Policy paper

Market Sustainability and Fair Cost of Care Fund: purpose and conditions 2022 to 2023

Published 16 December 2021

Applies to England

Introduction

In September the Prime Minister confirmed the government will be providing funding to support local authorities move towards paying providers a fair rate of care. This statement provides further detail on the funding available, including our expectations for fair cost of care and market sustainability, conditions of funding and distribution for 2022 to 2023. This is to enable local authorities to begin preparing local markets for reform. This will be followed by a grant determination letter and further guidance in early 2022.

Purpose

The government is committed to a wide-ranging and ambitious reform of the adult social care system that protects people from unpredictable costs; offers more choice and control over care received; offers outstanding quality; and is accessible to those who need it. A sustainable care market is fundamental to underpinning this ambition.

We know some local authorities are promoting efficient and effective operation of care markets, with sustainable rates of care and ambitious market position statements. However, a significant number of local authorities are paying residential and domiciliary care providers less than it costs to deliver the care received. This is undermining their markets, creating unfairness, affecting sustainability and, at times, leading to poorer quality outcomes.

While recognising that local authorities are responsible for facilitating the efficient and effective operation of local care markets, we want to support them, where necessary, to address issues affecting their markets, and move them to a more stable footing. Action now is important for 2 reasons. First, from October 2023 we will enable more people who fund their own care in care homes to ask their local authority to arrange care on their behalf to secure better value (those in domiciliary care can already do so), by further bringing into effect section 18(3) of the Care Act 2014. This will help to address the current differential in fee rates charged to some self-funders. 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. Where this has an impact, local authorities will need to ensure their market can be sustained and fee rates are sustainable.

Second, uncertainty over future funding, combined with low fees by some local authorities, has resulted in under-investment in local care markets, buildings and innovation, and call-cramming (systematically cutting visits short to allow time for travel) in domiciliary care. This is leading to poorer quality outcomes and therefore needs to be addressed to enable local authorities to successfully deliver our system reform ambitions, as set out in our recent white paper, People at the Heart of Care.

To ensure that local authorities are able to move towards paying a fair cost of care, we are providing an additional £1.4 billion over the next 3 years. This forms part of the £3.6 billion confirmed at Spending Review 2021 to implement Charging Reform. £162 million will be allocated in 2022 to 2023 to support local authorities as they prepare their markets for reform. A further £600 million will be made available in both 2023 to 2024 and 2024 to 2025. These proposals are funded by the new Health and Care Levy announced in September 2021, of which £5.4 billion is being invested into adult social care over the next 3 years. Beyond the next 3 years, an increasing share of funding raised by the levy will be spent on social care in England. This funding is separate to the over £1 billion of additional resource specifically for social care that local authorities can make use of in 2022 to 2023. This includes the increase in Social Care Grant and the improved Better Care Fund, a 1% adult social care precept and deferred flexibilities from last year’s settlement.

This statement provides an overview of the 2022 to 2023 policy expectations and funding conditions.

Funding conditions

The 2022 to 2023 funding is designed to ensure local authorities can prepare their markets for reform (particularly the impact of section 18(3)) and move towards paying providers a fair cost of care, as appropriate to local circumstances. To prepare markets, we expect local authorities will carry out activities such as:

1. conduct a cost of care exercise to determine the sustainable rates and identify how close they are to it

2. engage with local providers to improve data on operational costs and number of self-funders to better understand the impact of reform on the local market (particularly the 65+ residential care market, but also additional pressures to domiciliary care)

3. strengthen capacity to plan for, and execute, greater market oversight (as a result of increased section 18(3) commissioning) and improved market management to ensure markets are well positioned to deliver on our reform ambitions

4. use this additional funding to genuinely increase fee rates, as appropriate to local circumstances. To fund core pressures, local authorities can make use of over £1 billion of additional resource specifically for social care in 2022 to 2023. This includes the increase in Social Care Grant and the improved Better Care Fund, a 1% adult social care precept and deferred flexibilities from last year’s settlement

As a condition of receiving further grant funding in the 2 following years, local authorities will need to submit to the Department of Health and Social Care (DHSC):

1. a cost of care exercise – produced by surveying local providers for 65+ residential and nursing care and 18+ homecare to determine a sustainable fee rate for different care settings^{[footnote 1]}. Exercises will need to accurately reflect local costs such as staff pay and travel time, and provide for an appropriate return on capital or return on operations. Local authorities will be expected to publish the exercises

2. a provisional market sustainability plan setting out local strategy for the next 3 years (2022 to 2025) – using the cost of care exercise as a key input, this provisional plan will demonstrate the pace at which local authorities intend to move towards a sustainable fee rate, in particular taking account of the impact of section 18(3) as well as other pressures they have identified. We will also expect to see strategic planning for changes in types of provision in response to local need with other local areas, taking into consideration the role of new models of care (including housing)

3. spend report – this will detail how money has been allocated in line with our expectations in order to achieve a more sustainable local market (as set out in 1 to 4 above)

We will be engaging local government throughout this process, particularly in locations with markets which are most likely to experience the greatest step change as a result of section 18(3) and reform. Further implementing section 18(3) will impact upon the provider market; potentially shifting the pattern of demand in some local authorities. Local authorities will need to manage their markets to remain sustainable through this shift.

These returns will give government assurance that local markets are being managed well.

All returns will need to be submitted to DHSC by September 2022 for formal approval. We will publish supporting templates and guidance in early 2022.

DHSC will reserve the right to withhold future fair cost of care funding until satisfied that all fund conditions have been met.

Support and monitoring

We know that many local authorities already undertake and publish costs of care exercises. We will work alongside local government and care providers to develop a more standardised approach to these. This will ensure greater consistency, transparency, and certainty for providers and local authorities across the country. This will increase prospects of investment, encourage longer-term planning and greater innovation in the care sector.

We will also work alongside sector partners to design and develop guidance and best practice templates for market sustainability plans to ensure they are an effective tool to support local authorities in understanding their self funder market and plan for section 18(3).

DHSC will make available ongoing support and will work with sector partners to improve capability through advice, toolkits and targeted support to drive high quality cost of care exercises and market sustainability plans.

There will be ongoing monitoring and governance of fund spend across all 3 years that local authorities must actively participate in.

We will engage with local government and providers to shape the best possible approach to implementation. From January 2022, we will be inviting sector partners to support the development of the guidance, templates and wider support needed to ensure all local authorities can begin to secure the long-term sustainability of their markets whilst preparing for ambitious reform.

Funding distribution

The government proposes to distribute 2022 to 2023 funding using the adult social care relative needs formula as is used for the Social Care Grant and improved Better Care Fund. Local authority allocations have been published alongside the Local Government Finance Settlement 2022 to 2023.

We will work closely with local government to determine appropriate grant conditions, national guidance and distribution mechanisms for funding allocations in 2023 to 2024 and 2024 to 2025.

1. Provisions for under 65s may also be included, but this market is more specialist, and therefore a costs of care exercise may be less appropriate. ↩