Local authority funding & the social care sector

The upcoming 2024 Autumn Budget and the 2025 Spending Review are taking place in the context of challenging fiscal conditions. At the same time, the new Government has set out an ambitious programme to reform and restore key elements of our public services. 

Earlier this year, the Labour Government commissioned an independent inquiry into the state of the NHS to inform a new 10-year plan for health care. Lord Darzi’s report, which was published in September 2024, concluded that the NHS is in a "critical condition" and pointed to the need to focus on community services and the importance of using the entire health workforce. Key to this is how the independent sector can help alleviate some challenges, especially around capacity issues.

However, for many independent care operators, local authority (LA) funding for social care remains a significant ‘elephant in the room’. In a press release published by the Local Government Information Unit (LGIU) in February, 51% of LAs reported that they are likely to be bankrupt in the next five years, with 9% predicting they will be bankrupt in the next financial year. This is already the case for a number of LAs, including Birmingham.

We have seen local councils increasingly tapping into their financial reserves to meet the demand and cost pressures. In an article published last month, the Local Government Association highlighted that “Councils’ un-ringfenced reserves fell by £1.7 billion in 2022/23 and £1.1 billion in 2023/24. Some 42% of councils drew on their reserves in both years.”

The Government has warned that the Autumn Budget will be “painful”, further cuts to government funding may see more councils running into financial difficulties and becoming incapable of providing essential local services. There will also be policy challenges around pay and immigration which need to be addressed to provide long-term security for the workforce and ensure care quality standards.

In our Care Market Review 2024, we reported that local authority fee rates had increased, on average, by 9% for residential care 2024/25 compared with 9.5% in 2023/24. Despite this rise, dialogue with care operators has reaffirmed that these uplifts are not sufficient to cover the increasing operational costs and consequently fee uplifts are being passed onto privately funded residents.

The solution

For the independent sector to help alleviate pressures on primary care, a sustainable long-term solution to the funding issues needs to be addressed through a significant and sustained increase in overall funding that reflects current and future demand for services. 

The Office for Budget Responsibility (OBS) projects that UK-wide public spending on adult social care would need to increase by 3.1% per year in real terms over the next decade. Given that local council tax revenues have supported the increase in adult social care funding since 2010, an independent review of council spending must be undertaken to ensure resources are directed to the areas in most need.

This funding should ensure that social care nursing staff receive fair pay and conditions, comparable to those of their NHS counterparts.

For more insight into the impact of local authority funding on the social care sector, contact Karun Ahluwalia: karun.ahluwalia@christie.com / +44 7701 315 074