Coal or chocolate coins: What do the changes to local government funding mean for social care?

As they do in the run up to every Christmas, local authorities have once again been tensely waiting for the provisional Local Government Finance Settlement to find out more about what’s coming their way: their national grant allocation and policy for the next year. This year, what they are unwrapping looks a bit different. The government has announced a suite of measures to reform how local government works and, crucially, how it is paid. So will social care get more money, will it be fairer, and can it cover the cost of the reforms the government has promised?

What are the changes to the way local authorities are funded?

Over the last decade, local authorities have become increasingly reliant on Council Tax to fund their core services, including social care. National funding, on the other hand, has declined, and has increasingly been allocated as a complex web of short-term, unpredictable national grants to prop up the system. Each grant has been associated with spending priorities and reporting conditions that are often divorced from the way councils make decisions around their social care services.

While there is no intention to reverse the ever-greater reliance on local sources of funding, the government itself has recognised the “proliferation of micro-managed [national] funding pots” contributing to the crisis many local authorities now face, and which it is now seeking to reform. Key to this reform is the consolidation of the many existing funding streams into a simplified and smaller number of grants and, importantly, a greater freedom for local authorities over how these grants are spent. Funding for social care will form part of a broad ‘Revenue Support Grant’ to manage a range of local priorities over the next three years.

This will be distributed according to the new fair funding assessment to ensure a better distribution of funding to support poorer areas, the outcome of which was confirmed in yesterday’s Settlement. The formula used to distribute funding to local authorities has long been outdated, and particularly punitive to poorer areas, whose ability to raise revenue from local sources, such as Council Tax, is impacted by relatively lower affluence. The reforms seek to cut the pie more fairly by better adjusting for changes to need and to ensure that more deprived areas are not disadvantaged. 

The government hopes the allocation of funding over multiple years, with greater flexibility in spending and a fairer distribution, should afford local authorities more certainty and enable them to make long-term investments into improving their local services and infrastructure to meet current and growing need.

Are councils going to stop funding social care to pay for bins?

The removal of ringfencing for social care might lead some to worry that councils would prioritise spending on the more visible services that residents expect for their Council Tax – like street cleaning, waste collection, fixing potholes, park maintenance or libraries – rather than on social care, which is used by only a relatively small number of people.

This feels highly unlikely. Adult social care is a demand-led service, and we know that demand is rising. Local authorities have a statutory responsibility to meet this, and while adult social care currently makes up 40% of local authority spending, councils are overspending more than ever before to cover the rising demand and costs of social care.

More than 90% of the Revenue Support Grant is made up of funding pots that were  previously specific to social care, which suggests that if councils want to avoid a further decrease in services, most of this funding should continue to go towards social care. But a greater flexibility in deciding which services to prioritise may enable local authorities to shape their care markets around local need.

Local authorities will also be subject to new accountability arrangements to keep them in tow over their social care spending. The Department of Health and Social Care will publish yearly priorities and expectations, alongside notional social care allocations that estimate how much a local authority should spend on social care based on historic expenditure, and current income and funding available for social care.

The Department will use these notional amounts to guide discussions with local authorities, aiming to understand how spending decisions are contributing (or not) to improved outcomes around the government’s social care objectives – improved quality, joined up around neighbourhoods, with greater choice and control for people – and its annual priorities for the system. Central government will need to balance oversight with trust in local decisions, and provide local authorities with sufficient funding to meaningfully enact change, to ensure the flexibilities introduced through the wider reforms are not lost.

What is the outlook for local authorities over the next few years?

We now know from the provisional Local Government Finance Settlement that up to £4.6 billion will be made available to councils for social care by 2028/29. But much of this is likely to come from increases to Council Tax rather than additional government funding.

The Settlement also confirms that the additional government contribution to social care by 2028/29 will be the £500 million to be distributed through the social care Relative Needs Formula. This has already been promised to meet the costs of the fair pay agreement – already a tight squeeze to deliver meaningful improvements to pay and conditions. The only additional new funding to be delivered by government is a share of transition funding estimated to be spent on social care, and £331 million from the NHS via the Better Care Fund. There is therefore barely enough to cover the costs of the fair pay reforms, let alone meet need and demand, or implement any recommendations the Casey commission produces.

Local authorities will have to contend with mounting financial pressures over the next few years. The boost to the National Living Wage is set to cost care providers around £1.2 billion next year alone and will push up the cost of care, much of which is commissioned by local authorities. And, while the most deprived councils stand to benefit from changes to the way funding is allocated, many with middling levels of deprivation are worried that they will be worse off as a result of today’s allocations, and continue to be reliant on government bailouts to make ends meet.

While the additional flexibilities of the Local Government Settlement will be welcome, without significant increases in central government funding, ringfenced or not, local authorities remain in a very difficult position to deliver even their core services or the aspirations of the fair pay and Casey reforms.