Social care 360: expenditure

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4. Expenditure

Total spending by local authorities rose sharply in 2020/21 due to Covid-19 
 

Figure 4: a chart showing additional funding provided during the Covid-19 pandemic.

Why is this indicator important?  
Though spending is not a perfect proxy for the amount and quality of care arranged by local authorities, currently it is the best overall indicator available.    

What was the annual change?  
Total expenditure on adult social care rose sharply in 2020/21 to £26.0 billion from £24.8 billion in £2019/20, an increase of 4.8 per cent in real terms* and an increase of 11.8 per cent (£2.7 million) in cash terms. Spending per head of population also increased, from £560 to £585. 

In this year’s Social care 360, we are presenting some financial information in both cash and real terms because of the impact Covid-19 has had on GDP and measures of inflation.

As before, in Social care 360 we use the GDP deflator to convert spending from cash terms to real terms. The GDP deflator is a measure of general, whole-economy-wide inflation in the domestic economy, and is used by government bodies – including NHS Digital, on whose data much of Social care 360 is based – to adjust for inflation in measures of public spending. The GDP deflator rose by around 6 per cent in 2020.    

Measures of inflation that are specific to health services are being developed, but there is currently no single agreed measure for inflation specifically for the English health and care system. Other measures of inflation, including, for example, the Consumer Prices Index (CPI), which measures the change in prices for consumer goods and services, are constructed on a different basis to the GDP deflator.

What is the long-term trend?  
Total expenditure in 2020/21 was £1.5 billion more in real terms than in 2010/11. However, taking into account the increase in the adult population since 2010/11, spending per head has fallen from £593 per person to £585 per person.  

Local authorities spent £7.9 billion on long-term support for working-age adults in 2020/21. Of this, they spent £4.8 billion on community support, including £824 million on home care; £2.6 billion on nursing or residential care, and £464 million on supported accommodation. They also spent £174 million on short-term support for working-age adults.    

Local authorities spent £7.8 billion on long-term support for older people, of which £4.8 billion was on nursing or residential care, £2.9 billion on community support, including home care (£1.8 billion) and £115 million on supported accommodation. They also spent £507 million on short-term support for older people.    

In terms of reasons for support, the two largest blocks of expenditure were on learning disability support for working-age adults (£5.5 billion) and physical support for older people (£5 billion). Other major areas are support with memory and cognition for older people (£1.4 billion), physical support for working-age adults (£1.4 billion), mental health support for working-age adults (£831 million) and mental health support for older people (£583 million).   

Local authorities spent a further £2.3 billion on commissioning and service delivery. This was an 11 per cent increase on the figure in 2019/20, reflecting increased support to social care providers with income from sources such as the Infection Control Fund and Workforce Capacity Fund (see below).   

These figures are gross current expenditure (total £21.2 billion), so do not include spending that results from NHS income.   

What explains this?  
The large increase in expenditure in 2020/21 is a result of extraordinary measures taken during the Covid-19 pandemic. Local authorities received additional funds from central government, including to support their local care markets which were facing extra costs (for staffing and personal protective equipment) and – in the case of care homes – reducing occupancy levels, which threatened profitability and therefore market stability. Much of this extra spending therefore involved support for providers of services rather than direct expenditure by local authorities on people in need of care, and was intended to recognise the higher cost to providers of providing care for people. 

The funding was typically time-limited and announced irregularly. In March 2020, the government announced £1.6 billion funding for local authorities to help them respond to Covid-19 pressures across all their services, including social care. In May 2020, the government gave local authorities £600 million through the Infection Control Fund to support adult social care providers to reduce the rate of Covid-19 transmission and support wider workforce resilience. In October 2020, a further £546 million was made available. In December 2020, a rapid testing fund of £149 million was created. In January 2021, an additional £120 million was made available through the Workforce Capacity Fund to strengthen adult social care workforce capacity. Together, these funds total more than £1.4 billion.  

The increase in expenditure also reflects increased income from the NHS, which took over responsibility for paying for the first six weeks of social care after people were discharged from hospital (paid for by £1.3 billion of government funding through a hospital discharge fund announced in March 2020). This was to ensure that people were able to leave hospital – and therefore free up beds – as quickly as possible during the pandemic.   

What has happened since?  
In April 2021, a further £341 million of funding for infection control and testing was made available and in October 2021 it was extended with a further £388 million. This brought the total ring-fenced funding for infection prevention and control to almost £1.75 billion and support for testing to almost £523 million in care settings.  

Also in October, the Workforce Recruitment and Retention Fund made available a further £162.5 million, and in December 2021, a further £300 million was made available to help recruit and reward the social care workforce while a further £60 million was made available to support local authorities’ Covid-19 responses over winter.   

In October 2021, the government extended the hospital discharge fund until March 2022 but said it would end then.    

The provisional local government financial settlement will increase local authority spending power by 4 per cent in real terms between 2022/23 and 2023/24

The government has also made available extra funding for social care reform. In the 2021 Spending Review, the government announced £3.6 billion over three years for local authorities to meet the cost of introducing a cap on care costs, extending the means test and introducing a ‘fair price for care’. It is funded from a 1.25 percentage point increase in National Insurance, due to be implemented in April 2022. Most of the £30.3 billion available over three years in England goes to the NHS, with social care receiving £5.4 billion over three years.

5. Cost of commissioning

The fees paid by local authorities for care rose in cash terms but in real terms the picture is mixed
 

Figure 5a: a chart showing that the cost of nursing and residential care has continued to increase in cash terms for working-age adults and older adults, but not in real terms

 

Figure 5a: a chart showing that the average hourly rate for home care has continued to increase in cash terms, but has fallen in real terms

Why is this indicator important?  
Local authorities do not usually directly provide services such as home care and care homes; instead they commission them from third-party providers. Providers need fee levels to be sustainable to ensure they can provide good-quality services and, ultimately, stay in business.  

What was the annual change?  
Between 2019/20 and 2020/21, in real terms* the average weekly fee paid by local authorities in England for care homes fees for working-age adults fell 0.4 per cent, from £1,405 to £1,399. The average weekly fee for older people increased 3.7 per cent from £724 to £751. The average hourly rate for externally commissioned home care fell 1.1 per cent from £18.65 to £18.44.   

In cash terms, the average weekly fee paid for care homes for working-age adults increased from £1,317 to £1,399 (6 per cent) in 2020/21 and in home care, the average hourly rate increased from £17.48 to £18.44 (5.5 per cent). The average weekly fee for older people increased from £814 to £898 (10.3 per cent). 

What is the long-term trend?  
Despite the real-terms fall in 2020/21, since 2015/16 the average weekly care home fee for working-age adults has increased by 4 per cent, the average weekly care home fee paid for older people has increased by 17 per cent and the average hourly rate for home care has increased by 10.1 per cent.   

What explains this?  
The real-terms fall in the level of fees paid by local authorities for working-age adults’ care homes and home care in 2020/21 does not necessarily represent a change to an overall trend which, since 2015/16, has seen local authorities increasing fees to stabilise the provider market.   

First, 2020/21 did see significant increases in cash terms: The real-terms fall is therefore in part a consequence of the very high rate of inflation that emerges from use of the 2020/21 GDP deflator.*   

Second, the government channeled significant financial support to social care providers through local authorities, which contributed to a 4.8 per cent real-terms increase in total expenditure by local authorities on adult social care (see Expenditure). This money did not necessarily feed through into the average fees rate in this indicator, however. For example, to support providers with cash-flow problems, some local authorities told NHS Digital that they were supporting care homes through payments based on care plans or block bookings, rather than the actual weeks of care delivered. NHS Digital notes that some weekly cost of care may therefore be distorted.   

There are some indications this government support paid off in 2020/21. The Care Quality Commission told the Public Accounts Committee that fewer care homes had left the market in 2020 than might be expected, and said it was possible this was a result of government support.   

Nonetheless, though there may not have been a major change in the trend of support for social care providers, there remain serious concerns that rates paid remain too low to be sustainable. The National Audit Office reported a Department of Health and Social Care assessment that most local authorities paid below the sustainable rate for care home placements for adults aged 65 and over and below the sustainable rate for home care. It also noted estimates that people who fund their own care pay up to around 40 per cent more for their care in care homes and around £3 more per hour for home care than people whose care is publicly funded.   

Providers did also face significant cost pressures, particularly from wages, during 2020/21. In April 2020, the main rate of the National Living Wage increased by 6.2 per cent. Covid-19 also brought increasing costs in sick pay and for personal protective equipment.   

What has happened since?  
The government accepted in its 2021 White Paper that ‘in many local authorities, we see low fee rates and cross-subsidy between care home residents paying for themselves, and those who are funded by their local authority’. In December 2021, it announced that £1.4 billion would be available to local authorities over three years to reduce the subsidy of publicly-funded clients by people who pay for their own care through introduction of a ‘fair cost of care’. 

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