How is the cost of living crisis affecting provision of social care?

Local authorities are facing tough choices about how to meet the growing need for publicly funded social care services. Rising prices and staff shortages will affect the quantity and quality of social care they are able to provide.

Rising costs are having adverse effects on the provision of public services, including in the health and social care sector. Higher than expected prices in a fiscal year mean that within a given cash settlement, fewer services can be provided unless efficiency savings can be made.

Social care – which refers to personal care or practical assistance for children, young people and adults who require additional support –has been historically under-funded in the UK. As a result, it will face greater pressures than many other public services.

These pressures, resulting from increasing prices, can be both direct and indirect. For example, higher energy bills and fuel costs have a direct impact as fewer goods and services can be purchased within a given budget. But they also have an indirect effect on public finances more generally, through inflationary pressures on pay and higher prices for goods, services and materials.

How will rising costs affect social care workers?

According to the Office for National Statistics (ONS), the consumer prices index (CPI) rose by 10.4% in the 12 months to February 2023, up from 10.1% in January. The Bank of England estimates that inflation peaked at 11% in the final quarter of 2022 and is forecast to fall back to 2% by the end of 2024.

This rise in the general price level in the economy has not been met with commensurate increases in wages and income, resulting in a fall in ‘real’ disposable incomes (that is, adjusted for inflation, taxes and benefits).

The social care sector already faces chronic shortages of workers. Data for England suggest that the vacancy rate for the adult social care sector was 10.7% in between March 2021 and March 2022, more than double the national average vacancy rate, which stands at 4.3%. In 2021/22, there were an average of 165,000 unfilled vacancies across the sector on any given day (Skills for Care, 2022).

This has been driven by several factors. Most notably, social care is hugely undervalued and is among the lowest-paid occupations in the UK, with 71% of staff being paid below the real living wage. The median hourly wage in the sector is £9.50. Since 2016, only 11.6% of the workforce has experienced an increase in real wages (Skills for Care, 2022).

Falling immigration from the European Union (EU) as a result of Brexit is also contributing to increasing shortages (Department for Health and Social Care, 2022).

Finally, a lack of career progression in social care results in high turnover of staff, with workers often moving into the NHS and other healthcare occupations. The introduction of the national living wage has increased wages at a faster rate than in previous years (Skills for Care, 2022).

But while this policy has led to a rise in wages at the bottom end of the distribution, it also leads to greater pay compression in the sector, which could result in lower job retention in social care due to limited pay and career progression.

In this context, soaring inflation is resulting in already undervalued and underpaid workers becoming more vulnerable. Wages in the public sector have seen much lower growth than in the private sector and, overall, public sector workers face significantly larger falls in real incomes.

Between October and December 2022, the average total pay growth for the private sector was 7.3%, but only 4.2% for the public sector (Office for National Statistics, 2023).

Given that inflation currently stands at over 10%, this is a significant fall in real wages for public sector workers. While care workers are predominantly not public sector employees, their wages largely track trends in public sector pay.

Increasing fuel costs are a key component of CPI inflation in the UK, and while they have been falling in the last quarter of 2022, petrol and diesel prices have increased by over 20% since January 2021 (Department for Business, Energy and Industrial Strategy, 2023).

As workers need to commute to care users’ homes to provide domiciliary care, their commuting costs are likely to be more than the average UK worker on which the CPI estimate is based. This means that they face additional cost pressures to get to work than is accounted for in inflation estimates.

At a time when health and social care workers have an increasing workload from the backlog of demand for services after the pandemic, a fall in real wages for already low paid workers is likely to increase the already significant workforce shortages. This would have serious implications for the quality of care and health outcomes for service users.

How will rising costs affect the provision of publicly funded care?

In the autumn budget of 2022, the suite of reforms introduced in 2021 that expanded both eligibility and a cap on care costs were postponed till 2025. The levy introduced to fund these reforms was also withdrawn.

Nevertheless, the government announced £2.8 billion of additional funding in 2023/24 and £4.7 billion in 2024/25 in cash terms. The additional funding comes from new grants, recycling of funds that would have been used to pay for the reform, and allowing greater flexibility to local authorities to raise funds through local taxes (The Kings Fund, 2022).

Inflationary pressures faced by local authorities and providers threaten to offset some of the gains from these additional funds. For starters, the additional £4.7 billion funding available for social care by 2024/25 is now likely to provide fewer care packages than previously estimated, given rising costs.

In addition, rising costs will mean that more people will require publicly funded care than before, as they are likely to deplete their assets to pay for care at a faster rate.

Analysis by the Health Foundation suggests that growth in overall spending power for adult social care will be lower than previously planned, once adjusted for inflation using the GDP deflator, a measure of the general price level in the economy The reduction will be by about 0.5 percentage points: from 3% on the last inflation forecast to 2.5% on the current one.

Using CPI inflation to adjust spending plans to reflect real spending power suggests that real growth in social care spending will be even lower than expected compared with deflation by the GDP deflator. Using this measure, it would be 1.3%, down from 2.6% – 1.3 percentage points lower than previously planned.

It is worth noting that fees paid by self-funders are 41% greater than those paid by local authorities for publicly funded care. This means that those paying for their own care are likely to be cross-subsidising publicly funded care given that unit costs for providing the same quality of care to these two groups should be the same (Competition and Markets Authority, 2017).

The impact of inflation on budgets for publicly funded care could have a knock-on effect on self-funded care, potentially increasing rates that self-funders pay. This could affect demand for publicly funded care down the line, as self-funders deplete their assets faster and require publicly funded care.

As a result, the cost of living crisis may change the dynamics between public and self-funded care, resulting in overall higher demand for publicly funded care than would otherwise have been the case.

Conclusion

Local authorities face significant constraints and hard choices in delivering publicly funded social care. This has been exacerbated by soaring inflation and a lack of additional funding to offset the impact of much higher than forecast inflation on social care services.

Local authorities may decide to raise council tax to offset the effects of rising costs, in addition to raising the social care precept – an additional amount included in council tax to fund social care – by up to 2% per year to fund social care services.

Unlike grant funding, council taxes raise different amounts in different parts of the UK and are likely to put poorer areas at a disadvantage. This decision would also add to already rising bills for households across the country.

Having adult social care budgets increasingly reliant on local taxation is likely to expand health inequalities between different local authorities, with knock-on effects for individuals needing care.