Self-Funding Care Residents are Being Caught in a Hidden Funding Gap Report Reveals
A new report from Care England reveals how sustained funding pressures are resulting in local authorities arranging care for self-funding older people at rates that fall short of the true cost of delivering care. The practice, which creates an estimated annual funding shortfall of up to £506 million, is placing further pressure on care providers and limiting their ability to invest in their workforce, maintain high-quality services and meet the growing needs of an ageing population.
Care England, the largest and most representative body for independent adult social care providers in England, today publishes The Hidden Subsidy, a new report revealing how local authorities are applying below-cost fee rates to people funding their own care, placing further financial pressure on providers and the services they deliver.
These individuals, known as full cost clients, are people who do not qualify for public funding, but whose care is arranged by a local authority. Instead of being charged the prevailing private market rate, they are placed at the local authority rate, which across England typically sits materially below the true cost of delivering regulated care, as evidenced within our earlier report, Priced to Fail; contributing to an estimated annual funding shortfall of up to £506 million, placing further pressure on providers and limiting the resources available to support staff, maintain high-quality care and invest in services.
Of the approximately 140,000 people who fund their own care in England, the report estimates that nearly 18,000 are deemed full cost clients. The average weekly gap between local authority-applied rates and prevailing private market rates is approximately £540 per resident. Applied across an example 60-bed care home, this amounts to an annual shortfall of around £84,000, equivalent to the cost of three full-time care workers.
The findings build on the conclusions of Priced to Fail, which identified a total funding gap of £2.36 billion in 2025/26 between what local authorities pay for residential and nursing care and what it genuinely costs to deliver. The Hidden Subsidy shows how that same below-cost commissioning logic is being extended directly into the private market, affecting people who are capable to be funding their own care.
Reacting to the findings, Professor Martin Green OBE, Chief Executive, Care England said: “This is a fundamentally unfair situation. Care providers are being expected to deliver high-quality care at prices that simply do not cover what that care costs. These are people paying for their own care, yet local authorities are still imposing the same inadequate rates that have already pushed publicly funded services into financial difficulty. We cannot continue to expect care providers to absorb hundreds of millions of pounds in lost income while meeting rising staffing costs, maintaining standards and investing in their services. This is not a sustainable way to fund care.”
The report explains how the practice generates a self-reinforcing dynamic. Where providers accept placements at local authority rates to maintain occupancy and financial stability, those transactions feed into the evidence base local authorities use to set Personal Budgets under the Care Act 2014. Authorities are legitimately able to demonstrate that care can be secured at a given rate because placements have been accepted at that rate, which in turn anchors Personal Budgets to levels that do not reflect the true cost of delivery.
The report also highlights how sustained financial pressures on local authorities have created incentives within the commissioning system that work against the long-term sustainability of care services. Where individuals fund their own care, their personal assets are gradually drawn down until they become eligible for local authority support. With councils facing significant budgetary constraints and insufficient funding from central government, there is an understandable pressure to manage these future liabilities by securing care at the lowest possible rates.
However, when those rates fall below the true cost of delivering care, the financial burden is simply transferred to providers. This is not a failure of individual councils, many of which are themselves struggling to meet growing demand with inadequate resources, but a consequence of successive governments failing to establish a funding system that properly reflects the cost of care. Without meaningful reform and sufficient funding from central government, both councils and providers will remain trapped in a system that prioritises short-term affordability over long-term sustainability.
The report sets out five recommendations spanning immediate pricing practice and the wider commissioning framework. Care England calls on government, local authorities and providers to act on all five, recognising that the immediate practice and the structural conditions that allow it to persist must be addressed together if reform is to take hold.
Professor Martin Green OBE added: “The solutions are within reach, but they require government to take responsibility for a funding system that has been failing both councils and care providers for far too long. Local authorities are under enormous financial pressure, and we recognise the difficult decisions they face every day. But expecting providers to deliver care at rates that do not cover its true cost is not a solution to those pressures. It simply shifts the financial burden from commissioner to already stretched providers. We need a fairer and more transparent approach to how care is priced, supported by a national understanding of what it genuinely costs to deliver high-quality services. That must be backed by sufficient funding from central government, rather than leaving councils and providers to manage an ever-widening gap between what care costs and what the system can afford to pay. Without that commitment, we will continue to see the same financial pressures passed down the system to providers, with the workforce, providers and ultimately those who rely on care paying the price.”
