The Big Squeeze – Problems Facing the Care Sector in 2010

2010 could potentially be marking the start of a difficult period for the care sector. Not only will care and nursing homes be facing the consequences of an increase in VAT after the general election (I have been addressing this in a previous blog), but budget constraints by local authorities will mean less funding available for the provision of services.

Local councils in recent months have been facing increasing demand for housing, school places and benefit payments as a direct result of business failures, bankruptcy and unemployment. Set this against a backdrop of the Treasury’s need to drastically cut costs over the coming years. Yet, local authorities have remained conspicuously silent about how they plan to reduce their own expenditure in the 2010-11 tax year writes Geoff Ettridge, an independent adviser on care services, on the CommunityCare.co.uk website, and goes on listing some of the practices likely to be used by councils to control costs.

Moreover, and this is particularly relevant or the care sector, demographic changes are likely to exacerbate the problem: Andrew Lowe, Director of Social Work with the Scottish Borders Council in a presentation to the European Social Network in December, predicted a 57% increase in people aged over 85 and also a 57% increase in dementia by 2021. A similar trend for increased demand of care home places was also identified by Local Government Chronicle last September, when the publication projected an increase from currently 419,000 to 459,000 residents in independent care homes by 2019.

A taste of things to come across the nation may have been given by Birmingham City Council which, so the Guardian reported last week, plans to shed 2,000 jobs as part of a drive to save £75million over the next year, with day centres and care homes for the elderly facing closure. Many of these care places will in future likely be provided by the independent sector. However, the LGC in its article quotes William Laing of the Laing & Buisson Consultancy who anticipates considerable budgetary pressures, stating that there is a real risk that the care sector in 2011-12 will experience below inflation baseline increases, based on local authorities withdrawing grants, cutting fiscal stimuli and councils’ financial situation deteriorating markedly. Given the pressures facing the Treasury, I think it is fair to assume that many councils will apply some of these measures already in the 2010-11 financial year.

A number of local authorities will try to find solace in the outsourcing of key services: Essex County Council has teamed-up with IBM to streamline its operations and even my own council (London Borough of Barnet) is going down the commissioning route, where private sector contractors are brought-in to provide core services. However, this could be bad news for the ill prepared independent care providers. While demand for independent care places will expand drastically in future, the growing financial pressures facing local authorities will ensure that the ‘value for money’ principle will be held high. This is confirmed by a report just published by the Audit Commission, which states that the financial implications of the change in demographics on local authorities’ adult social care budgets is high. 

As a result, competitive pressures among independent service providers are likely to increase: Local authorities will expect more services for the same amount of funding (or potentially even less!). Service providers which hope to reduce their service levels to match a lower quote may lose out against competitors who can provide more services for the same price. This means that better cost management will increasingly be a key strategic tool for independent care providers to ensure they meet the local authorities tightening demands. Similarly, Dame Jo Williams, the Chair of the Care Quality Commission commented on the Audit Commission report: “We all know that the context is changing. Trends such as increasing demand and rising expectations will be exacerbated by pressure on finances. That means we cannot go on as we are. To cope, we need some radical changes in the way that we organise and deliver services”.

Expense Reduction Analysts’ independent health check allows organisations to focus on the delivery of their key services while we keep an eye on the costs, working to your individual specifications and targets and liaising with your staff at all times. We already work successfully with many independent care providers around the UK and would be happy to find out what your organisation’s needs are and discuss with you and your staff how we can help.