Impact assessment: The new Health and Social Care Levy

20th December 2021
Go back to insights

In September, the UK Government set out its plan for a new Health and Social Care Levy, based on a 1.25% increase in National Insurance contributions and an increase in dividend tax. The Levy, which comes into play from April 2022, is expected to raise £36bn over the next three years. This will be ringfenced for the NHS and social care system.

Social care reform

Individuals with assets greater than £23,250 are not currently eligible to receive social care support from local authorities (LAs). But the Government’s “Building Back Better” policy document launched in September outlines a proposed uplift in the financial eligibility criteria.

Under the new reforms all people with assets worth less than £20,000 will now have their care fully covered by the State. Those with assets between £20,000 and £100,000 will have their care subsidised by the State and a cap of £86,000 on care costs will be introduced over a person’s lifetime. This cap will be based only on how much an individual personally contributes to care over their lifetime and includes fees for personal care, such as dressing, but not living costs, such as care home fees.

While it has seen some opposition, the uplift should increase the number of people who qualify to receive government-funded social care. Social care support, provided through LAs, has been historically underfunded – with the current funding gap estimated at around £3bn – £5bn (Source: BBC, Health Foundation, LGA). The Government has not yet produced a fully costed estimated of how many people will become eligible for support under the new proposals, and how much that will cost. What is clear, however, is that LAs will need to do more, or at the very least provide more means tested assessments for those that fall under the £100,000 cap.

The Health and Social Care Levy reiterates a point outlined – but never enacted – in the 2014 Care Act: LAs should use their purchasing power so that everyone, private or state-funded, can access the same rate for care. This seeks to enable councils to utilise bulk-purchasing to secure lower care costs for self-funded individuals, even if these individuals are under the care cost cap.

Despite more funding to LAs to ensure a “fairer rate for care”, this could mean care providers receive less funding, in turn affecting margins and the resources to provide high quality care. However, the ability for LAs to do this in practice may be limited as LAs are reliant on private operators for capacity (~5% of beds are in LA owned & operated care homes). Additionally, it is unclear if LA-arranged rates would include hotel costs, or if it only refers to care costs (as is the case with the care cost cap).

It is also uncertain what these proposals mean for those existing self-funded care home residents and if they will be required, or able to, transfer to a state-funded rate. With LA rates typically coming in lower than self-funded rates, it results in uncertainty on how this could play out in the sector. However, the balance of power looks in favour of providers still being able to offer different levels of services (such as premium to affordable), for example.

These announcements come against a backdrop of reduced occupancy rates in care homes throughout COVID and an already stretched system across the acute and community settings. The Competition and Markets Authority conducted a study in 2018-19 that found LA fees paid to the care home sector were 10% below cost, equating to £200-300 million shortfall in funding. There is the prospect that providers might be able to negotiate a higher LA rate, but a fair amount of uncertainty surrounds the issue at the moment.

The Autumn Spending Review confirmed that £3.6bn of the £5.4bn earmarked for adult social care support in the Levy would be routed through LAs. However, commentators still question whether this is enough funding to support LAs with the increased responsibilities outlined in the Levy.

£1.7bn of the £5.4bn is earmarked for services. In December, the Government detailed how it planned to spend £1bn of this, from investing in new technologies and improving training for staff, to help people live independently for longer and age in place.

Getting ahead of the curve

Care homes and other social care settings are already facing significant workforce constraints, following mandatory vaccination requirements for all care home workers and with many international workers having returned home post-Brexit. These supply constraints may be added to by the fact that the Government’s proposal to increase National Insurance applies not only to employees and the self-employed, but to employers as well, effectively increasing the cost of employing someone. This further highlights the importance of positive and collaborative commissioner and provider relationships.

To get ahead of the curve, businesses in the space should think about their current workforce expenditure and what the increased cost of these proposals could mean, as well as defining what the current mix of state and privately funded residents is within their business. The main order of business for these providers should be working out how much exposure they have, and what these proposed changes will mean in the short-term.

In brief, the new Health and Social Levy means more funding in the system, but LAs will be asked to do more, both in terms of funding care and assessing individuals’ financial eligibility– it is not yet clear if the funding is sufficient to address historical shortfalls, let alone address the new responsibilities given to LAs. From our work in the sector, more money is of course welcome, but it will not solve the underfunding of the care system and workforce challenges. However, there is still limited detail or clarity on how the reforms would work in practice and at this stage it is questionable how much of the reforms will be successfully enacted next year.

To discuss how the Health & Social Care Levy may affect your business, please do get in touch.

Sign up to our mailing list to receive our latest insights.