Financial Implications

Ian McNeill of Help the Aged briefly summarises the SEFTON case putting it in a more political context and provides his interpretation of the likely financial implications.

In his Budget on 28 November 1995, the ex-Chancellor announced changes in the means test governing payment for Long-Term Residential and Nursing Care. Under legislation dating back to the National Assistance Act 1948, a Local Authority has a general duty to provide residential accommodation for certain categories of people. The Local Authority is also obliged to charge the full cost of that accommodation to the resident, depending on his or her ability to pay as measured by a means test. The regulations governing the means test cover not only a resident's income but also his or her capital; they calculate a nominal income from such capital and take it into account.

Confident that the regulations actually meant something, the former Chancellor increased two so-called Capital Limits. Henceforward, only residents with £16,000 or more would have to pay for their Residential Care in full. Those with between £10,000 and £16,000 would have the appropriate income taken into account in the means test. Those with less than £10,000 would be able to keep it, and it would not be treated as yielding any income. In the words of the guidance, "Capital of £10,000 or less is fully disregarded".

These changes were widely welcomed and new guidance was issued to Local Authorities. When Help the Aged learned, several months ago, that Sefton Metropolitan Borough Council seemed to be ignoring them, it sought a judicial review of two test cases. Sefton maintained that the cost of meeting demands for residential accommodation in accordance with the National Assistance Act had exceeded the financial resources available to its social services department. It had therefore adopted Capital Limits well below those specified in the regulations, and argued that it did not have to provide residential accommodation to people whose savings, low as they might be, meant that care was "otherwise available" to them. In other words it claimed that, contrary to what had been believed since the 1948 Act, a Local Authority faced with an application for residential accommodation could take into account both its own financial resources and those of the applicant.

Sefton won on two of three points. As the law now stands, a Local Authority which is short of funds can ignore the regulations. Unless the judgement is reversed on appeal or Parliament changes the law back to what everybody thought it was, the financial consequences are both potentially severe and hard to quantify.

There are 414 Local Authorities in England and Wales. Central Government is trying to keep a tight rein on spending, so most LAs will be short of resources. Each of these 414 can, and may feel that it must, reconsider how to meet its obligations under the National Assistance Act. Once it does so, the number of variables begins to multiply. Since budgets are fixed annually, and costs may be higher or lower than budget, should the Capital Limits be fixed at budget time? What if costs over-run? Will all other 413 LAs have to adopt Sefton's weekly meetings at which resources and needs are compared to see whose need is greatest? Will there be any Lower Capital Limit at all, or will elderly people be denied residential accommodation until they do not have enough money left even to pay for their own funerals?

On the face of it, there is likely to be less cost to public funds. In other words, those taxpayers in favour of preserving the health, happiness and dignity of their older fellow-citizens can be sure that their taxes will be used for other purposes, and look for charities which can try to fill the gap. Sooner or later, Central Government will be asking how much public money each Local Authority is going to be able to save. When it has the answer, will it cut funding to reflect these savings? We don't have the answers yet, but is this the kind of low spending that our old people deserve?

For frail older people, the Sefton judgement brings what we all dread: uncertainty. It is well known that one elderly man in seven and one elderly woman in three is likely to need Long-Term Residential Care. Which one it will be is uncertain, but the regulations did at least seem to provide a basis on which to make contingency plans, for the potential resident and for the family and other carers.

What advice can one now give to a frail elderly person whose savings are ebbing away and whose Local Authority has set its own low Capital Limits? Move to another Local Authority area which is less short of money, and get a residential place before their financial position worsens? Should older people copy parents trying to get their children into particular schools, and quote false addresses or move in with sympathetic family or friends in a "helpful" Local Authority area? Is it better to stay put, undergo formal assessments of needs and resources, and then watch the money flow out and wait for the result of each weekly meeting?

This assumes a desire, or at least a willingness, to enter Residential Care. All the evidence points to the conclusion that the great majority of older people very much prefer to stay in their own homes as long as they can. Many can do so with help, under the general heading of Domiciliary Care. Local Authorities have an obligation to provide this also, but the rules about paying for it are different from those relating to Residential Care. A Local Authority must charge for Residential Care; it can choose whether and how much to charge for Domiciliary Care (although the grant it receives from Central Government assumes that it will recover part of the costs by charging). If a recipient of Domiciliary care cannot afford to pay for it, the Local Authority can charge less or nothing, or withdraw the service. If a recipient of Residential Care cannot pay because his or her capital is their home, the Local Authority has the power, unless the home is occupied by a spouse or dependent relative, to register a charge against it. When the home is sold, the Local Authority will recover its unpaid bill from the proceeds of sale.

It is sales of this kind, plus sales by single people entering Long-Term Residential Care, that are now said to account for about 40,000 house sales every year. But the home is "at risk" only if its owner enters Residential Care, and before the Sefton judgement it was believed that even if the house were sold to pay care fees, the "disregard" would apply to the last £10,000 left. Elderly people who hoped and planned to leave an inheritance can no longer be sure whether they will leave £10,000, £5,000 or indeed a single penny. They will be less willing than ever to enter Residential Care. Some will be able to carry on at home, with help from family, friends and Social Services. Others will hang on longer than they should, using up not just their savings but their reserves of strength; and always in the dark about whether, even if they do decide they can cope no longer, the Local Authority will look at its resources and theirs and decide that for the next week they can.

As the National Health Service seeks to measure itself by number of treatments, "success" is being hampered by recuperative patients who are "blocking" beds. It is accepted that recuperative patients should not be discharged until suitable arrangements have been made for them, at home with a package of Domiciliary Care, or a place in a Residential or Nursing Home. It would be speculative to wonder whether, after the Sefton judgement, the recuperative occupant of an NHS bed might be considered as having care "otherwise available" and as therefore failing to qualify as needing residential accommodation under the National Assistance Act 1948. It is more likely that sick, poor, post-operative elderly people will suffer from the lack of certainty about where they will have to go, when they will have to go, and who will pay for what when they get there. Few will want to deny beds to people in need, but one can understand the fear and confusion which will cause many of them to cling to the status quo.

The then Chancellor also announced in November 1995 a Consultation about Partnership Schemes, and a Consultation Paper, "A New Partnership for Care in Old Age", duly appeared last May. The basic idea was simple: if people took out Long-Term Care Insurance, one and a half times the amount of insurance benefits they receive would be added to the amount of capital "disregarded" when their means were tested. A Draft Bill and a Policy Statement published in March 1997 failed to answer a very important question: how could the buyer of a Long-Term Care Insurance Policy be certain that it qualified as a "Partnership Policy"? If, in 25 or 30 years time, a Local Authority simply decided that a particular policy did not entitle the owner to keep that extra amount of capital, what could the policy-holder do about it? The Sefton judgement has posed a wider question: since the regulations about Capital Limits of £10,000 and £16,000 can be ignored by a Local Authority, how can anyone make a sensible decision about the benefits of investing in a Partnership Policy at all?

The Insurance Industry has recently shown great interest in Long-Term Care Insurance (LTCI), quite apart from the incentive of Partnership Policies. The Sefton judgement will have contradictory effects on sales of LTCI Policies. People whose disabilities become so great that they receive benefits under an LTCI policy will be better able to cope with the costs of Domiciliary or Residential Care. The Sefton Judgement will not affect them directly, and indeed might mean that there were more resources available to help others. On the other hand, Advisers selling LTCI Policies will find it very difficult to give Best Advice, or even advice at all, if the rules about the means test are going to vary depending on which of 414 Local Authority areas the potential buyer will be in when a successful claim is made.

There are more questions than answers in this article. The implications of the Sefton judgement have one feature in common: they increase uncertainty. The Government's Policy Statement in March includes among its aims "to promote greater understanding of the current arrangements for social care, so that people are aware of the costs they may face". The judgement must be reversed if there is to be any chance for this aim to be achieved.

Ian McNeill, Help the Aged