This paper was written by Emma Stone and Claudia Wood, in advance of the Comprehensive Spending Review in October 2010 and the coalition Government's new vision for social care, expected in early November. This paper:
- Examines the fact that we are at a critical point in the history of social care reform. A process spanning four separate administrations and all three major political parties may conclude in 2011 with the agreement of a new settlement for social care funding.
- Poses the question: will the proposed funding settlement and statute be aligned with each other, and, critically, with a vision for social care that is designed around people's lives, rather than around services?
http://www.jrf.org.uk/publications/funding-settlement-people-not-services
PDF version Even with a protected budget, the health service will be hit so hard by spending cuts that there will be major reductions in social care and this will cause problems for the NHS, the NHS Confederation has said.
Acting chief executive Nigel Edwards said that the UK faced very serious financial issues and there had to be frank and honest debate about the effect of decisions that were being taken. The NHS may have some limited protection to its budget but it still faced a potent cocktail of financial pressures.
"With councils facing 25 per cent cuts, we are deeply worried about the potential impact on social care," Edwards said. "It seems inevitable that we will see a significant withdrawal of support from some of the most vulnerable people in our society – before long we could see a majority of councils only supplying services to those with the most critical of needs.
"At a superficial level, this may ease pressure on the social care budget. But the needs of these vulnerable people and their families will not simply disappear – if needs are not met by social care, people will turn to the NHS. Some will present as emergencies in A&E departments and GP surgeries, others will find themselves trapped in hospital unable to get home, blocking the bed from someone else who badly needs it. Everybody loses: the users of services, those who care for them, the taxpayer and the NHS. It's a classic false economy."
Edwards went on: "We need to deal with funding increases which while protected will not be adequate to deal with growing demand, along with one of the biggest reorganisations in the NHS's history and the pre-existing need to find between £15-20bn of savings. The NHS is ready to meet the challenge of these pressures but we need to be realistic. It is going to require every reserve of skill and expertise to ensure any impact on the quality and availability of patient care is minimised.
"Cutting management costs is part of the answer, but only a small part. We are already on course to cut management costs by a hefty 45 per cent – quite a task during a major transition. Even this drastic action will save just £0.85bn of the £20bn we need to find. So I am afraid that there are no pain-free choices if we are going to make all this happen."
The Coalition government plans to cut departmental budgets by 25% by 2014/15. This major report considers how to achieve this for six key departments: Education, Business, Innovation and Skills, Communities and Local Government, the Ministry of Justice, the Home Office and Energy and Climate Change.
For these, we examine the status, feasibility and merit for spending reduction for each programme and consider alternatives means of provision, categorising each new cut as “intrinsically desirable”, “plausible” or “unpalatable”.
http://www.policyexchange.org.uk/publications/publication.cgi?id=210
"Some in local government have concerns about the financing of social care. I can announce that grant funding for social care will be increased by an additional £1bn by the fourth year of the spending review. And a further £1bn for social care will be provided through the NHS to support joint working with councils."
Those words from chancellor George Osborne in his spending review statement last Wednesday were designed to allay fears that care services for older and disabled people could be decimated by the magnitude of cuts to local government that he also announced, 28% in real terms from 2010-11 to 2015.
They were also designed to place responsibility for cuts firmly in the hands of English councils, which spent £14.4bn on adult care, excluding client contributions, in 2008-9.
"There is no justification for local authorities to slash and burn and for local authorities to tighten eligibility as far as the settlement goes," care services minister Paul Burstow told Community Care on the day of the CSR.
The warning follows Burstow's criticisms of councils that have already started to cut services, for instance by raising eligibility thresholds. By next year, 80% of councils will no longer be meeting users' moderate care needs, up from 75%, a Community Care investigation found last month.
However, the £2bn announced by Osborne was not all it seemed.
For one, the figures for the overall cut of local government budgets took into account the £1bn allocated to councils for social care – it was not additional money.
This was not how it was received by social care leaders.
"That's not the way it's being presented," Sarah Pickup, honorary secretary of the Association of Directors of Adult Social Services, said last Friday. "The impression we are getting is that we should end up with some new money."
Moreover, the £1bn was not ring-fenced, meaning it could be spent on any service. Research by the think-tank the New Local Government Network has found that councils saw adult care as a funding priority, although this is not always the case.
There are also doubts over the other £1bn for social care, which will come from NHS budgets.
Again, this is not ring-fenced. Under the previous government, funding was allocated by government to primary care trusts to spend on dementia, carers' short breaks, end-of-life care and disabled children but much of this was not used for the intended purpose.
Pickup fears this may happen again.
"We know that money going through the NHS has not made it through the system to be spent on what was intended and that was just within the NHS let alone being transferred to social care."
Although the NHS received a real-terms increase in funding from 2011-15, this amounts to just 0.1% a year and includes the money allocated for social care. In addition, the NHS must find £15bn to £20bn in efficiency savings over the course of the spending review period while also undergoing the most radical overhaul in its history.
Indeed, while primary care trusts will be expected to allocate the extra money to adult social care from 2011-13, from 2013 this responsibility will pass to new – and untested – GP consortia, with the abolition of PCTs.
The larger question is how much adult social care will need over the next four years as the demographic pressures of an ageing population and the greater life expectancy of disabled people start to bite.
In its submission to the CSR, Adass said that councils would need to spend an extra 1% a year in real terms from 2011-15 to meet demographic pressures. This assumes that councils make efficiency gains of 3% a year through investment in services such as reablement and telecare to reduce, prevent or delay people's future needs for care. Adass said its figure understated the likely pressures on councils over the medium term. However, even finding an extra 1% a year for adult social care will be hard given the spending review's cuts to local government.
Councils may be able to offset some of the cut in government funding through rises in council tax but the impact of this is uncertain and will vary from area to area according to political pressures. Otherwise, councils face continuing with some of the actions they took before the CSR reported – tightening eligibility criteria and raising charges for users – the very things Burstow has warned are now unjustifiable.
http://www.communitycare.co.uk/Articles/2010/10/25/115665/spending-revie...
Cutting back on public spending is not going to be painless and protecting core services in health and education obviously implies bigger cuts elsewhere, writes Peter M Jackson, who asks where is the stimulus to the economy going to come from?
The Labour government in the run up to the 2010 general election had planned for a two year fiscal stimulus, which would help to address the unemployment problems of the worse global recession in 80 years. This was then to be followed by a number of years of fiscal tightening which would significantly reduce the public sector structural deficit by 2017/18.
The recent report from the Office of Budget Responsibility (OBR) indicated that the Labour government's spending cuts and tax increases would have produced a structural deficit of about 3 per cent of GDP by 2014/15. These plans were intended to return public expenditure as a percentage of GDP to the levels of the early 2000s ie about 35 per cent rather than the 45 per cent of 2009. Keeping a tight control over public spending while GDP grows will, by simple arithmetic, bring down the ratio of public expenditure to GDP.
There is no dispute that the public sector deficit and the size of public sector debt are large and need to be controlled. The political dispute is how this should be achieved and how quickly.
The slump in GDP following the 2008 world financial crisis and the ensuing depression was accompanied by a significant fall in tax revenues. This coupled with increased public spending to protect the level of economic activity and employment resulted in a massive increase in public sector borrowing and, therefore, public debt. During the calendar year 2009 the UK public sector deficit was £150.2bn or 11.4 per cent of GDP (over the period 1990/00 – 2001/02 there were budget surpluses). At the end of July 2010 public sector net debt was £816.2bn (ie 56.1 per cent of GDP) compared to £665.1bn (47.7 per cent of GDP) at end July 2009.
There are a number of problems associated with deficits of this magnitude. Interest on the debt was £31bn for 2009 and is expected to be about the same for 2010 but to rise to £43bn in 2011. Debt interest of this level is about the same size as the public sector protective services (police and fire) budget or 75 per cent of the total defence budget. Increasing debt charges crowd out other elements of public spending. If expenditure on key services such as health and education or pensions and welfare benefits are to grow in the future then space must be made in the budget to enable this to happen. This means bringing the deficit, borrowing and debt charges under control.
Rising debt levels not only bring with them problems of servicing the debt there are also potential problems of funding it. In order to sell its debt the government needs to make it attractive to those who buy it and this adds to the cost of servicing it and further crowding out of expenditure on public services.
Economic forecasting is not an exact science and the Government faces many uncertainties. The exact size of today's deficit is uncertain as too are future deficits. So it is not clear how big the fiscal adjustment needs to be. The estimates published by the Bank of England during August 2010 suggested lower growth and higher inflation for 2011 – their central estimate for domestic output growth was 3 per cent pa compared to 4 per cent previously. This is in part probably a result of the emergency budget introduced in May. Another uncertainty is how those in financial markets are likely to respond to the announcements that will be made in the Comprehensive Spending Review. It is not clear if the sentiments of financial markets favour very large cuts in public spending or if these markets are more favourably disposed to a Keynesian view that advocates a continuing fiscal stimulus to the economy.
The coalition government has given clear signals that the public spending cuts will be large and deep; that the cuts will be introduced quickly; that this policy intervention will reduce the deficit as the economy recovers and that as a government they have the credibility to implement the tough policies that are needed, ie no U turns.
Whilst the details of the Comprehensive Spending Review will not be known until its publication later this week all the signs are that the proposed public spending cuts will be draconian and on a scale larger than those envisaged by the previous Labour government and bigger than anything experienced so far. Some suggest that the cuts will be as much as 6 per cent pa spread over 4 years (Labour's plans were for 5 per cent per annum) ie about £75bn per annum. Whether or not this is what will happen over the next 4 years will depend crucially upon the size and speed of the economic recovery. If the recovery picks up quickly then some of the cuts might not be necessary but rebalancing the underlying structural deficit still requires cutbacks in public spending.
Cutting back on public spending on this scale is not going to be painless and protecting core services in health and education obviously implies bigger cuts elsewhere. The burden of the cutbacks will be felt most strongly on the low paid and in the Midlands and North East and North West.
Cutbacks of this magnitude cannot simply be made by freezing public sector pay, which would save about £2.5bn pa. If the cuts are to the number of people employed in the public sector then this will have a larger impact upon future economic growth. There are simply not enough suitable vacancies, either now or in the immediate future, to absorb such a large shake out. This will put upward pressure on public spending as unemployment benefit payments rise whilst tax revenues will fall.
Large capital and infrastructure projects are obvious candidates. These are cut backs in large ticket public expenditure programmes that are planned for the future rather than cutting into current levels of spending. It is cutting spending that might have been made. But cutting spending plans is not without impact. This represents reducing significantly the order books of private sector companies with a big impact on employment. The recent demise of Connaught's social housing illustrates the point. Companies that are heavily dependent on public sector contracts face the prospect of bankruptcy.
Projects that are at risk include the Trident nuclear deterrent; the Eurofighter project; Cross rail; the high speed line between London and Scotland; new school buildings and refurbishment; new hospital building and many more. This impacts on the construction industry which is already suffering from the mortgage famine.
Reductions in the social security programmes are also likely at a time when unemployment is rising as too are the number of pensioners. This means that bigger savings will need to be made through reductions in other benefits. Estimates made by a variety of think tanks conclude that it is difficult to imaging anything other than that expenditure cuts on this scale will impact most heavily on the poor.
Cutting public expenditure as a set of emergencies to deal with a short run problem runs the risk of destroying much of the value of public services and creating in the long run an imbalanced public sector of the wrong shape to deal with long run problems. It is most likely that in the future a more strategic perspective will be required to reshape our public services. After all you don't redesign a jumbo jet while flying at 35,000 feet.
What remains unclear and the CSR is unlikely to shed much light on it is – where is the stimulus to the economy going to come from? The challenge facing policy makers is to reduce future deficits whilst stimulating today's economy.
Peter M Jackson is Professor of Economics and Strategy in the School of Management and Research Director of the College of Social Science, University of Leicester
http://www.publicservice.co.uk/feature_story.asp?id=14973