Well people … both Bob and John have referred to the Social Care Act spending review settlement and I just want to set it really in the context of the wider local government settlement because as John said, you know it doesn’t stand alone as a ring-fenced budget, much as perhaps some people might like it to. So the current spend in local government is around about £48 billion overall and £21 billion of that at the moment comes from government in one way or another through grant, that’s about of it, £9 billion comes through grant and the rest comes through retained business rates, so about half of business rates collected are retained locally in the current system. Of that £48 billion total, around £14 billion is spend on adult social care. So you know, it’s around about a quarter of local government spend, a quarter to 30%. So whatever you do in local government, adult social care is affected and you can’t set it apart.
So if you’ve been reading any of the press around local government settlement in the spending review you may have seen quite a wide range of figures quoted in terms of the impact. From a 79% reduction down to 6.7% reduction. All of them are true, okay. So the 79% reduction was the reduction in government funding between 2010 and the end of the spending review period. You may have seen 56%, that’s been widely used, SIP reviews did it, it’s been used … it was actually in the spending review publication. That’s the reduction in revenue support grant i.e. government grant to councils across this next spending review period. So the government grant goes down very significantly. However, the local government association being a very fair sort of place, well that’s not really the right measure is it because retained business rates is part really of our core funding that government gives back to us at the moment and if we look at core government funding from grant and business rates, that £21 billion I referred to, that will go down by 24% in the spending review period we’re talking about.
Yet, some of the other headlines have said, flat cash, minus 6.7% real terms reduction in funding over the period. That’s the preferred government DCLG measure. It’s also true. It’s true if all councils and as has been said, put their council tax up to the maximum extent they can for the next four years. For social care authorities that means putting it up by 4% a year and it means other authorities like district councils who don’t have the responsibility, putting it up by 2% a year. So everybody, to the max, in a culture where it’s been good to not raise the council tax for the last four years, indeed it’s been incentivised by the government not to raise council tax. That’s a big cultural shift required to get there. So key measures in terms of social care have been mentioned, so the option of the social care precept of 2%, let’s dwell on the word, option. You know, so we’d be given new flexibility but the flexibility is built in entirety, 100% take up of flexibility has been built into the figures. I’m not sure what sort of flexibility that is.
The £1.5 billion VCF as has been said, part of that being redirected from the new homes bonus, quite how, not yet determined. So £3.5 billion for social care, on the face of it a huge amount of assumptions behind that. So the local government association has got a future funding model and we’ve been doing some modelling as has John with his figures and the position is better than we thought it would be before the spending review. We’d projected a gap, taking into account standstill pressures like inflation and demography of about 9.5 billion by 1920, that’s down to 6.5, but it’s still 6.5. That doesn’t take into account some of the additional pressures like the living wage on the care sector, not a direct cost to local government but a cost to commissioned services. National insurance increases which actually were intended to fund part two of the Care Act and that’s not happening, and the money’s not coming.
Underlying social care pressures, so the current social care system is already underfunded. I mean you know, you can scale that in a variety of ways but it is clear that a lot of provision is on the edge. Deprivation of liberty and safeguards is another one. So those total pressures if you look at them across local government, those are the key social care ones, but they add up to another six, £6.5 billion. So we reckon that if you add that sort of core gap and that gap that’s about £13 billion going forward, even if we take all the measures that we could take. It does require those decisions about council tax. The other key thing is that the better care fund is back loaded as has been said. There is no new money for local government in the better care fund from ’16 – ’17. None. It rises from ‘17 – ’18 and it doesn’t get over a billion until 1920. So very significantly back loaded. So there is a graph that goes down and goes up again at the end.
The other big issue for us in local government is that even if everybody raised their council tax as predicted in the figures, the distribution issue is very variable. So the council tax base in a sort of northern metropolitan authority is very different to the council tax base in Surrey, i.e. you get a bigger proportionate increase in money available for a 2% council tax rise in some places than others. There are some places that get the bigger rise are the more affluent areas than the places that don’t. It’s the same people that got impacted by the revenue support grant cuts, so the more affluent areas were less affected because they were less dependent on grants. So what did the government say about that in the spending review? They said that there would need to be some work on distribution, both the distribution of new homes bonus money which is part of the funding that currently goes to local government and also of the grant.
But we don’t know what that is yet. They have said that that’s needed in order to rebalance the system, in order so that you don’t only get the benefit in the areas which are more affluent, but that work hasn’t been done, time is short, the local government settlement is normally expected before Christmas and there were aspirations for a four year settlement but I think it’s going to be a hard push to get the redistribution model sorted for a one year settlement in the next two weeks, which is what it needs. So that distribution issue is really, really important for us, both in terms of the council tax but also in terms of the underlying issue about social care funding. Just one further thing to mention as well before I go on to summarise, is the public health reduction of course also fall in local government. Part of the other side of the equation of the NHS England budget going up, public health funding going down an unprotected budget, a false economy we would say, you know.
We were discussing this beforehand actually, you know Bob was saying about the difficulty of shifting money from the acute sector to get this increase in community services. What you really need is a really aggressive investment in community and preventative services that isn’t taken from somewhere else in order to do it because then you will generate that reduction in acute costs later but it is later. There’s that need for that investment. You know the … but there has been no real boost to community preventative and early interventions, it’s all been tinkering at the edges and shuffling money from here to there and I think that that would be needed in order to really make a substantial difference on high end costs at the end of the day. So in summary, from the local government point of view, a settlement overall better than we feared, there is still a real terms cut to local government funding, how much it is depends on local decision making.
In different areas it depends on distribution models as well. So you know, you could end up with a better position in some places than the 6.7% real terms. You could end up with an increase in some places, but countered by a very difficult reduction in some areas that have already taken big reductions. The council tax increase is a big policy change. You know, people have got to change their mind-set to think differently about whether they should or shouldn’t raise council tax. The big issue of back loading in stark contrast to the health service frontloading, you know the health service has got already a present financial crisis, local government hasn’t got the same thing for the reasons that Bob said, actually they’re not allowed to. It doesn’t mean the crisis is less it’s just more hidden but it’s back loaded. Distribution is a challenge, time is short and there are pressures now in the provider market in particular.
So if you’ve been reading the press over the last few days you will have seen that the Four Seasons, the biggest care home provider in the country, is selling some of its homes already and other providers have said that 50% of care homes will go into being loss making on the implementation of the living wage. Now you may not care about their profits and losses but if they actually go out of the market then we will care. Now, homecare providers, equally if not more pushed in terms of their cost base. The ones that provide into the public sector, if you can charge private clients you’re in a different market. Recruitment issues in many areas of the country already because of the pay issue and again, the living wage, a huge pressure. Even with the living wage will they be able to recruit the workforce?
Some homecare providers again I’ve seen in the press this week, in some authorities … so you know, this is public information, handing care packages back, giving contracts back, they can’t recruit, they can’t deliver. Those issues are with us now and the immediate prospect for improvement in that is slight I would say. So overall, for local government it’s, you know, better than expected. For social care in particular there’s … we’re really pleased there is recognition of the pressures in social care, but we do think it leaves us with issues. Just a very final point, overlaid on all of that is a plan that local government should retain 100% of business rates by the end of this parliament, and that revenue support grant would cease entirely. The 100% retention has to be seen as a global figure only, it’s not for each area because otherwise the system wouldn’t work. So what that requires is a whole new distribution system which again needs to be worked on and that extra funding will come fiscally neutral with new responsibilities. So it is no get out of jail free card. New money comes with responsibilities to match and those responsibilities will probably have been slashed before they get there. So, well that was a positive note to end on wasn’t it? But thank you.