities, national park authorities and passenger transport authorities.

  2.  The LGA is pleased to submit a written response to the Health Select Committee's inquiry on public expenditure and would welcome the opportunity to give oral evidence. Should the Committee be interested in case studies of council work that is relevant to this inquiry we would be pleased to provide this.

SUMMARY OF KEY POINTS

  3.  Money spent by councils on adult social care comes from the overall total funding that the Treasury allocates to local government. Councils contribute on average nearly 40% to total adult social care spend through Council Tax. In some areas this figure can rise to nearly 80%.

  4.  Whilst expenditure has increased on adult social care over the last decade it has not seen anything like the increase for health funding. The interdependency between adult social care and health is now widely recognised as being more crucial than ever.

  5.  Based on the assumption of needing to reduce spending by 25% over the next four years, the sector would need to save £3.6 billion. However, demographic pressures combined with the complex nature of care and support suggests the level of saving will need to be considerably higher. Councils have an excellent track record of delivery savings and over the last three years adult services departments have realised cash releasing savings of over £900 million.

  6.  Councils cannot call on many levers to manage demand—particularly given the pressures particular issues generate, such as learning disability, dementia and the transition from children to adult services. Councils do not ignore those individuals who fall outside the eligibility threshold and spend more than £325 million on services that can be accessed without a formal assessment or without meeting eligibility criteria.

BACKGROUND ON ADULT SOCIAL CARE FUNDING

  7.  In the main there is no specific sum of money allocated by central government to councils for adult social care.[12] Instead, money spent by councils on adult social care comes from the overall total funding that the Treasury allocates to local government.

  8.  The main channel of government funding for local government is Formula Grant, which comprises general, or Revenue Support Grant, plus redistributed Business Rates. Formula Grant is allocated under the "four block model", the elements of which are:

    — relative Needs Formula (RNF) allocation;

    — a reduction based on relative resources (essentially the ability of councils to raise Council Tax);

    — a central allocation based on a per head amount; and

    — an allocation to ensure a minimum increase in grant (negative for authorities above the floor whose grant is scaled back to pay for the floor).

  9.  RNF is a series of mathematical formulae that include information on population, social structure and other characteristics of an authority's area. The formula is built on a basic amount per client, plus additional top-ups to reflect local circumstances, such as factors that affect service costs. The biggest factor is deprivation.

  10.  The RNF for adult social care comprises two blocks: younger adults personal social services, and older people's personal social services. The components of each block are summarised below.

    — younger adults;

    — a basic amount for 18-64 year olds that is the same for all authorities;

    — a deprivation top up calculated from a number of factors, such as the proportion of people in receipt of Disability Living Allowance, the proportion who have never worked or are long-term unemployed;

    — an area cost adjustment;

    — older people;

    — a basic amount per person aged over 65 either in households or supported by the council in a care home;

    — an age top-up for those aged over 90;

    — a deprivation top up calculated from a number of factors, such as the proportion of people in receipt of Income Support, Pension Credit and Attendance Allowance;

    — a low income top-up to recognise councils' differing ability to raise income from charges;

    — a sparsity top-up to reflect the greater costs of providing domiciliary care for older people in rural areas; and

    — an area cost adjustment.

  11.  The LGA does not typically comment on allocation formula and resource distribution issues given that, in the main, different systems are inevitably good for some councils and bad for others. Two issues are worth flagging up, however. Damping is a real issue for councils and in simple terms means that even if need goes up, any grant increases will be heavily scaled back.[13] This, coupled with the prospect of Council Tax referenda if increases over what the Secretary of State decides is right are sought, will make the funding problems in adult social care much harder to solve. We therefore believe the key issue is about the overall quantum of funding to ensure future, increased demand is met. To that end we await with great interest the findings of the Commission on Funding for Care and Support.

ADULT SOCIAL CARE EXPENDITURE

  12.  For 2008-09 total gross expenditure on adult social care amounted to £16.6 billion, of which £2.2 billion was funded through client contributions. Net spending therefore amounted to £14.4 billion. Councils contribute on average nearly 40% to total adult social care spend locally (through Council Tax). This equates to more than £5 billion and is an additional amount of money to that which councils receive from central government. In some areas councils will fund as much as 80% of local spend with locally raised money.

  13.  Furthermore, whilst expenditure has increased on adult social care over the last decade it has not seen anything like the increase for health funding. As the Health Select Committee's report on Social Care (March 2010) notes:

    "Overall gross expenditure on adult personal social services 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".[14]

  14.  A brief examination of local authority and NHS contributions to Section 31 and 28a pooled budgets also suggests that the two systems are not committing anywhere near equal amounts as a percentage of their overall budget.[15]

COUNCIL AND NHS CONTRIBUTIONS TO SECTION 31 AND 28A POOLED BUDGETS
Client Group 2010-11 LA
contribution (millions)
2010-11 NHS
contribution (millions)
Older people£363.581 £245.790
Physical/sensory disabilities£22.279 £12.043
Learning disabilities£1,300.265 £848.681
Mental health£222.803 £869.812
Drugs and alcohol£12.818 £54.655
HIV/AIDS£0.153 £1.199
Community equipment£189.459 £240.509
Other£14.480£42.645
TOTAL£2,125.837 £2,315.334
Percentage of budgetApprox 15% Approx 2.2%


  The NHS contribution of £2.3 billion to Section 31 and 28a arrangements is significantly less than the amount it spends, for example, on drugs, which is about £8 billion.

  15.  Based on inflation projections adopted in the June 2010 Budget Report, relatively modest assumptions about pay and pension cost inflation, and cost pressures attributable to demographic pressures, we estimate that the cost of adult social care will grow as follows:
2010-11£14.4 billion
2011-12£16.7 billion[16]
2012-13£17.8 billion
2013-14£19.0 billion
2014-15£20.4 billion

INTERDEPENDENCIES BETWEEN ADULT SOCIAL CARE AND HEALTH

  16.  This is not to suggest that we must view health and social care as two separate systems. Indeed, interdependencies between health and adult social care are crucial and are rightly becoming an increasing focus for national and local government. As the Secretary of State said in June:

    "We must see the many links and connections between health and social care, seeing care in its wider aspects... Health and social care should be integrated more. And so we need to reform social care alongside healthcare..."[17]

  17.  Integration, and a commitment to forging stronger links between the two systems, will be tested as the proposals in the health White Paper, Equity and Excellent: Liberating the NHS are played out. We welcome the paper's focus on removing unnecessary bureaucracy, devolving power to the local level and the transfer of public health responsibilities back to councils. However, if local government is to truly "promote the joining up of local NHS services, social care and health improvement"[18] then it will be important that:

    — The relationship between councils and the proposed NHS Commissioning Board is clearly defined.

    — Councils are supported financially to carry out their new responsibilities for local health improvement.

    — Outcomes frameworks for the NHS, public health and social care need to reflect the linkages between and across the system. This could mean, for example, that national goals for the NHS include the goals for social care, and certainly they will need to align with local government's objectives for improving population health outcomes. As national outcomes frameworks will likely translate into a framework of commissioning outcomes for new GP consortia such a joined up approach will be particularly important.

ADULT SOCIAL CARE DEMAND AND EFFICIENCY

  18.  Based on the assumption of needing to reduce spending by 25% over the next four years, the adult social care sector would therefore need to save £3.6 billion. However, the reality of increasing demand combined with the complex nature of care and support suggests that the level of savings required will be considerably higher than this figure.

  19.  The country's changing demography is certain to exert significant additional pressures on adult social care. We can expect 300,000 more older people to have care needs by 2014 and 1.4 million more older people in the next 20 years. Over the course of their retirement, men aged 65 today have a 7/10 chance of needing some care before they die, with a 9/10 likelihood for women. The best estimate of this demographic pressure—which both councils and the Department of Health agree on—is 4% per year. The reality is therefore that if local authorities cannot achieve this additional 4% then services will suffer—even before any funding cuts.

  20.  Additionally, funding for care and support covers more than just the adult services department's budget book. Many care and support services locally will be funded in partnership with other agencies, such as PCTs. Individuals may also be entitled to benefits such as Attendance Allowance and Disability Living Allowance. And considering a more holistic view of "wellbeing", individuals will also access services such as transport, leisure and housing as part of their wider support needs. Any changes to other departments', or other agencies', funding will therefore inevitably impact on the ability of local public services to respond to individuals whose needs span the full spectrum of intensity and complexity.

  21.  We can be more confident in quantifying the impact of demographic pressures than we can for the implications of cuts in other areas for care and support. But a conservative estimate would see adult social care needing to deliver savings of more than 40% over the next four years, or a spending reduction of close to £6 billion.

  22.  Local authorities have a good record on delivering efficiency savings and adult social care in particular has a longstanding culture of seeking efficiencies to offset the changes in the makeup of our population that affect demand for services. Over the last three years, for example, local authority adult services departments have realised cash releasing savings of £242 million (2007-08), £379 million (2008-09) and £324 million (2009-10). Moreover, councils have achieved these savings without having to drastically tighten their eligibility criteria, which have remained relatively unchanged during this three year period. Councils have also managed to hold fee levels to around or below inflation.

  23.  Councils will continue to rigorously pursue activity and projects that both improve outcomes for individuals and save money. This may involve, for example, the application of telecare, crisis or rapid response, low level interventions for adults with learning disabilities, the elimination of more expensive in-house services, and reablement. However, even the best efforts in these areas are only likely to generate savings of around £800 million—a figure estimated, albeit cautiously, by the Department of Health. This is well short of the near £6 billion savings (40% of total spend) that may be required.

  24.  Moreover, changes to other key funding streams that contribute to meeting the needs of individuals will inevitably have an impact pressure on local authority services. This reflects the reality that an individual in receipt of a social care package is likely to be receiving other forms of support. The Independent Living Fund is a prime example—particularly given recent announcements restricting new funding only to clients in work. According to John Fuller, Strategic Policy Director of ILF, 93% of the fund's £360 million budget was spent on existing users—the vast majority of whom are not in work.[19]

  25.  Against the backdrop outlined above we believe it is reasonable for adult services departments to offer 3% cash releasing efficiency savings per year. This would deliver £1.7 billion savings by 2014-15. To do this councils would need to squeeze every last potential pound out of the activity mentioned above and pursue other ideas ruthlessly. But the fact remains £1.7 billion is also still a long way short of the estimated savings requirement of £5.6 billion.

  26.  The stark reality facing adult social care is therefore a drastic reduction in the budget and a resultant very real impact on the thousands of people who rely on care and support services every day. In a recent report by Age UK, for example, the charity warns that a 25% cut in adult social care could mean that three quarters of the 650,000 people in England who currently receive home-based care may not be able to access services.

MANAGING DEMAND

  27.  Local government cannot call on many levers to manage demand, cost and efficiency and those that it can use are inevitably limited, and indeed in some cases self-defeating. Demand and cost are obviously closely linked although the relationship between the two is complex. First and foremost, packages of care are for real, individual people who have real, individual needs. For that simple reason it is not possible to neatly compartmentalise individuals into groups and groups into costs. Below are some typical issues facing the sector in this respect:

    — An individual with learning disabilities could require support based on a very broad scale of need. Thus whilst some packages of care for adults with learning disabilities at the low end of the scale may cost a relatively small amount, those at the opposite end of the scale may well run into the hundreds of thousands of pounds. It does not take many of these high-end cases to swiftly and dramatically alter council budgets.

    — Similarly, dementia is another condition that will undoubtedly place pressures on council budgets in the future. There are currently 700,000 people in the UK with dementia (approximately 570,000 in England) at a cost of about £17 billion to the UK economy. In the next thirty years the number of people who will suffer from the condition is likely to double, with the cost expected to treble to over £50 billion a year.

    — As people born with a disability are living longer the adult social care sector is seeing an increase in the number of individuals making the transition from children to adult social services. In Worcestershire, for example, the council is experiencing an average of 43 new learning disability cases per year through the transition from children to adult services. This represents a £700,000 annual commitment.

  28.  Future demand is not solely about specific conditions either. More generally the changes in our demography that we are likely to witness over the coming years will have a profound impact on demand for care and support services across the piece. There is widespread agreement amongst both professionals and politicians on the population shift that we can expect to see, and there is a whole library of evidence to back such predictions up. One statistic is worth repeating here to highlight the extent of the change we are likely to see: by 2026 the expectation is that there will be 1.7 million more adults who need care and support. This is a 30% increase on current numbers, which stands at around six million.[20] So what levers can councils apply to manage cost and demand?

  29.  The principal means of managing demand is to tighten eligibility criteria, which are used by councils to determine whether a person qualifies for support. The eligibility framework is based on a person's needs and the associated risks to their independence. There are four eligibility bands: critical, substantial, moderate and low.

  30.  In 2009-10 roughly three quarters of councils set access to care at the "substantial" level, meaning individuals with "substantial" or "critical" needs would be eligible for council support. Roughly one quarter of councils set their access level to "moderate" and just a handful of councils were at the extremes—either offering services to people just with "critical" needs, or for those with "low" needs and above.

  31.  Over the last three years, this rough percentage split of 2% (low), 24% (moderate), 72% (substantial) and 2% (critical) has remained very stable. However, in a future that we know will be characterised by severe funding limitations we may well see an increase in the numbers of councils setting their eligibility level to "critical" only. The difficulty with such an approach is that, whilst it may stem demand in the short term, the decrease in numbers presenting to councils will only be temporary as individuals' substantial/moderate needs escalate to the point of being "critical". This could likely mean a sudden increase in the more costly "critical" end care packages.

  32.  It should be noted that councils do not ignore those individuals who, following assessment, are deemed to fall outside the eligibility threshold. And indeed, putting in place services to prevent people entering the system in the first place is becoming an increasingly important council strategy to manage demand.

  33.  For example, local authorities provide valuable advice and information services for such people, signposting them to community support and other sources of help. In 2008-09 councils spent more than £325 million on adult social care that people can access without a formal assessment, or without meeting eligibility criteria. This is an increase of 10% on 2007-08 and councils expect the figure to rise a further 4% for 2009-10. Supporting self-funders is a particularly important area of work. By signposting them to information and financial advice such individuals will make best use of their resources and prevent a scenario whereby their own savings are relatively quickly and unwisely spent—the result of which is another cohort of individuals presenting themselves to councils for eligible public support with needs that have escalated and are therefore more costly.

  34.  The other alternatives for managing demand—such as raising charges, stopping or closing services, reducing staffing levels and service budgets, and outsourcing—are difficult to pursue. Councils do not want to jeopardise outcomes for residents, which the aforementioned may do, and such activity is obviously hugely unappealing on a political level. Over the coming months consideration of some of these alternatives will inevitably come more to the fore as budgets are scrutinised in ever more detail. And councils will work hard to ensure that the most vulnerable members of our society continue to get the help and support they need.

September 2010







12   The main social care revenue grant that remains ring-fenced for 2010-11 is the Carers Grant, worth £256 million for this year. The Social Care Reform Grant also remains ring-fenced for 2010-11. However, previously ring-fenced grants, have had the ring-fence removed. These includes, for example, the AIDS Support Grant, the Stroke Strategy Grant, and the Learning Disability Campus Closure Programme Grant. Back

13   Damping is a process used by government to lessen the impact of changes to the revenue grant distribution system and provide funding stability for councils. It is achieved by setting a minimum floor level for a percentage increase in grant, with this additional amount met by scaling back the grant allocated to councils whose grant increase is above the floor. Back

14   House of Commons Health Committee, Social Care, Third Report of Session 2009-10, p 14. Back

15   LGA/ADASS report on adult social services expenditure 2009-10, Summer 2010. http://www.adass.org.uk/images/stories/rpt-LGA%20ADASS%20Survey%202009-10%20final.pdf Back

16   The bigger increase between 2010-11 and 2011-12 is because of the £1.5 billion transfer of Learning Disability funding, which will translate into additional spend on new responsibilities. Back

17   Speech by Rt Hon Andrew Lansley CBE MP, 8 June 2010. Back

18   Equity and Excellence: Liberating the NHS, HM Government, July 2010, p 4. Back

19   See Community Care, 25 March 2010. Back

20   Building the National Care Service, HM Government, March 2010, p 48. Back


 
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