The Scottish Government

« Previous | Contents | Next »

Listen

PART FOUR: ECONOMIC ANALYSIS

11. THE CURRENT COSTS & FUNDING OF FREE PERSONAL & NURSING CARE

"This chapter provides a technical analysis of total levels of resources which have been made available to local authorities since July 2002 to implement the FPNC policy and also more generally for expenditure on care services for older people and wider social work services. It supports the analysis in Chapters 7 and 8 which considers whether the specific additional funding provided for implementing FPNC, based on the original cost estimates of the Care Development Group, have proved adequate, whether additional funding is now required to support the policy and the distribution of those resources amongst local authorities through the Grant Aided Expenditure ( GAE) system."

11. THE CURRENT COSTS & FUNDING OF FREE PERSONAL & NURSING CARE

134. This chapter provides a technical analysis of total levels of resources which have been made available to local authorities since July 2002 to implement the FPNC policy and also more generally for expenditure on care services for older people and wider social work services. It supports the analysis in Chapters 7 and 8 which considers whether the specific additional funding provided for implementing FPNC, based on the original cost estimates of the Care Development Group ( CDG), have proved adequate, whether additional funding is now required to support the policy and the distribution of those resources amongst local authorities through the Grant Aided Expenditure ( GAE) system.

Total level of funding

The original cost estimates

135. When the CDG formed its proposals in early 2001, it drew together a wide range of existing evidence and commissioned specific research to consider the financial and practical implications of implementing free personal care. The Group considered the most up-to-date available information on demographic trends at the time, but also looked at other relevant factors, including:

• Healthy life expectancy;
• Projected changes in the unit cost of care;
• The potential impact of the policy on the role of family and other unpaid carers;
• Estimated levels of unmet demand;
• The loss of contribution from clients who were privately funding their own care, changes in older people's income etc; and
• The likely initial infrastructure costs for local authorities in establishing the new funding arrangements for personal and nursing care.

136. Using the available information, the CDG estimated the total additional costs of implementing the policy in its initial years and projected forward growth in costs over the early years of the policy and the long term. The Group acknowledged that there was a significant degree of uncertainty around the projected costs. They were based on the best assumptions available about both the future costs and pattern of long-term care services. However, they noted that similar uncertainties applied to the wider costs of health and social care services. The Group concluded that the costs arising from FPNC were ' sustainable, given the political will'.

Table 2: Care Development Group Projections for the Additional Costs of Free Personal and Nursing Care Policy 2002-2022.

137. The then Scottish Executive accepted in full the costing estimates prepared by the CDG. These estimates were subsequently adjusted upwards to ensure that care home residents would be compensated for the loss of income following the UK Government's confirmation that residents in care homes receiving free personal care would not be eligible to continue to receive Attendance Allowance (see Chapter 9).

138. The total additional financial provision from the Scottish Executive to local authorities for the first 2 years of the policy was £107 million in the part year from July 2002 to March 2003 and £143 million in 2003-04 (the first full year of the policy). These sums reflected the costs both of the £145 and £65 flat rate payments for personal and nursing care for residents in care homes and additional funding for the loss of charges and expansion of personal care services for older people living in their own homes. The total provision from central government has been increased in each year since the policy was introduced.

Table 3: Central Government Support for the additional costs of Free Personal and Nursing Care 2002/03 to 2007/08 (£m)

*Funding from 2002/03 to 2005/06 was supported in full from Scottish Executive revenue grant (known as Aggregate External Finance). The increases in funding for 2006-07 and 2007-08 include a 20% assumed contribution from Council Tax of £1.8m and £3.2m respectively.

139. It is important to note that this funding was intended to support the additional costs of implementing the FPNC policy. Many older people already received personal care services at home without charge, either because their income was below the means tested threshold then operated by their local authority or because the authority already provided personal care services without charge. The Scottish Government's Health Analytical Services Division undertook work for the Care Cost Sub-Group (a Scottish Executive and COSLA joint working group) to estimate the levels of council spending on personal care at home prior to the implementation of the policy. High and low estimates were calculated of the numbers of clients aged 65 years or over receiving personal care at home; the average number of hours received by each client; average costs per hour and levels of client contributions. The analysis suggested that there was a 95% probability that councils were spending between £65 million and £79 million on personal care services for older people living in their own homes in 2001-02. The Auditor General's report adopted the lower estimate of £65 million.

140. In addition to the funding for FPNC, the Scottish Executive also continued to commit additional resources to reflect increasing demands on care services for older people more generally. For example, from 2001-02, the Scottish Executive provided an additional £24 million per annum, rising to £48 million per annum from 2003-04, for the expansion of home care services for older people. The Scottish Executive also committed additional sums towards the costs of increasing care home fees for older people and other client groups who received financial support towards the costs of their care from local authorities.

141. Table 4 below sets out the Grant Aided Expenditure ( GAE) allocations for services for older people in each year from 2002-03.

Table 4: Submitted by Scottish Government: Grant Aided Expenditure Allocations for Social Care Services for Older People 2002/03 to 2006/07 (£m)

Source: Grant Aided Expenditure figures from 2005/06 GAE Green Book. *Figures for these GAE allocations reflect an estimated share of the total GAE relevant to older people, based on the proportion of total care home residents aged 65+.

142. Total GAE allocations are, of course, not spending targets or limits, but form part of the grant distribution system for local authorities. However, the allowances provide an indication of additional funding allocations and anticipated growth in spending on care services for older people since 2002, of which support for FPNC was just one element. Actual local authority expenditure on care services for older people is recorded on the annual Local Government Finance returns. Information on total local authority net expenditure (i.e. excluding income funded from specific grants or charging) for each year from 2002/03 to 2006/07 is provided below.

Table 5: Total Local Authority Net Expenditure for Social Care Services for Older People 2002/03 to 2006/07

Source: Local Government Finance Returns

*Figures exclude expenditure funded from charges and specific grants

Were the sums provided to meet the costs of Free Personal and Nursing Care Sufficient?

143. Almost from the outset of the policy, individual local authorities have expressed concern that they have not been sufficiently funded to compensate for the full cost implications of the policy. Various efforts have been made, jointly by the Scottish Executive and COSLA and by Committees of the Scottish Parliament, to consider this issue, but without reaching a definitive conclusion. In part, progress was hampered by the time delay in information becoming available about local authority expenditure levels (we only now have validated and published information available up to 2005-06) and concerns about the accuracy and consistency of local authority data and financial returns.

Auditor General's Report on Free Personal and Nursing Care

144. The Auditor General and the Accounts Commission published their report on funding for FPNC on 1 February 2008. The remit for that study was to:

• Evaluate the robustness of financial planning, monitoring and reporting arrangements for FPNC at both national and local level;
• Examine the current costs and funding allocations for FPNC across councils in Scotland; and
• Identify the financial impact of FPNC on older people, the Scottish Government and councils.

145. In conducting the review, Audit Scotland issued a data survey to local authorities, interviewed staff from 6 councils, COSLA and Scottish Government officials, undertook focus groups with older people and care providers and analysed national data on demographics and financial information.

146. With reference to the financial provision and costs of personal and nursing care, the Auditor General's report identified a number of findings relevant to our review, including:

• The initial costs estimates for the policy were difficult to make, in particular because of the limited information available about existing levels of personal care at home;
• The original (1998) population projections on which the cost calculations were based have changed significantly in the subsequent more recent projections (2006);
• It is difficult to evaluate the impact of free personal and nursing care in isolation from other changes and developments in health and social care, such as action to tackle delayed discharges and the shift in the balance from residential to home-based care;
• Since its implementation, there have been wide variations between local authorities in average spend per client on personal care services;
• Sufficient additional funding was provided in the early years of the policy, but there was a growing funding gap, estimated at either £46 million or £63 million in 2005-06;
• Despite the above shortfall, the majority of local authorities spent below the level of the Grant Aided Expenditure allowance for care services for older people overall in 2005-06; and
• Between 2002-03 and 2005-06, spending on care services for older people remained relatively static as a share of total council expenditure and fell slightly as a share of social work spending.

147. The Auditor General emphasised in his report and in subsequent correspondence with the Review Group, that the quality and consistency of financial information provided by and collected from local authorities made it difficult to accurately establish the costs of the policy.

Suggested shortfall in funding

148. Taking account of the concerns about the quality of the available data, the Auditor General provided 2 estimates of the suggested shortfall in funding for the policy by 2005-06, depending on the methodology used, of either £46 million or £63 million.

Table 6: From Auditor General's Report - Additional funding allocated for free personal and nursing care compared with additional expenditure [OPTION A]

Table 7: From Auditor General - Additional funding allocated for free personal and nursing care compared with additional expenditure [OPTION B]

149. The higher figure (Option B) looks only at the specific identified funds provided by the previous Scottish Executive towards the costs of the policy, on top of existing local authority expenditure on personal care at home, uprated for inflation. The lower estimate (Option A) also reflected additional financial allocations provided to local authorities through the GAE allowance for Home Based Services to Older People - not specifically identified as FPNC funding - that will, nevertheless, have impacted on their expenditure levels on personal and nursing care since 2002.

150. The figures for estimated total expenditure on FPNC within the Auditor General's report differ from figures previously published by the then Scottish Executive. This reflects 3 principal factors.

• A number of councils submitted to the Auditor General revised estimates of their expenditure on FPNC between 2002/03 and 2005/06;
• A number of councils added central overhead costs to their gross expenditure on FPNC, in line with Best Value accounting rules; and
• Where councils were not able to estimate overhead costs, Audit Scotland added a notional overhead element to their expenditure totals.

151. Audit Scotland figures suggested that the total overhead costs for local authority expenditure on FPNC accounted for around 11% of total costs, or £30 million.

152. In some cases the revised estimates submitted by councils for the Audit Scotland report were significantly higher than their original expenditure figures submitted on their Local Finance Returns - in some cases over double the value of the original figures. The Auditor General concluded that there was an urgent need for the Scottish Government and local authorities to improve their monitoring and validation arrangements and information systems to enable them to collect comprehensive and accurate information on FPNC and other aspects of care and support services. One local authority has corrected its return to Audit Scotland, reducing its estimated expenditure on free personal care by £0.9 million per annum.

153. In their evidence to the Group, both Scottish Government officials and SOLACE officers noted that at least part of the overhead costs for the policy will be met from separate GAE allowances for local authority social work administration costs. This allowance was not reflected within the Auditor General's final analysis of the estimated funding shortfall for FPNC.

154. Two additional significant factors were identified to us following the Auditor General's report:

155. Local authority representatives have stated that since 2005-06, the level of the shortfall will have increased further, beyond the additional provision for FPNC built into the 2006-07 and 2007-08 local government settlement allocations. This further increase reflects a number of factors, including the impact of some local authorities ending charges for food preparation and making one-off back payments for previous charges. Final validated figures for expenditure on FPNC for 2006-07 and 2007-08 were not available for this report. The results of the Auditor General's report suggests the need for further validation on the Local Finance Returns from local authorities. Provision was included within the local government settlement allocations for 2006-07 and 2007-08 specifically to reflect increases in the numbers of older people requiring social care. The value of these additional allowances was £16.3 million in 2006-07 and £42.0 million in 2007-08. The allowances were 80% funded by Scottish Executive grant with the Council Tax expected to fund the remaining 20%. The allowances were not directed solely at personal and nursing care services, but reflected demographic pressures across older people's services. These increases were in line with the demographic age profiles included in Chapter 13 of this report. Partial provision for pay and price inflation was also included within the settlement allowances for 2006-07 and 2007-08, although offset in part by assumed efficiency savings.

156. In their evidence to us, Scottish Government officials emphasised that part of the suggested overspend by local authorities on FPNC is offset by reductions in the numbers of clients in care homes receiving full local authority support towards the costs of their care (i.e. those residents who would have received support towards the costs of their care even without the FPNC policy). Audit Scotland noted that, between 2002-03 and 2005-06, the total number of local authority funded clients in care homes fell from 24,660 to 22,730 and in 2006-07 this number has further fallen to 22,150 clients. The reduction in these clients arises from 2 factors: increasing wealth amongst older people, particularly from home ownership, resulting in a higher proportion of care home residents being able to contribute towards the costs of their care; and national and local policies to enable a higher proportion of older people with intensive care needs to be cared for in their own homes.

157. Scottish Government officials claim that the result of this reduction in fully local authority funded clients has been a significant shift in existing local authority expenditure which is now recorded as FPNC. The original CDG report predicted this movement in client numbers and expenditure. It concluded that a growing proportion of clients requiring FPNC support in care homes would be offset by savings from reductions in fully funded local authority clients.

158. Looking only at the element of expenditure on LA funded clients relevant to FPNC (the equivalent of the flat rate payments of £145 and £65 per week) the Auditor General's report estimated that the reduction in fully local authority funded clients would result in reduced expenditure on these clients of around £19 million in 2005-06. For 2006-07, the equivalent figure would be £24.5 million. Table 8 below shows the switch from fully local authority funded to FPNC clients in care homes.

Table 8: Total Number of Care Home Clients - Free Personal and Nursing Care Clients and other Local Authority Funded Clients

Total Local Authority Social Care Expenditure for Older People

159. The Auditor General's returns and evidence we received from all other sources emphasised the need to consider local authority expenditure on FPNC within the context of councils' total expenditure on care services for older people and social work services overall.

160. The Auditor General's report identifies an apparent anomaly - whilst councils are spending above the level of their funding allocations on FPNC, overall the majority of councils spend below the GAE allowances for care services for older people. It is evident that overall growth in local authority spending on older people has not kept pace with the notional expenditure and grant levels within the GAE allowances over recent years (and certainly not at a pace which might be anticipated in terms of the demographics).

161. Councils have argued that the overspend on FPNC has resulted in lower spending on other non-personal care services. The Auditor General's report found evidence to support this argument. However, the total suggested shortfall in funding for FPNC accounts for only around one-third of the value of the gap between the GAE allowances and local authority expenditure on non- FPNC care services for older people.

Table 9: Provided by SOLACE: 2006-07 Actual Net Expenditure by Local Authorities on Social Work services, compared with Social Work Grant Aided Expenditure assessments, Scotland ¹³

162. We received anecdotal evidence that some local authorities have prioritised children's services and education over older people's services. This would appear to be borne out in the figures. SOLACE provided us with Table 9 above, which illustrates relative expenditure levels on older people; other adult social work clients and children's social work services. This illustrates clearly the relative level of 'under spending' by local authorities on older people's services overall.

163. SOLACE noted that overall local authority expenditure on social work services is well above the total GAE allowance. This is also true of local authority expenditure overall. However, the relative level of 'under spending' on services for older people suggests that resources are being pulled towards other client groups.

164. A number of local authority representatives, in written evidence and during our visits, stated that the relative under spending on older people's services is a direct consequence of 'over-spending' on children's services. We accept fully the requirement for local authorities to have flexibility to allocate resources between different service priorities - this is fundamental to the principle of local democracy. However, it is not tenable to argue that pressures on one client group should automatically result in under funding for another client group.

Conclusion

165. Higher relative levels of expenditure on services for older people and other client groups do not automatically result in better outcomes. In some cases higher relative expenditure - for example on expensive out-of-authority residential accommodation for children - can indicate a need for service reform. During our visits to councils and in evidence from the Chief Inspector of Social Work, it was emphasised that those local authorities that effectively managed their budget and service decisions were most likely to deliver the most effective outcomes, rather than necessarily those with the highest levels of expenditure.

166. In its evidence to the Group, SOLACE stated that its primary concern was the sustainability of funding for older people's services. We support this sentiment. As demographic pressures continue to grow, it is vital in achieving sustainability that local authorities ensure that appropriate priority is given to investment in and modernisation of care services for older people.

167. There may be those that argue for the ring-fencing of funding for older people's services. The Care Development Group recommended in 2001 that the additional funding for FPNC should be ring-fenced, although the then Scottish Executive decided against this. There is no evidence that ring-fencing of this funding would have resulted in a different outcome - as noted above, local authorities have spent at and above the levels of funding identified for FPNC. We also accept that the wider context of local authority services and the relationship between central and local government in Scotland has moved forward, with a shared commitment to an outcomes-based agenda and moving away from the ring-fencing of specific resources.

Distribution of Resources - methodology

168. Once the total levels of resources for FPNC were determined, Scottish Ministers confirmed that the resources would be allocated through general revenue grant to local authorities, using the GAE distribution methodology, known as the 'client group approach'. ¹⁴

169. The overall aim of the distribution methodology is to ensure an equitable allocation of total resources between Scotland's 32 local authorities reflecting, as far as possible, their relative spending needs. GAE allowances are not budgets or spending targets, it is for each local authority to determine its actual expenditure level on different service headings. Through dialogue between the Scottish Executive and COSLA, on behalf of all local authorities, it was agreed that the additional funding for the implementation of FPNC from 2002-03 should be allocated through 2 separate GAE distributions:

• Revenue funding for FPNC payments for residents in care homes would be allocated through a new GAE assessment, based on figures reported by local authorities on the actual numbers of self-funding clients requiring FPNC.
• Revenue funding for FPC for people in their own homes would be allocated through the existing Services for Home Based Older People GAE assessment.

Distribution for Free Personal and Nursing Care in Care Homes

170. The Joint COSLA and Scottish Government Three Year Settlement Group, which is the forum for discussion on the Local Government Finance ( LGF) settlement, including distribution issues, agreed in June 2007 to change the formula for FPNC in care homes from a distribution based on historic caseload of self-funding clients to a formula-based distribution. There were a number of reasons for distributing funding on a formula basis rather than on the basis of historic cases including:

• A formula is considered to be a fairer representation of current and future need, as opposed to the historic caseload distributions which are distorted towards patterns of provision and can become less relevant over time; and
• A formula would ultimately be fairer, because it divorces funding from council policy e.g. financial incentive to place people in care homes.

The revised formula methodology was adopted for the 3 year settlement distributions from 2008-09.

Distribution for Free Personal and Nursing Care at Home

171. The Home Based Older People GAE assessment is a 'composite indicator', using population weighted for age profile and other factors considered likely to impact on relative levels of demand for home based care services:

• Standardised mortality ratios
• Long term limiting illness
• Number of people living alone
• Pension claimant rate

172. Relative weighting is applied to each of these factors to provide each local authority with a relative share of the total funding. The Services for Home Based Older People GAE has not been reviewed since it was introduced in 2002-03, although the elements of the formula have been updated at each Spending Review, to take account of the latest available demographic data.

173. Individual local authorities complained from the outset of the policy that this distribution - in particular the adjustments for deprivation - do not reflect the factors giving rise to additional costs, specifically the loss of charging income from self-funding clients.

174. Research reports by the Joseph Rowntree Foundation ¹⁵ and University of Stirling ¹⁶ commented on this issue:

"Following the introduction of free personal and nursing care, each authority was provided with additional GAE allocation for those receiving care at home. This amount was determined by formula used to allocate GAE [home based] expenditure to local authorities. It thus reflected factors such as age structure, geography and levels of deprivation. This formula does not necessarily map closely to the costs to the local authority of income forgone through being unable to charge for care. It is more likely to favour authorities in deprived areas where the share of the population able to pay for the costs of care is low."

University of Stirling (2006)

175. In considering this issue, we looked both at a comparison between the share of GAE provided to each local authority for FPNC and its actual expenditure levels and actual expenditure levels reported in the Local Financial Returns. We also looked at expenditure levels per head of population and the relative numbers of clients receiving personal and nursing care services as a share of all older people for each local authority. The tables below confirm wide variation between local authority areas in terms of spend per client and the proportions of older people receiving either personal care at home or care in a care home.

176. The evidence suggests that there are much wider factors at play, both in terms of how local authorities organise and report on care services for older people that go well beyond the specific impact of distribution factors. The scale of variation in spend evident is such that these differences cannot be attributed solely to different reporting practice; a closer examination is required but we heard evidence from the Chief Inspector of Social Work that high quality services do not necessarily equate to high spending and a number of authorities have managed to achieve control of costs alongside quality of services. This is further evidenced in recent research for the Joseph Rowntree Foundation, ¹⁷ which also highlighted examples of good practice.

Table 10: Comparison of Total GAE Allowances for FPNC and Total Local Authority Gross Expenditure on FPNC: 2005/06

Source: Scottish Government, drawn from the 2005-06 GAE Green Book and Local Authority Local Finance Returns 2005/06.

Table 11: Council's average spend per client (£) on personal care for home-based clients, 2002-03 to 2005/06

Sources: Community Care Quarterly Key Monitoring Return and Local Finance Return ( LFR3), Scottish Government 2002-03 - 2005-06.

Table 12: Older People in Receipt of Free Personal Care at Home, 2006-07

Source: Community Care Quarterly Key Monitoring Return, Scottish Government 2006-07.

Table 13: Older people who are in Receipt of Free Personal Care in Care Homes, 2006-07

Source: Community Care Quarterly Key Monitoring Return, Scottish Government 2006-07.

Conclusion

177. The Review Group did not identify any obvious correlation between the distribution of resources for FPNC and those councils which have experienced most difficulty implementing the policy. Spending levels per head vary widely and the best performers are not necessarily the highest spenders.

178. The Auditor General's report recommended that the Scottish Government and local authorities should review the method for distributing FPNC resources to councils, to ensure that these accurately reflect the factors which influence local demand for services.

179. We understand that the Scottish Government has already agreed with COSLA that a wider review should be undertaken of the current grant distribution methodology over the next few years - not just for FPNC - including consideration of whether or not it should be replaced with a completely different model. We consider that the proposed wider review is the appropriate forum through which any consideration of the future distribution arrangements for FPNC should be progressed. That work will inform the next local government finance settlement in 2011-2012. Whatever model is agreed, it should have regard to the demographic pressures and their impact at individual local authority level.

« Previous | Contents | Next »