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IFS: Funding reforms at odds with social care aims

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Government reforms aimed at making adult social care services consistent across the country are “fundamentally at odds” with changes to local government finance focused on encouraging councils to grow their tax bases, according to the Institute of Fiscal Studies.

Research found a move to fund councils through 100% business rates retention and council tax revenue by 2020 was unlikely to generate enough money to keep pace with demand for adult social care.

The IFS says while the Care Act 2014 had placed growing expectations on social care services, there has been a reduction in mechanisms to redistribute funding between councils so quality of care can be maintained.

As a result the government’s move to make councils reliant on local taxation means there is “greater scope for gaps to emerge between spending needs and funding levels”, it said.

The research, commissioned by the Health Foundation, found even if council tax revenues increased by 4.5% a year, which is more than double the rate of projected inflation, adult social care spending could constitute half of all revenue from local taxes by 2035, compared to 30% today.

If councils did meet these costs from their local tax revenues, the amount remaining for other services would decrease in real terms by 0.3% a year on average, the report added.

The report said this would effectively result in “decades more austerity for services that have often already seen cuts of 20% or more since 2010”.

The IFS said ongoing changes to local government funding mean that even if larger tax revenue growth could be achieved, or adult social care costs constrained, councils could be left with revenues that significantly differ to their spending needs as there is now less redistribution of funding as needs and tax revenues change.

To illustrate significant changes in spending needs and revenues, the report said between 2006–07 and 2013–14 one in five councils saw their relative ability to raise local tax revenue fall at the same time as their relative need for adult social care grew.

Also, the share of the population aged 75 and over is projected to grow by 6% in one in 10 council areas over the next 20 years, while another one in 10 areas are due an increase of 1.7% or less.

The report adds that if relative spending needs and councils’ share of revenues are not aligned, social care services could become increasingly dependent on where you live, or other services would have to be cut.

The IFS says “there is no easy way to square this circle” without a reversing planned reforms to local government funding and reverting to general grant funding.

However, it said a ringfenced grant to fully fund adult social care would remove local control of more than one-third of what councils currently spend.

It also warned that in 2015–16 the latest spending needs assessment only explained 13% of the variation in what councils spent on adult social care.

The report concludes: “Recent reforms suggest that central government would like to make adult social care services more consistent around the country – so where you live doesn’t affect your entitlement.

“But this is fundamentally at odds with other policy objectives – specifically, reforms to local government finance that seek to incentivise councils to invest in stimulating growth in their own tax bases and tackle underlying drivers of spending need.”

IFS research economist and joint author of the report Polly Simpson said the government faces a stark choice.

“The government has to decide whether it thinks adult social care is ultimately a local responsibility, where councils can offer different levels of service, or a national responsibility with common standards across England,” she said.

“If it opts for the latter, it cannot expect a consistent service to be funded by councils’ revenues, which are increasingly linked to local capacity to generate council tax and business rates revenues.

“In that case, centralised funding for social care would seem more appropriate, and could allow closer integration with the NHS, which is also centrally funded.

“But it would make England even more centralised than now, and go against the government’s devolution agenda. All in all, a difficult circle to square.”

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