| SPOTLIGHT |
The financial pressures on local authorities mean they need to weigh up the advantages of different models for providing adult care, writes Matthew Wolton.
The public sector is having to take a long hard look how it provides adult social care services. Ever-increasing numbers of people need social care services. Even before the current economic problems it was estimated that we faced a £6bn funding gap over the next 20 years.
We have now reached a tipping point – the twin pressures of the personalisation agenda which has resulted in service users choosing to spend their personal budgets on services provided by non-public sector bodies, and the current economic climate with the drive to reduce local authority spending by up to 40%, means that local authorities which still run their own adult social care departments will need to look at what options are open to them.
The prevailing view is that like the NHS, local authorities should be looking to evolve fully into commissioners of adult social care services rather than the provider of them. According to the NHS Information Centre the costs of providing adult social care are almost uniformly higher when provided by the public sector.
This article looks at three possible future service models. There are advantages and risks in whatever approach is taken – what is becoming clear, however, is that doing nothing is not an option for local authorities; they must explore the possible alternatives.
In-house local authority trading companies
Local authorities have the power to trade. To do so must set up a company, known as a local authority trading company. The company is independent with its own Board of Directors who act solely in the best interests of the company, although the local authority must hold at least 51% of the company’s shareholding.
In July 2009 Essex County Council set up Essex Cares Limited, the first local authority trading company to provide in-house social care services. It was created primarily to respond to the introduction of personalisation. The growth of self-directed support and personal budgets was seen as a threat to the survival of expensive in-house provider services which were facing the prospect of being priced out of business.
Essex Cares Limited offers support to around 100,000 people each year. It was set up with a three-year ‘block contract’ with Essex County Council that incorporated a 2.5% reduction each year to act as an incentive for driving efficiencies. The contract has 39 key performance indicators and the level of payment depends on performance against these benchmarks.
Essex Cares Limited only utilises 60% of the overheads attributed to the relevant services when they were provided by the council – this generated backroom cost savings of £1m-£2m in the first year. Over the course of the three-year contract the council expects to save 10% of the overall contract sum and, if the forecast profit is achieved, a 6% per annum return should be realised with a proportion of this being returned to the council by way of dividends.
When it was set up, 850 local authority staff transferred into Essex Cares. As is common with many local authority trading companies, it has been reported that since the transfer staff have been more motivated with morale increasing and sickness absenteeism decreasing in the first year from 16% to 4%. A fundamental principle of local authority trading companies is that by setting up an independent organisation a can-do culture can able be fostered from the Board of Directors to the frontline staff with the result that service users benefit from better services, and the local authority benefits from higher efficiencies and reduced costs.
Another wider benefit is that when staff within a local authority commission services from a local authority trading company they appreciate the real cost of these services, whereas when they were commissioned from another local authority department there was sometimes an assumption that such services had no direct cost. Change should lead to commissioners being more careful when placing orders, ultimately enjoying greater savings.
The transfer of services into a social enterprise
Social enterprises are intended to combine a vision of strong social purpose with entrepreneurial drive. They should be robust businesses that are highly responsive to customers and service users, competing in a marketplace, but driven by a public-service ethos and a commitment to social goals and values.
The coalition government sees social enterprises as a key tool to boost the economy, as well as pursuing social justice, community engagement and empowerment, and as having a crucial role to play in service delivery as part of its ‘Big Society’ agenda. Often third sector organisations can add real value by specialising in particular user groups, by being closer to their stakeholders and through enjoying specialist knowledge, flexibility and innovation in the delivery of services. Conditions are ripe for the emergence of new social enterprise models across a range of public services including adult social care, with a number of recent government announcements and publications reviewing the role of the voluntary sector in public service delivery.
There have been some well-publicised problems with the transfer of social care services to social enterprises in recent times, for example Blackburn with Darwen Council’s plan to outsource its remaining in-house adult care services to a social enterprise company. The proposed services to be outsourced covered residential care, reablement home care, day services, supported housing for mental health clients and the provision of direct payments and had a budget of £8.4m per annum. The social enterprise was meant to be able to make savings by cutting overheads and finding ways of better meeting the needs of end users.
The staff to be transferred from the local authority to the social enterprise would have retained their council terms and conditions under TUPE, however the proposal angered unions which expressed reservations about possible redundancies and the lack of appropriate consultation.
This resulted in council officials withdrawing their recommendations to continue with the social enterprise model in June 2010. Instead a consultation period has begun with all options for the future provision of care services, including retaining them within the council, now under consideration.
Given the economic climate and government support for the social enterprise model, it will be interesting to see if programmes such as the second wave of right to request social enterprises, announced by the Department of Health in November 2009, will generate greater understanding and acceptance of social enterprises as a way of providing adult social care services.
Partnerships with the independent sector
The main reason for local authorities to consider the transfer of social care services to the independent sector is cost and efficiency. First, social care services can cost significantly less when provided by the independent sector. Secondly, the future demand for social care services is changing and it is generally felt that the independent sector is better suited to adapt to changing environments which also has the benefit of reducing the risk to the public sector.
The not-for-profit third sector is historically the usual avenue used for this type of outsourcing, and this covers entities such as voluntary and community organisations and charities.
Two good examples of this type of project have been the transfer of care homes in Oxfordshire and Gloucestershire. Following a procurement exercise undertaken by Oxfordshire County Council, 19 care homes, involving the care of more than 800 older people, were transferred to The Oxfordshire Care Partnership – a not-for-profit joint venture company between care provider charity The Orders of St John Care Trust and Bedfordshire Pilgrims Housing Association.
The 25-year contract between Oxfordshire County Council and The Oxfordshire Care Partnership required the building of up to 11 new state-of-the-art care homes specialising in residential, nursing and mental health care. The relationship between the parties has grown closer over time with new projects now being developed as a result. From the County Council’s viewpoint, the risks associated with the provision of such services have been transferred to another party, and the costs to it have reduced.
Following the success of this model, The Gloucestershire Care Partnership was set up in a similar fashion with 21 care homes being transferred from Gloucestershire County Council under a 35-year contract to operate, maintain and develop the care homes. £40m of capital investment was set aside for investment in new homes, and some 1,200 staff were transferred to the new organisation.
These parties have also been involved in two cutting-edge projects to develop integrated healthcare campuses:
As well as the ‘traditional’ third sector, there has been a resurgence of interest recently in the use of mutual models to deliver public services. Mutuals are member-owned businesses which trade either for the benefit of members themselves, or for an altruistic public benefit.
The following features will be present to some degree in all mutuals, depending on the circumstances and specific purpose of the organisation:
Mutuals could be a very powerful way to partner the skills of frontline professionals with the enthusiasm and engagement of citizens; encouraging self-help, co-production of services and strong accountability for delivery.
Conclusion
The coalition government is committed to building the ‘Big Society’. This is about, in part, handing power from State institutions to community-led organisations. In an age of fiscal austerity, there are also some difficult choices to make about whether the State should be the provider of public services, or whether these can be better provided by someone else.
Local authority trading companies can be seen as a middle-way between retaining services in-house and tendering them out to the independent sector. However, if there is perceived to be an advantage in outsourcing the risk of delivery entirely then use of the third sector, social enterprises, mutuals and the independent sector is likely to remain the favoured choice.
As a final statistic, it has been estimated that the cost of providing residential care services is £200 to £300 higher per week when provided by local authorities compared with the independent or voluntary sector. It is also estimated that local authority in-house residential care homes still accommodate about 24,000 people, which means that if these services were outsourced it could save £250m to £375m a year. The financial imperatives cannot be ignored.
Local authorities and PCTs that still provide adult social care services themselves must consider whether this is really the best way to deliver these services to the end user or if, by potentially adopting one of the models outlined in this article, the quality of service can be improved and the costs reduced.
Matthew Wolton is a Director of TPP Law. He can be contacted via This email address is being protected from spambots. You need JavaScript enabled to view it..
Copies of TPP Law’s Special Report: Future Service Models for Adult Social Care can be obtained here.
