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Loading …An extra £200m for social care in next year’s council finance settlement is “wholly inadequate” to tackle additional costs facing adults’ services, sector leaders have warned.
The government pledged to increase the social care grant – which is ring-fenced for adults’ and children’s services in England – by £880m, in its provisional local government finance settlement for 2025-26, published on 18 December 2024.
This is up from the previously planned increase of £680m.
The Ministry of Housing, Communities and Local Government (MHCLG) also confirmed that councils would receive £515m to deal with the impact on them of the increase in employer national insurance contributions (NICs) that comes into force in April 2025.
Funding shortfall
However, this does not cover the extra costs facing authorities from the impact of the employer NICs rise on the providers that they commission, notably in adults’ services.
The Association of Directors of Adult Social Services (ADASS) has calculated that councils face an additional £1.8bn in adult social care costs next year, as a result of the rise in employer NICs, a 6.7% increase in the national living wage (NLW) and inflation more broadly.
However, dedicated additional funding for adult social care will be about £1.2bn (see box).
Adult social care funding in 2025-26
Additional funding
- The existing social care grant – worth £5bn this year – will increase by £880m. This is ring-fenced for adults’ and children’s services, with authorities having spent about 60% on the former. Based on this, the grant should provide an extra £528m for adult social care in 2025-26. The increase in the grant will also be targeted at more deprived councils, to compensate them for their lesser ability to raise funds through the adult social care precept (see below), meaning there will be relatively less for more affluent – typically shire – areas.
- Councils can increase the adult social care council tax precept by 2% next year, which would raise an extra £650m across the country if all councils made use of this.
- In addition to the precept, authorities can raise council tax by 3% without having to put any rise to a referendum of citizens. Were all authorities to do so, this would yield about £970m, some of which would be available for adult social care.
- Councils will also be allocated a new ‘recovery grant’ worth £600m and an extra £50m in the broad-based revenue support grant (RSG), some of which the government intends should go on adults’ services. However, the recovery grant will be highly targeted at the most deprived areas, meaning some authorities responsible for social care will not receive any of it.
Standstill funding
- Authorities will receive £2.6bn as their contribution to the Better Care Fund (BCF), which is pooled with the NHS locally. This is the same as the allocation for 2024-25, made up of the £2.1bn improved BCF grant – which can be used by councils to meet adult social care needs, help reduce pressures on the NHS and speed up hospital discharge – and £0.5bn dedicated to supporting hospital discharge.
- Councils will also receive £1.05bn via the market sustainability and improvement fund (MSIF), the same as in 2024-25. The MSIF is designed to help councils increase fees to providers, boost workforce capacity and cut waiting times for assessments and services.
‘This means fewer people will receive care’
In response to the news, ADASS president Melanie Williams said authorities would still be left with a funding gap for adults’ services.
“This means that fewer people will be able to draw on care and support to help them stay independent and well, such as transport to go shopping, a regular cooked meal or support for family carers,” she said.
“Limiting the number of people who can access adult social care creates a vicious cycle; too many people reach crisis point and end up in hospital unnecessarily because they aren’t receiving low level care at home, and they can’t leave hospital because there isn’t enough support to return home safely.”
Additional funding ‘wholly inadequate’
The Homecare Association, which represents domiciliary care providers, said that, while the additional £200m was welcome, it was “wholly inadequate to stabilise the sector”.
The association recently published its calculation of the minimum price for home care in 2025-26, which is the price per hour providers need to be paid to cover staffing costs and operating costs, as well as make a reasonable profit.
This will rise from £28.53 this year to £32.14 in 2025-26, significantly as a result of the rises in employer NICs and the NLW, though the association has also increased its minimum profit margin from 5% to 7%, based on evidence from care market analysts LaingBuisson around current profit levels.
‘Care workers deserve better’
Association chief executive Jane Townson said meeting its revised figure for 2025-26 would require a funding boost from councils and NHS commissioners of £1.8bn in 2025-26.
She added: “Care workers deserve better. Employers cannot offer fair pay without a fair price for care. If Labour is serious about improving social care, they must act now.”
On behalf of charities providing care to disabled people, the Voluntary Organisations Disability Group issued a similar message.
Chief executive Rhidian Hughes said that, if the full costs for providers of the NICs and NLW rises were not met, they would be “forced to cut services”.
This reflects the findings of a survey by the Care Provider Alliance, an umbrella body for provider associations, on the impact of the NICs and NLW rises on organisations.
Almost two-thirds (64%) of organisations said they would need to make staff redundant, while 57% said they would have to hand care contracts back to councils and NHS commissioners, if their additional costs were not covered.
Variations in funding rises
A more positive outlook on the settlement was provided by think-tank the Institute for Fiscal Studies (IFS).
It said that, once a £1.1bn payment derived from a levy on businesses for packaging costs were taken into account, councils’ spending power – the total resource available to them if they maximised increases in council tax – would rise by 5.5% in real-terms on average in 2025-26.
This is above the 3.5% figure issued by the MHCLG, which excludes the ‘extended producer responsibilities’ levy.
However, the IFS stressed that, because of the increasing weighting of funding towards poorer areas, real-terms spending power increases would average 7.9% in the poorest tenth of areas and just 4.4% in the least deprived tenth of localities.
This is driven significantly by the distribution of a new £600m recovery grant, which will go to 33 of 36 metropolitan councils, half of London boroughs, unitary councils and district authorities, but just one in 21 county councils.
Counties issue alarm
This was reflected in the County Councils Network’s (CCN) response to the settlement.
“By targeting the £600m recovery grant on metropolitan and urban councils, the government is ignoring the fact deprivation is not the only driver of councils’ costs nor the key indicator of which councils are under the most financial distress,” said CCN finance spokesperson Barry Lewis.
“Instead, it is demand and market failure across adult and children’s social care and special educational needs services that are pushing councils in all regions and of political control to the brink.”
Council funding reform
The changes in the distribution of funding in 2025-26 are the first step in a wider reform of local government funding, designed to ensure that it better reflects need, which will be implemented in 2026-27. The MHCLG has launched a consultation on this reform.
The IFS said that reform was needed because current approaches to allocating funding were “out of date and essentially arbitrary with respect to current local circumstances”. However, it stressed there would be “significant losers as well as winners from whatever reforms are implemented”.
