A care loans scheme to help people meet the cost of care in their old age could be almost five times more expensive to administer than the Government estimates, new analysis has revealed.
Figures published by the Local Government Association (LGA), which represents councils in England and Wales, show the cost of the scheme could reach more than £1.1 billion by 2025 – in comparison to an estimate based on Government assumptions of £230 million.
Council leaders back the introduction of a deferred payment scheme which would work in a similar way to student loans, with people able to borrow to pay for care against their estate to help them manage the shift towards individual responsibility to meet care costs. The loans would be repaid from the sale of the individual’s home.
But the potential costs associated with introducing deferred payments schemes across 152 different local authority areas could place additional strain on already over-stretched council budgets. As the Care Bill is debated in Parliament this week, the LGA is calling for a new national body, underwritten by central government, to oversee the scheme, and manage the financial costs associated with it.
The Government has pledged £110 million to help councils cover the new costs incurred for the first year, but whether this is sufficient will depend on how many people opt into the system to receive loans.
In subsequent years, the adequacy of funding will depend on the number of people requiring loans and the amount of time it takes for the debt to be recovered once a loan is complete. The LGA has estimated that the length of a loan will be 2.7 years, but demographic pressure and inflation will impact how much money councils will need to have tied-up in loan funds at one time.
A Government-backed system to run the deferred payment scheme nationally would not only lessen the financial risks to councils that will be holding this debt on their balance sheet, but it would also open up opportunities for economies of scale that could also considerably reduce the overall cost to the public purse.
Sir Merrick Cockell, Chairman of the LGA, said:
“The costs for running the deferred payment scheme have been massively underestimated by the Government. With costs likely to exceed £1.1 billion, councils are at real risk of incurring costs that they simply can’t meet.
“We urge the Government to consider setting up a separate national organisation, similar to the Student Loans Company, to run the deferred payment scheme on behalf of councils.
“Deferred payment schemes can offer peace of mind to people worried about how they are going to pay for care in old age. This needs to be part of a huge overhaul of the system that brings care up to a standard fit for the 21st century and ensures that our increasingly ageing population can lead happy, healthy independent lives long into their old age.”
Sandie Keene, President of the Association of Directors of Adult Social Services (ADASS), said:
“It is vitally important that older people everywhere can be reassured that these vital decisions they are taking concerning their old age and the security of themselves and their loved ones are made within a common, state-backed context where everybody will be treated equally. A scheme along the lines of the one that the LGA and ADASS have proposed will have an important role to play in helping our social care services get fit for purpose in this 21st century.”
Deferred payment is just one element of the care and support reforms being taken forward in the Care Bill. Early indications from local authorities suggest the Government may have underestimated the cost of the reform, and could risk failing a generation unless councils are properly paid for it. Councils say that to help keep increasing numbers of older people living in their homes with a good quality of care we need a revolution in the way care is paid for and provided.