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Councils must be allowed to borrow to fund Tory social care reform

Local government will have to be able to borrow money to fund the Conservative’s new plans for social care, a key public finance body has stated.

In the Conservatives manifesto released last week, Theresa May stated that her party would change the current social care system so that people with assets worth more than £100,000 would have to pay for their care.

The prime minister later clarified that there would be a cap on the amount that someone could be charged for care, although at this stage it is unclear what level the cap will be set at.

This week, the Chartered Institute for Public Finance stated that the local government borrowing system will have to be reformed to accommodate the changes. At present, councils can only borrow for capital spending, and it is illegal for councils to borrow to provide services.

“To implement the new policies, councils will urgently need to know the full details of how the policy will work in practice,” said Rob Whiteman, chief executive of CIPFA.

“Because social care is the single largest controllable cost to upper tier councils deferring much of the income to cover these services will make a material difference to councils’ balance sheets.  

“Whilst many councils will fund the services now and receive income in future years through using their balances and reserves, the government may need to legislate to allow for councils, at times, to borrow to fund services that will be paid for at a later date.”

Whiteman added that councils will need to know whether the administration and financing costs will be recovered as a charge to social care users or borne by council taxpayers. 

“Also, property values at times fall under market conditions and local government will need to know how any gap would be indemnified should the equity in a home fall below £100,000 in the years after the deferred charge for social care services is agreed,” he said.

In conclusion, Whiteman said that CIPFA would need to see the final proposals for the Conservatives social care policy to assess whether councils will have adequate resources in the long-term to fund services on a sustainable footing.

“With some councils already close to the position where they must by statute freeze expenditure because their current budget is not balanced, the government will also have to reconsider the legislative framework for local government finance,” he stated.

Nuffield Trust chief executive Nigel Edwards commented that the level the cap will be set at was a “crucial question,” for the government: “This goes some way to addressing one of the big problems with the social care system, which is that the neediest can pay a very disproportionate amount for their care.”

Chris Ham, chief executive of the King’s Fund, added: “A single health and care system, paid for through a mix of public and private funding, is essential to tackle the unfairness of existing arrangements, and to overcome the lottery of care being based on diagnosis rather than need.

“Raising some of the revenues required by tapping into wealth in people’s property should be part of a new approach to funding,” he added. “A coherent and considered review of all the options is needed instead of future policy being determined by election deadlines.”

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