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7. CURRENT COSTS & FUNDING
The Review Group estimates that in terms of total funding there is a shortfall in the region of around £40 million which requires to be addressed by government and recommends that the Scottish Government should in the short-term:
- Provide additional funding to stabilise the policy for the next 5 years; and
- Ensure that the Residential and Nursing Care Fixed Rate Allowances are, in future, up-rated annually in line with inflation.
Overall funding level/adequacy of funding
73. The first strand of our remit, and one of the most challenging, was to examine the total level of resources which have been made available to Scottish local authorities for the implementation of the FPNC policy since its introduction in July 2002, including the:
- Resources available for the provision of personal care at home without charge to certain people prior to introduction of the policy; and
- Extra resources provided when the policy was implemented.
74. In considering these issues, we were assisted significantly by the review report on free personal and nursing care prepared by the Auditor General for Scotland and the Accounts Commission, published in January 2008. We also considered in detail the work of the Care Development Group ( CDG), which prepared the original cost projections for implementing the policy. Part 4 of our report provides more detailed analysis on the basis of the original costs projections and subsequent expenditure levels.
Resources for Personal Care at Home Prior to the Introduction of the Policy
75. Many older people already received personal care services at home without charge, prior to the introduction of the policy, either because their income was below the means-tested threshold operated by their local authority or because the authority already provided personal care without charge. Based on estimates of numbers of clients receiving personal care, average number of hours of care, hourly rates and client contributions, the best available estimate is that Councils spent at least £65 million on these services in 2001-02. Even without the introduction of free personal care, expenditure on these services would have continued to rise with both demographic pressures and national and local policies to shift the balance of care away from hospitals and residential care settings towards more personal care at home.
Extra resources provided when the policy was implemented
76. The Auditor General's report found that the initial cost estimates for implementing the policy were difficult to make, because of a lack of available information, in particular about the existing levels of personal care at home funded privately by individuals and levels of unmet need. There were also uncertainties about future demographics, the impact of changes in healthy life expectancy, unit costs of care services and potential changes in the role of unpaid carers. The CDG acknowledged that there was a significant degree of uncertainty in its estimates, but that they were based on the best assumptions available at the time. Within the timescales available, we do not believe that there is further work the CDG, Scottish Executive or Scottish Parliament could have undertaken to improve the initial cost estimates.
77. These estimates were accepted in full by then Scottish Ministers and were uprated to compensate care home residents for the loss of income following the UK Government's decision to withdraw Attendance Allowance (which we discuss in Chapter 9 below). Total financial provision for the first 2 years of the policy was £107 million for the part year from July 2002 and £143 million for 2003-04, the first full year of the policy. Central Government funding for the policy has increased in each year since. Significant additional funding has also been provided for local authorities' expenditure on other care services for older people.
78. We accept the conclusions of the Auditor General's report, which found that the policy was fully funded by the Scottish Executive during the first few years following implementation, but that by 2005-06 a shortfall in funding had developed. We heard a range of evidence from different sources about the scale of that shortfall in 2005-06, of between £25 million and £63 million.
79. The Auditor General emphasised in his report and in subsequent correspondence that the quality and consistency of financial information collected from and provided by local authorities made it difficult to accurately establish the costs of the policy separate from other care costs. Concerns have also been raised about the treatment of provision for overhead costs, which account for around 11% of local authorities' total expenditure on the policy - around £30 million in 2005-06.
80. On balance, we considered that the lower Audit Scotland estimate of £46 million provided the most accurate starting baseline for considering the funding shortfall. Taking account of a revised return submitted by one Council following the Auditor General's report (-£0.9 million) and separate allowance included within the local government settlement for overhead costs (around £6.5 million in 2005-06), would reduce the estimated shortfall between central government provision and local authority expenditure to £38.5 million in 2005-06. See Table 1 below.
Table 1: Estimated shortfall between Central Government provision and local Authority reported expenditure on FPNC
| 2005-06 |
|---|
£m |
|---|
Scottish Executive additional allocation to councils for FPNC | -153.0 |
|---|
Audit Scotland estimate of actual council expenditure for FPNC | 285.0 |
|---|
Less £65m spend uprated for growth in Grant Aided Expenditure | -87.0 |
|---|
FPNC share of central funding allowance towards general social work overhead costs | -6.5 |
|---|
Total estimated 'shortfall' between funding and reported expenditure on FPNC | 38.5 |
|---|
81. Scottish Government officials have argued that a significant proportion of this suggested gap between the central funding allocations and local authorities' reported expenditure on personal and nursing care does not reflect extra costs to local authorities, but the transfer of existing expenditure due to reducing numbers of clients receiving fully local authority funded care in care homes (i.e. those residents who would have received funding towards their care even without the FPNC policy).
82. The Auditor General's report confirms that the numbers of residents receiving local authority funding towards their total care costs fell from 24,660 in 2002-03 to 22,730 in 2005-06. This arises from 2 factors: increasing wealth, particularly home ownership, amongst older people means that more are classified as FPNC clients; and due to national and local policies, a higher proportion of older people with intensive care needs now receive personal care services at home rather than in care homes. The Auditor General's report estimated that the reduction in expenditure on fully local authority funded clients between 2002-03 and 2005-06 was £19 million.
Current Funding Requirement
83. We were asked not only to look at the historic funding position, but at how to place the policy on a sustainable footing going forward. Validated expenditure figures on personal and nursing care expenditure are not currently available beyond 2005-06.
84. Provision was included in the local government general grant settlement for 2006-07 and 2007-08 specifically for anticipated increases in the numbers of older people requiring care services and associated costs. The value of the additional allowances was £16.2 million in 2006-07 and £42 million in 2007-08. These increases were allocated for all services for older people, not just personal and nursing care. The increases are consistent with the age profile projections for future growth in the costs of long-term care services for older people set out in Part 4 of our report. Partial provision was also included within the settlements for pay and prices, offset by anticipated savings from efficiencies.
85. In addition to demographic growth, local authority expenditure on free personal care will also have increased since 2005-06 as a result of decisions by a number of local authorities to end charging for food preparation.
86. Taking account of the increases for demographic growth and pay and prices, the loss of income from removing charges for food preparation, but also the continuing switch in expenditure from fully funded local authority care home clients to personal and nursing care, we estimate that the current shortfall in funding required to stabilise the policy in the immediate term is around £40 million. Once the additional funding is established in the baseline local government budget, the Scottish Government and local government should agree relevant inflationary factors to uplift the provision in subsequent years.
87. This figure is in line with our analysis elsewhere in this report that the policy of FPNC is affordable and sustainable over the immediate term, with some additional funding to help address specific difficulties.
Allowance for Personal and Nursing Care in Care Homes
88. We were not asked as part of our remit to look at the levels of the standard flat-rate allowances for personal and nursing care in care homes. The original levels of flat rate allowances (£145 per week for personal care and £65 per week for nursing care) were set based on the original analysis of the CDG. These payments were not increased following the implementation of the policy and have declined as a proportion of the total costs of residential and nursing care. We welcome, therefore, the decision by the Scottish Government to uprate the payments in line with inflation with effect from 1 April 2008. The new rates are £149 for personal care and £67 for nursing care. We recommend that, in future, the payment rates should be uprated each year at least in line with inflation.
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