We also look at how the cap on care costs will be funded and how likely it is that users will reach the limit. With the changes potentially making care homes unviable for providers and also actively disadvantaging those living in less affluent areas, is it a case of one size does not fit all?
What is the social care cap?
Unlike the NHS, access to social care in the UK is means-tested. There's currently no limit on how much someone can pay for social care during their lifetime. This can result in many families facing a ‘catastrophic loss’ where all their assets are swallowed up by care home costs.
The average cost of staying in a residential care home in England in 2020-21 was £816 per week, while including nursing care took the cost to an average of £1,022 a week.
The government announced in September 2021 that no one in England – irrespective of their age or income – will pay more than £86,000 for their personal care over their lifetime, alongside a more generous means test for local authority financial support.
How will it be funded – and is it enough?
The changes will be funded by an increase in national insurance and a new Health and Social Care Levy to be paid by the working population.
The government says the funds raised by these tax increases will be legally ring-fenced (estimated to be £12 billion in 2022) and used to help the NHS recover from the pandemic and resolve longstanding issues around care costs across the UK. But many commentators, including health charity The King's Fund, feel that the government has massively underestimated the sums required and that the funding needed is closer to £26 billion, being the amount spent every year on publicly funded adult social care.
What does the cap mean for care home providers and the public?
Anyone receiving care from October 2023, including those currently in care, will have a ‘care account’ opened with their local authority, which begins totalling up their eligible costs. The headline figure of an £86,000 cap while eye-catching is potentially misleading. Here's why...
Care home providers – reduced fees and some disproportionately affected
Private residents or self-funders pay around 40% more for the same service in the same physical environment than the rates negotiated by local authorities. These higher fees paid also cross-subsidise the care of local authority residents. For some care home operators this can be the difference between a viable and unviable home.
Section 18(3) of the 2014 Care Act will allow self-funders who currently don't have any contact with their local authority to request that it commissions their care, in the same way as those who are supported by the means test. However, the amount counted towards the cap will be the amount it would have cost the local authority if it had been meeting the person’s eligible needs.
The downside for care home operators is that unless they can encourage residents to pay top-up fees, the average fee they receive could reduce significantly. In addition, from October 2023 the upper asset eligibility threshold for council support rises from £23,250 to £100,000, thereby bringing a number of private payers of modest means within the scope of council funding. This has been termed ‘payor shift’ and recent research by the Institute for Fiscal Studies shows it will have its greatest impact in less affluent demographics in northern England and the Midlands, compared with those in London and the South East.
Taken together these matters will have an impact on care homes at the lower end of the private pay market.
Service users and residents – cap excludes DLCs and means-tested support
1 Personal care only
Care includes the nursing and other assistance such as washing and dressing, eating or managing health problems. It specifically doesn't include daily living costs (DLCs), such as accommodation, food or utility bills – commonly referred to as ‘hotel costs’ in a care home. The rationale is that someone would have to pay these irrespective of where they live: in their own home, with a family member or a care setting.
People will therefore remain responsible for paying their own DLCs throughout their care journey, including after they reach the cap. The government has said daily living costs will be set at a notional level of £200 per week (£10,400 per annum) at 2021/22 prices.
2 Excludes means-tested support
As well as introducing the £86,000 cap, the government wants to amend the Care Act 2014 so that any means-tested support doesn't count this towards people’s cap. Therefore, only the amounts people personally contribute towards their costs will count. The government's thinking is that this will prevent people reaching the cap at an artificially faster rate.
Example of how the cap will work
Worked example for a self-funding resident at £816 per week
| Years of care needed |
Cumulative self funder spend £ |
Cumulative LA spend £ |
Total cost |
Self Funder Cap distribution |
| 1 |
42,432 |
- |
42,432 |
22,672 |
| 2 |
84,864 |
- |
84,864 |
45,344 |
| 3 |
127,296 |
- |
127,296 |
68,016 |
| 4 |
164,932 |
4,796 |
169,728 |
86,092 |
| 5 |
184,692 |
27,468 |
212,160 |
- |
| 6 |
204,452 |
50,140 |
254,592 |
- |
| 7 |
224,212 |
72,812 |
297,024 |
- |
| 8 |
243,972 |
95,484 |
339,456 |
- |
| 9 |
263,732 |
118,156 |
381,888 |
- |
| 10 |
283,492 |
140,828 |
424,320 |
- |
Notes: calculated using average cost for self-funder in a residential care home of £816 a week and local authority rates of £636 a week in 2021. Source: LaingBuisson, Just Group and Grant Thornton.
Worked example
- Initially, the self-funder pays the full private pay rate of £816 a week (£42,432 annually) of which £436 a week (£636 local authority rate less the £200 daily living costs) is assessed as counting towards the £86,000 cap on personal care costs
- The resident's total spending on personal care reaches the cap after three years and nine months, at which point the local authority starts to pay the £436 personal care cost
- The resident, however, remains responsible for paying the remaining £380 a week – comprising the £200 weekly DLCs and the £180 differential between the self-funder rate of £816 and local authority rate of £636
- This also assumes the private resident pays top-up contributions so that the care home provider continues to receive the full private pay rate
Will anyone actually reach the cap?
The question is how likely is it for someone to spend up to 10 years requiring domiciliary or residential care, or both? Statistics from a BUPA-commissioned report suggest that the average length of stay in a single residential care home in England was around 26 months. However, this statistic doesn't include any previous stays in other homes, or the period for which an individual received domiciliary or other care services in their own home before entering a care setting.
Therefore, while some people will reach the £86,000 cap in their lifetime most people probably never will. Furthermore, even if they do they will still have to pay their own daily living costs (currently £200 per week), plus any top-up fees for additional services or a better care home room to make their life more comfortable (as per the worked example).
One size does not fit all
Overall, the recent changes to adult social care have been controversial. Sir Andrew Dilnot, who called for a cap in his major review over a decade ago, has criticised the latest proposals saying he is “very disappointed”.
The changes are to be funded by a 1.25% tax increase, which affects everyone in employment. Critics also believe the adult social care cap at £86,000, and the way in which people start to progress towards it, is less generous and more complicated than expected. It also disadvantages those with lower financial health who live in the North and Midlands, who will still be required to contribute a greater proportion of their wealth than those in the South-east.
It's unclear what proportion of people in England will ever reach the £86,000 cap. A self-funder would require around three years and nine months in a care home, although the average stay in a care home is almost half this.
For care home operators the impact is also uncertain, and many may need to change their business models. Self-funders will have the right to request their local authority commissions their care, in the same way as those who are supported by the means test. How this will impact average fee rates is unclear, although it is more likely that self-funders will demand a reduction in their fees than local authorities agree to increase the amounts they pay. It doesn't augur well.
With already precarious finances, occupancy rates continuing to remain lower than pre-pandemic levels, and increasing costs (wages, insurance, utilities and food), it suggests that care home operators will face increased challenges to balance the books. This could ultimately see an increase in homes closing their doors.
To discuss this topic further, contact Daniel Smith or James Hichens.
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