Social care costs could soon overwhelm councils' tax revenues forcing significant cuts to services, think tank warns

29 May 2019
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Social care funding is likely to overwhelm council budgets resulting in significant cuts to other services in the next 15 years unless the government takes action, the Institute for Fiscal Studies (IFS) warns.

The think tank says that with annual increases to council tax of 3%, rising costs and demands mean that adult social care could require 60% of local tax revenues within 15 years, up from 38% now.

The IFS says that without additional funding, this would mean cuts to other services, many of which have already seen cuts of more than 40%.

Even if council tax was increased by 4.7% a year - the average increase this year - adult social care could amount to 50% of local tax revenues, the report says.

The report warns that revenues from council tax and business are unlikely to keep pace with rising costs and demands.

Overall spending on local services by English councils fell by 21% between 2009-10 and 2017-18.

While spending on adult social care fell by 5% between 2009–10 and 2017–18, some services have been hit much harder.

Spending on planning and development and housing services fell by more than 50% while leisure transport services saw cuts of more than 40% over the same period.

David Phillips, associate director at the IFS, says that central government will either have to be provide councils with additional revenues to meet demand or else accept that a lower standard of services will be provided.

He says: "Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with our expectations of what councils should provide.

“A proper national debate on how much we are willing to pay and what we expect of councils is therefore needed. Without it, we will default to a situation where the services councils can provide are gradually eroded without an explicit decision being taken – until ad hoc funding is found as a response to political pressure.

“Such an approach would not be conducive to long-term planning by either councils or the government."

Rebecca O'Keefe, head of investment at interactive investor (Moneywise's parent company), comments: “Today’s report is right to highlight that big choices are looming, and it looks likely that we are going to have to rely on ourselves more than ever for later life care.

"But while many people who need care will probably end up paying something towards the costs, one of the big problems with the current system is the absolute minefield when it comes to navigating the complexity around the provision from the state. We need more practical guidance for consumers here.

“Whilst we await the social care green paper, it is widely expected that the government will put a cap on rising care costs. But whatever the outcome, none of us know how much we will need for later life care."

Local services under pressure

Mr Phillips says that one option is to build on recent reforms and give councils additional powers to raise more tax locally and decide on spending levels.

However, this could mean bigger divergences in the range and quality of services in different council areas.

Richard Watts, chairman of the Local Government Association’s resources board, says the government’s upcoming spending review will be “make or break” for local services.

He says: “Huge uncertainty also remains about how local services will be paid for next year and beyond.

“If the government fails to adequately fund local government in the spending review then there is a real risk to the future financial viability of some services and councils.

“Fully funding councils is the only way to ensure councils can continue to provide all of the valued local services which make such a positive difference to communities and people’s lives."

Care funding responsibility 

With an ageing population, care funding is an increasingly difficult problem to solve. In recent times MPs such as Damian Green have mooted ideas such as a 'state pension for social care.'

Ms O'Keefe adds: “Those at the coal face of the social care system will be all too aware that we already have a system in crisis. Data last week suggests that the clock is ticking ever more loudly: in 2018, for the first time in history, the number of people aged 65 plus surpassed the number of children under 5 years old.

“When it comes to long term care, the buck already stops with you if your assets are more than £23,250 (£28,000 in Scotland and £50,000 in Wales). Your house will not be included in this assessment if you have social care support at home or live with a partner, child or relative who is disabled or over the age of 60.

“Starting to save for your future early, and tax efficiently, is an important start, too, and can be the single biggest contributor to staving off some of the other tough choices down the line, whether that’s equity release, downsizing, deferred payment, or a care annuity, which all have their strengths and weaknesses."

"Saving for your future as soon as possible, whilst tapping into the long term potential of the stock market, is a good place to start – relying on cash alone is unlikely to get you very far. It’s also worth keeping an eye on your own ‘inflation’ number – some of us have more extravagant spending habits than others, something that needs bearing in mind if you want to maintain your standard of living in later life.”

Comments

In reply to by anonymous_stub (not verified)

The IFS (a Socialist "think-tank") don't choose to mention the large, unsustainable proportion of current Council Tax revenue, going towards obsolete Council pension schemes, which greatly exacerbate the problems they face (or don't face perhaps!)

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