The Care Tax: Upsetting a Fragile Market

Topics covered: Ridouts professional advice

In yet another manifesto breaking announcement, Boris has stated that there will be a new levy which increases national insurance tax and dividends tax by 1.25% each. This will be done in order to raise nearly £36 billion for the health and social care sector over the next three years. According to PM Johnson the money will be legally ringfenced and priority will be given to clearing out the NHS backlog. Framed as a massive influx of funds for the health and social care sector, this tax may actually do more harm than good, and for the adult social care sector in particular. While these funds would be in addition to the £250 million which has already been allocated to the social care sector, it is not nearly enough to meet the growing demands of an ageing population and sector under extreme pressure and scrutiny from both the regulator and their service users.

Reform Structure

Of the estimated £36 billion to be raised, only £5.4 billion of that will be put towards adult social care over the next three years – that’s only £1 for every £6 spent, meaning the NHS will receive 500% more than the social care sector. Further, £0.5 billion will be reserved just for workforce investment in the social care sector to (1) provide support in professionalising and developing the workforce, (2) fund mental health wellbeing resources, and (3) introduce reforms to improve recruitment.

According to Building Back Better (, money will be given to local authorities so that they can have enough funding to pay providers a fair fee. Additionally, there will be a cap of £86,000 on the amount that anyone will ever need to pay towards care costs in their lifetime with needs based assistance provided to those who have capital assets between £20k and £100k.

Challenges in Social Care

To begin, the social care sector is already experiencing a shortage of care workers and increased demand for services. According to the NHS, councils in England received 1.9 million requests for support in 2019/2020 and requests have risen by more than 100,000 in the last five years. Further, expenditure on social care was only £99 million more than in 2010/11, with council spending 3% less now than in 2010.

Second, care costs themselves act as a barrier for many in accessing the care they need. There are currently no standard fees for social care and those who don’t qualify for financial assistance often end up paying more for the same or very similar care needs. Age UK estimates that 1.5 million don’t get the help they need.


The government has stated that its goal with this initiative is to offer choice, control and independence to care users without sacrificing the quality of care that they receive or breaking the bank. However, the government have been vague on what this would look like pragmatically. They want social care to be accessible to all who need it, when they need it, but have failed to consider what the providers themselves need in order to stay viable as a business.

Raising Taxes or Raising Revenue

The increase in tax is not free money to the health and social care sector. Everyone is taxed so everyone is paying into this. Further, as the NHS will be receiving the majority of the benefit of these funds over the next three years, the social care sector will likely end up losing money. According to the Health Foundation, the government will be £6.1 billion short on its social care costs by 2030/31.

Capping Out of Pocket Costs

Further, capping the costs at £86,000 doesn’t really do much for those who are already having trouble affording their care costs. The National Audit Office estimates that around 839,000 people in England received some level of state funded adult social care in 2019/2020 at a cost of £16.5 billion. If the care sector will only see £5.4 billion over the next three years, this will be detrimental to their revenue stream.

On top of this by giving the money to the local authorities, rather than directly to the care providers, the government is not helping solve the financial crisis that providers are experiencing. Typically, the providers would make up their revenue gap by up-charging self-funding individuals. However, by capping costs and allowing the local authorities to control the care costs, the sector is will be unable to have access to money where and when it is most needed.

Integration Priorities – Budget Breakdown

The government also stated that as the NHS backlog was cleared up the social care sector would see incremental increases in the portion of funds raised through the levy allocated to them. However there was no clear answer on when or how this would occur.  The priority seems to be the NHS to the detriment of the social care sector.

The budget for DHSC in 2021/2022 was £212.1 billion. £60 billion went to PPE, the majority went to day-to-day spending and the remainder was allocated to the NHS. In response to Covid-19 an additional £63.4 billion was injected in2020/2021, of which the social care sector only saw roughly £7.2 billion. What this shows is that while the government is saying the money is for health and social care, the social care sector will only likely get extra finding if there is any leftover. The priority is, and has been, the NHS despite increased demands for these services.

Further, the amount that the adult social care sector sees is 100% at the local authority’s discretion. The local authority will receive the money, and while it will supposedly be ‘ringfenced’ for health and social care, the local authority will have discretion to decide who gets that money (ie providers or users). The government has given £7.2 billion to the local authorities, but specified that £546 million went to a care infection control fund, £149 million to rapid testing fund, and £120 million to a workforce capacity fund. Further, £1 billion was given to the NHS to pay care costs for people leaving hospital. Local Authorities also have the ability to raise council tax by up to 5%, but there is no guarantee that they will do so in order to increase funding to the adult social care sector. Essentially what we see is money injected for social care, but it is pre-allocated rather than allowing providers a say in where they need the money.

Legal Implications

One other aspect to consider is the legal framework under which this initiative would work. Specifically in regard to adult social care services. Since the money is being injected via local authorities the Care Act 2014 is likely to govern when and how this money will be disbursed and to whom. Of particular interest are the duties of local authorities and how those will tie into the financial viability of this initiative, at least from a care provider perspective.

As the command paper and the press conference indicated, the government wants to “improve integration of health and social care system.” Under s.3, local authorities have a duty to promote this integration, particularly where they believe this would “improve the quality of care and support” (s.3(1)(c)), which is defined as meeting service users and carers needs for support and provision of services, facilities or recourses (s.3(2)(b)/(c)). Further, a duty is placed on local authorities to “promote the efficient and effective operation of a market in services for meeting care and support needs”(s.5(1)), which again includes those of service users and providers. In particular, they need to consider future demand, sustainability, fostering continuous improvement in quality, and adequate workforce. Finally, the local authority is responsible to meet the needs of a registered care provider where it becomes unable to carry out its regulated activity (s.48(2)). The implication is that providers, regulators and local authorities should work together, but what is seen in practice is a focus on the needs of the service user only.

Next Steps

Despite providers being the direct access point for service users, they have not been given direct access to much needed funding. Effectively how the government chooses to allocate money, and then the local authorities’ discretion in handing out the ringfenced funds will have a huge impact on how providers are able to run their businesses in terms of capacity and costs of care. Further, there has been more scrutiny from the CQC as a result of the pandemic putting providers under even more pressure and making this new Care Tax crucial to ensuring the financial viability of adult social care providers in the face of staff shortages and increased demand for services (read more about CQC scrutiny in light of staffing shortages here). If the government’s goal is better quality and better access to care for all, they will need to work jointly with the regulator, local authorities, and providers rather than giving one entity the ability to decide how and when funds will be distributed.

In particular, providers will want to ensure that the local authorities are carrying out their duties and being mindful of the needs of not only service users, but also providers, particularly in relation to promoting efficient and effective operation of the adult social care market. One way they can do this is by reviewing their arrangements with local authorities for provision of care services and how this will affect their finances, especially in light of the care cost cap to be implemented. At Ridouts we provide nuanced and bespoke strategic and legal advice to care providers in need. Ridouts can help care providers in all aspects of running their business, including negotiating contracts and payment arrangements for care costs from both local authorities and self-funding users.

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