To date, it has been the Government's plans to introduce a lifetime cap on care costs and introduce a National Insurance levy to fund health and social care that has grabbed the headlines. However, the changes that could have the most significant impact on the market are the proposals to allow private payers (self-funders) to ask councils to arrange care on their behalf at lower local authority rates and the intention to introduce a new ‘Fair Cost of Care’, which aims to increase care fees paid by councils to make the care market sustainable.

A Laing Buisson report published today, prepared on behalf of the County Councils Network, highlights that the Government are ‘seriously underestimating’ the costs of its proposals by at least £854 million a year.

The big question is what is the ‘Fair Cost of Care’ and what will the impact of its introduction be on the market?

Fair Cost of Care
The idea of the policy is that more people who fund their own care in residential care will be enabled to:

"ask their local authority to arrange care on their behalf to secure better value.”

This objective is tied specifically to bringing into effect section 18(3) of the Care Act. It is claimed that:

“This will help to address the current differential in fee rates charged to some self-funders”.

It also asserts that:

“The market effect of this change will be that some providers will, over time, need to reduce reliance on subsidising state-funded care from self-funders.”

This is a strange way of addressing a subsidy that is forced on providers by local authorities and central government underfunding social care, rather than something which providers volunteer for.

It is the low fees paid for state-funded care that gives rise to the need for the subsidy. The Care Act guidance is already clear that councils should have due regard to the actual costs of providing care but in practice, there is a significant gap between council fee rates and the income a provider needs to sustain high-quality services for the long term.

The Government is now making local authorities do the necessary work to establish benchmarks for what a ‘Fair Cost of Care’ might look like. Each local authority is required to undertake its own exercise to determine what sustainable rates are locally and then assess how close their own rates are to that sustainable rate. The initial exercise is to be undertaken between now and September 2022, when formal returns will need to be submitted by each local authority. Local authorities who miss the deadline are threatened with further funding being withheld until they have carried out the exercise. The reports will have to be undertaken in successive years.

One apparent omission from the analysis being undertaken is that of capacity and investment, with the focus being almost entirely on annual costs. There are already significant discrepancies in what private payers will pay for different standards of a physical environment, and over time the ability of investors to justify building homes that have a lower capital cost and deliver a lower specification for accommodation must be decreasing. It is therefore imperative that those who are investing in high-quality homes for the future are given a voice in considering what is a ‘Fair Cost of Care’.

Impact on the market
Laing Buisson's predictions that care homes could face widespread closures and a shortage of beds when adult social care reforms are introduced are bleak news for a sector just emerging from the Covid-19 crisis. It is imperative that providers follow the development of this policy closely, consider the potential implications, seek to influence the approach to the 'Fair Cost of Care' in their local markets and develop a strategy to manage the impact on their business. Our social care team have given considerable thought to these issues and were delighted to have participated in round table discussions with CCN and Laing Buisson discussing the impact on the sector as they developed their report.

If you would like a free briefing paper explaining the legal issues and the potential impact do get in touch with