Written evidence submitted by the Nuffield Trust [ASC 068]

Long Term Funding of Adult Social Care 

The Nuffield Trust is an independent health think tank. We aim to improve the quality of health and social care in the UK by providing evidence-based research and policy analysis and informing and generating debate.

The adult social care system in England has been a source of deep concern for us and we welcome the Committee’s work on this subject. Our work in recent years has focused on how other countries have reformed their care systems in order to identify lessons and principles for reform for England. We have recently published a paper exploring the problems inherent in England’s care provider market and over the next few months will be looking to international examples for potential solutions. We are also involved in an ongoing project in conjunction with LSE, examining international responses to covid in long-term care, which is also seeking to understand the impact of Covid-19 on the social care system.

This submission addresses the Committee’s questions, drawing on our work on funding, the provider market and our wider social care work:

• Covid-19 has brutally exposed the pre-existing fault lines in our social care system. There is an opportunity now to build on the high levels of political support and public awareness of social care resulting from Covid-19 in order to enact change.
• The economic outlook is challenging, but the devastating impact on the system demonstrates that social care reform cannot be delayed any longer. Other countries have successfully brought about radical change in this area in far more testing circumstances.
• The funding options are well-researched and understood – what is needed is firm political leadership and clear decision-making. In our view, a funding system needs to meet four main criteria: to pools risk; to be sustainable; to be fair; and to be clear and understandable.
• The funding mechanism must be mandatory and collected nationally. It should address the problems facing social care for both over-65s and younger adults. Current local mechanisms for funding social care exacerbate regional variation. Individual or voluntary schemes based on insurance or pensions are unlikely to work. If a cap on costs is introduced, it needs to be very clear, set at an appropriate level and introduced alongside other reforms. On its own, it does not address the pressing issues in the sector.
• Social care reform cannot be limited to funding. The system is broken and we need far-reaching comprehensive reform, starting with a clear vision. Reform needs to pay particular attention to the precarious provider market where unsustainable fees, high risk business models, and workforce pressures are not enabling the innovation or improvement needed to secure high quality care now and in the future.

1. How has covid-19 changed the landscape for long-term funding reform of the adult social care sector?

The Covid-19 crisis has highlighted the severity of problems in the social care system and exposed its fragility. Although social care was largely invisible in the government response to covid-19 in the early months of the pandemic, it has since featured highly in the political and public debate. As a result, social care funding reform is attracting a high degree of attention and support among health and care bodies (e.g. from the BMA[1]; the NAO[2]; Health Select Committee[3]; ADASS[4] to name but a few). The political consensus around the need to reform the care system has also been restated with many high profile individuals across the political divide (e.g. Jeremy Hunt[5], Liz Kendall[6]) calling for urgent action. The prime minister himself has restated the government’s intention to reform the system[7], most recently committing to a 10-year plan to be delivered later in 2021.[8]

Historically, public awareness of social care has been low[9] and polling about funding options have revealed mixed results (e.g. LSHTM[10]; King’s Fund & Health Foundation[11]; Health Foundation[12]) . Political and media discourse has often focused on older people to the exclusion of services for younger adults with disabilities. Whether the higher profile of social care in the media during Covid-19 will raise public understanding of the system and translate into increased support for reform and extra funding is yet to be seen.

While there is widespread political agreement on the need for reform[13], covid-19 has had a significant impact on public finances and the poor economic outlook may be viewed by the Treasury as reason to block any additional investment in this sector. Estimates vary as to how much would need to be invested to bring about substantial reform and many were calculated pre-covid. The Health Foundation estimated pre-covid that a minimum of £6.1 billion extra will be needed to meet future demand in 2030/31, rising to £14.4 billion if access and quality are to improve.[14] How much is needed will very much depend on what type and breadth of system is desired – this is yet to be defined by the government.

In estimating future costs, it is vital that a long-term view is taken and that modelling of future demand takes into account current levels of unmet need – among adults both under and above 65 years old.[15] It is likely that we will continue to observe an increase in need for care and support as our society continues to age and we live with increasingly complex conditions. It is also likely that increased levels of need will arise as a result of both contracting covid-19 itself and from the knock-on impact of lockdown measures.

The covid-19 pandemic has put extra pressure on already fragile care providers. Even before the pandemic ADASS’s 2019 survey found almost half of councils experienced provider closure or the handing back of contracts.[16] Short-term government support, for example in the form of the infection control fund and free PPE has kept providers operating during covid. But the increased costs incurred for PPE, extra cleaning, and staff sickness, along with lower occupancy in care homes due to mortality and a reluctance among people needing care to move in, have created pressures some in the sector will not be able to withstand[17]. While some providers will be able to weather the covid-19 storm, the majority of the market is small and medium sized entities run on tight margins with few reserves.[18] The recent budget offered no long-term certainty for the sector.

Although the economic outlook is grave, it need not necessarily be an impediment to bringing about funding reform. Our work on Germany[19] and Japan[20] and their approach to care reform demonstrates that extensive change can be brought about in the most testing economic and political circumstances. Germany brought about reform in the aftermath of reunification and amid much debate about the impact on public finances. Japan reformed its system following the stock market crash of the early 1990s. In both countries, reforming the care system was viewed as being part of economic recovery – particularly in Japan, reforms were deliberately designed to grow the care provider market to boost local economies and expand employment. With the adult social care sector estimated to contribute £46.2bn to the UK economy annually, representing 6% of total employment, reform of social care that seeks to grow and value its workforce and create a thriving provider sector represents an important lever and opportunity for the UK’s economic recovery.[21] 

Importantly, simply putting more money into social care as it currently operates without accompanying substantial reform to how care is delivered is unlikely to deliver a vastly improved or sustainable system. Comprehensive reform is required, the shape and extent of which would depend upon what type of system is envisaged; desired levels of access and pay rates for the workforce and what the balance of responsibility for funding is between state and individual

2. How should additional funds for the adult social care sector be raised?

Over the last twenty years, there have been upwards of 15 inquiries[22], commissions, white papers, green papers and reviews and countless research studies examining funding options. As such, there is a firm body of high quality evidence about a set of well-understood options available to government. Our work summarising and reviewing 15 of the main options highlighted the key pros and cons to each.[23]

Based on our work on international social care systems, we think that any funding system for care needs to be underpinned by four basic principles[24]:

1. It pools risk[25]: one of the key problems in the care system currently is that care costs fall, largely, on the individual. Anyone with means (e.g. property, savings or income) above £23,250 has to meet the costs of their care, and there is no way of protecting oneself from the catastrophic costs of care. Funding for all our other vital services (health, education etc) pools the risk of encountering extremely high costs across society and we believe that care should be no different. This must be the starting point. Universal mandatory contribution schemes, such as general taxation or national/social insurance, have the greatest potential to protect the largest number of individuals. Any voluntary scheme, either based on a pensions or private insurance scheme are unlikely to work. Germany’s attempts to introduce individual private insurance to cover excess costs has been unsuccessful despite a scheme offering subsidies for policies.

2. It is sustainable: if a more stable system is to be created, a funding approach that sustains the care delivery we want to see needs to be functional now and in 20-30 years when demographic pressures really bite. The tendency of governments over the last decade to keep the social care system afloat through sporadic short-term injections of cash have not enabled widespread investment or innovation in new service models and have left the provider market fragile[26]. It will be important that a new funding model offers certainty and stability to providers, commissioners and, crucially, people who deliver and draw on care services. It must also be sufficiently flexible to adapt to changing needs and circumstances. While ring-fencing of funding may be attractive from a transparency point of view, that advantage should be weighed against its lack of flexibility. Germany's strict ring-fencing of social care funding was chosen to build public trust but has proven to be an impediment to expanding the system.

3. It is fair: there are multiple dimensions of fairness (wealth, income, generation, condition, and place) and any funding model should aim to be as fair as possible. Intergenerational and regional fairness are two such dimensions that need to be central to considerations. The debate about intergenerational fairness is currently very active, given the financial pressures of an ageing population and the concentration of wealth in the older generation[27]. Careful consideration would need to be given, for example, to whether contributions to a mandatory system should only be paid by those in a certain age range; to the balance of revenue raised from income versus wealth, which would determine how much of people’s pay would be affected by tax increases; and whether people’s homes would be included in means assessments for social care. Polling[28] of public preferences suggest most people (62%) are in agreement homeowners should not have to give up their home to pay for care. However, funding preferences vary by age, with older people favouring tax increases, and younger people more favourable to spending decreases for other public services.
   A combination of different mechanisms may enable the government to strike a fair balance. Any funding model will also need to take account of both working age and older age adults, whose needs and ability to pay may vary[29]. Regional differences in property values and wealth are stark and we would be supportive of a shift away from the current funding system that is heavily dependent on local revenue raising which perpetuate regional variation[30].
4. It is understandable: if a more generous, sustainable and stable system of care is going to be achieved, inevitably the public will need to make financial contributions to it. And the clearer and more understandable that revenue-raising mechanism, and the clearer the balance of responsibility between the individual and state for costs, the greater the degree of trust and support it is likely to garner among the public. Germany and Japan both opted for mechanisms familiar and well-understood to their public – Germany choosing a ring-fenced option to enhance transparency and Japan opting for a levy on over 40s only. Both sought to clarify the benefits that people would be eligible for to help build public support. It is important that the option chosen here both suits the aims of our system and is understood and familiar to the public here. The idea of modelling a funding model on Japan’s has been suggested[31] in England, (to note, Wales[32] is currently consulting on an age-related levy) but it should be cautioned that the age of 40 was chosen for very specific reasons, appropriate to the social and cultural context, and may not translate so well here. Clarity as to the balance of individual versus state responsibility when it comes to funding care would be important in offering people certainty and building support. Options, such as the cap on costs, have potential to offer clarity over expectations but only if very clearly defined. The risk of confusion over what would be counted towards the cap and what would not is high and could undermine public support[33].

These principles lead us to conclude that a national, mandatory mechanism (or combination of mechanisms) for raising revenue is the most appropriate. A combination of income and wealth taxes that are well-understood by the public and clearly defined (but not strictly ring-fenced) would meet most of the criteria above. Further consideration would need to be given to the allocation of funds to local authorities but we feel that continuing to rely on local revenue raising mechanisms so heavily simply perpetuates regional variation and inequity. It is also unlikely to keep pace with growing care needs. Our research has demonstrated that individual, voluntary funding schemes based on private insurance or pensions are unlikely to work, given the likely low uptake and potential for confusion. While a lifetime cap on costs[34] may play a helpful role as part of a funding strategy, we have concerns that if introduced alone it is unlikely to address other, equally pressing issues in the sector. Catastrophic costs are a problem but only one of many. A cap being effective would depend on what revenue raising mechanism it accompanies, its level, what’s included and whether the capital floor is raised. Furthermore, a lifetime cap has potential to be quite complex for the public to understand. It is notable that Japan[35] has a monthly cap on costs and Germany is currently considering a cap based on time (e.g. costs are met by the state after, for example, two years of an individual paying – no decision on this has been made).

3. How can the social care market be stabilised?

The social care provider market is complex and fragile and needs particular attention. In previous discussions of reform, there has been a tendency to focus solely on the funding issues. Crucial though funding is, simply pouring more money into a broken market will not solve the underlying structural faults.

The Nuffield Trust will shortly publish a paper on the causes of the provider market fragility – something that is not well or widely understood. This paper, which builds on the NAO’s own very helpful analysis of this issue, identifies a number of priorities that any package of social care reform will need to address.[36] Chief among them is a need to recognise the vastness and complexity of this market. In fact, it would be more accurate to discuss social care provider markets in order to take account of the different dynamics between the self-funder versus council-funded markets; the working age adult versus the older people’s care market; regional variation and so on. Providers also range in size, type and structure and have a differential ability to withstand pressures and shocks.

Approaches to stabilising the market will, to some extent, be contingent upon decisions made around funding (how and how much is generated and how it is allocated), the workforce (pay and conditions) and eligibility and access (what are people entitled to) and so on. Policy-makers need to be conscious that reforming one part of the system in isolation is unlikely to deliver results – what is needed is a comprehensive reform programme that addresses not just funding but also eligibility, the workforce and the provider market.[37] In our care market analysis paper, we identify priorities that will need to be addressed in order to stabilise the market, alongside additional funding.

In summary, those priorities for market stabilisation include:

• Developing an approach to pricing and payment that offers stability and certainty to providers while also delivering efficiency, innovation and local flexibility.
• Supporting and equipping local authorities to fulfil their market-shaping roles and move beyond current short-term commissioning processes that manifest in highly transactional relationships with providers and limit strategic market development and innovation.
• Defining the rules of the market to ensure that exposure to risk is appropriate and manageable (e.g. to avoid the closures of large providers and displacements of care we have witnessed in the last decade as a result of high risk financial structures)
• Improving data and information to ensure that all those involved in the system better understand and can respond to need, preferences and levels of provision, without being too onerous for providers
• Producing a long-term strategy to address workforce challenges. As a major driver of instability in the market, no market reform is going to be a success without concerted effort to address workforce issues
• Strengthening choice and voice among those who use care and support services, to ensure they get the high quality care they need and want.

4. How can it be incentivised to compete on quality and/or innovation?

The ability of the provider market to provide good quality and innovative care is currently limited by highly transactional commissioning, often based on the lowest price for specific task (‘time and task’). It has perpetuated a cycle of the same care being delivered with no room for flexibility, personalisation or trying new things. Low fees paid by councils have meant that providers which care for council-funded people generally have low margins and have few reserves to invest in improvement and innovation.

Pockets of innovation have sprung up (e.g. new models of care such as Shared Lives and Homeshares, where people share their homes and lives with people in need of support[38]) but, without more consistent and widespread support and financial backing, they are difficult to scale and spread. Similarly, a number of councils have adopted voluntary ethical care charters which stipulate improvements to commissioning processes such as a shift away from time and task care and zero hours contracts, and introduction of the London living wage and occupational sick pay.[39] The association between decent working terms and conditions and good quality of care is well documented.[40]

One key consideration for reform of the provider market will be the types and models of care that people are likely to want and need in the future. Covid-19 may well hasten the trends being observed pre-pandemic away from traditional models of residential care and towards more personalised models of home care[41] and supported living[42]. An approach to provider market reform will need to be designed in a way that provides certainty and stability for providers, commissioners and service users while also enabling innovation and safe experimentation of new models of care. Developments in technology will also need to be factored in.

The current system also lacks strong drivers of improvement. Incentives for providers to compete on quality have fallen short due to weak choice and competition. Service users, whether funding their own care or being supported by the state, find the system confusing and complex to navigate, and many are left to make crucial decisions entirely on their own.[43] Councils are required to provide information, advocacy and advice to those choosing services but these services have been found to be often inadequate.[44] Many people coming into the care system are doing so at a time of crisis and, once established with a provider, rarely change (particularly in residential care). With local authorities lacking capacity and capability to shape the market and the CQC’s role as regulator not extending to improvement, there is little consistent improvement in the sector.

Solutions to the problems in the provider market are, to some extent, contingent upon other decisions taken around the ambitions of the wider system. However, there is a wealth of international experience from which to draw – Germany and Japan ensured that provider market reform was central to their wider programme of care reform. Both countries have pursued a system which guarantees minimum payments for providers and, in the case of Japan, local government plays a key role in market shaping and innovation. Although there are deficiencies in some aspects of their approaches, there is much to learn from their successes in stimulating buoyant and competitive care markets. This will be the focus of our next phase of work.

April 2021