Councils will need 60% of tax revenues for social care funding, warns thinktank

Councils in England will need to spend 60% of their revenues on adult social care by 2025 unless they are bailed out for the government, an economics thinktank has warned.

The Institute of Fiscal Studies (IFS) said that the total amount of funding available to councils looks like it will become “increasingly inadequate”, despite an end to overall budget cuts.

This is because current government plans envisage councils relying on council tax and business rates for the vast bulk of their funding – and revenues from these taxes are “unlikely to keep a pace” with rising costs and demands, the thinktank said.

IFS warned that with annual increases to council tax of 3% – the maximum councils can increase it without a referendum if powers for extra increase for social care lapse – rising costs and demands mean that adult social care could require 60% of local tax revenue within 15 years, up from 38% now.

Without additional funding, this would mean cuts to other services, many of which have already seen cuts of more than 40%.

Analysis by the think tank found that even if council tax was increased by 4.7% a year – the average increase this year including the extra increases ring-fenced for social care – adult social care could amount to 50% of local tax revenues.

David Phillips, an associate director at the IFS and an author of the report, said: “Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with our expectations of what councils should provide.”

The report shows overall spending on local services by English councils fell by 21% between 2009-10 and 2017-18.

Some services have seen much deeper cuts though; spending on planning & development and housing services fell by more than 50%.

This has allowed councils to protect social care services from the full force of budget cuts. Spending on adult social care fell by 5% between 2009–10 and 2017–18 – although the numbers receiving care fell by much more.

The thinktank said ministers were presented with a big choice: either authorities are given additional money to enable them to continue providing existing services, or the government should be upfront with voters that councils cannot afford to maintain the same services they currently provide.

“A proper national debate on how much we are willing to pay and what we expect of councils is therefore needed, said Philipps.

“Without it, we will default to a situation where the services councils can provide are gradually eroded without an explicit decision being taken – until ad hoc funding is found as a response to political pressure. Such an approach would not be conducive to long-term planning by either councils or the government.”

The IFS report follows the publication of a report by Pricewaterhouse Coopers, which found that councils face a £50bn black hole over the next years due to rising demand for services and increasing costs.

Research for the County Councils Network found that raising council taxes and increasing efficiency will not be enough to fill the funding gap and that adult social care spending will rise by £6.1bn nationally by 2025 compared with a decade before.

Analysis by the BBC has also identified 11 authorities the Chartered Institute of Public Finance and Accountancy (Cipfa) said would have “fully exhausted” reserves within four years unless they topped them up.