The Torbay judgment: from the micro to the macro

Torbay Council v. Torbay Quality Care Forum Ltd  [2017] EWCA Civ 1605.

On one level this judgment can be seen as private sector residential care owners trying to boost their profits by forcing a poor local authority to pay higher care home fees.  It’s hard to imagine that many people have great sympathy for the ‘for-profit’ social care provider sector – many of whose businesses are based on ‘sweating the labour’: low wage, zero hour contracts – and many make handsome returns on capital.

That said this is a Court of Appeal judgment we need to be concerned about, both because the majority (in my humble opinion) got it wrong and because it highlights what is rotten in today’s commodified social care system.

If (and it’s a pretty big ‘if’) the provision of essential social care support can legitimately be a private profit making activity, then it must follow that providers should be paid fairly to ensure that the sector secures stable long-term care for those in need.  The problems resulting from the system becoming economically unstable are all too evident: not only the seismic threats when a major provider such as Southern Cross collapses, but also the present poor standards and declining numbers of care providers.

The state has ultimate responsibility for the well-being of people who lack the resources necessary to care for themselves.  Almost half of those living in care homes receive some council funding towards their care fees and this in turn places the state in a dominant position in this particular market.  The other half of care home residents are ‘self funders’: individuals who do not benefit from councils’ collective purchasing muscle.  Many people in this group are not wealthy: in England self-funders are people with capital assets over £23,250.00[1] (and frequently this will include the value of their former home).

The joint Committee considering the Care Bill[2] saw similarities between this system and the dominant relationship enjoyed by supermarkets when trading with farmers.  Although the Care Act 2014 section 5 creates no regulatory body akin to the Groceries Code Adjudicator it does place obligations on councils to promote an efficient / effective local market ‘with a view to ensuring’ that there is a variety of providers and high quality services to choose from’.  Similar protections existed under the pre-Care Act regime (in the form of 2004 guidance[3]) – and it was these provisions that were considered by the court in the Torbay proceedings.

In order to decide what a fair price is for a care home placement, councils must consider in some detail the economics of providing care.  This includes not only the providers’ overheads (staff costs, building maintenance, utility and insurance costs etc etc) but also what the market would consider to be a reasonable return on the capital invested and a reasonable profit.

The guidance required[4] that councils, when deciding what they would pay (their ‘usual costs’ figure), should have ‘due regard’ to the actual costs of providing care’ and that the ‘usual cost’ paid by the council should be ‘sufficient to meet the assessed care needs’.  The figure finally determined by a council as its ‘usual cost’ had to be sufficient to ensure that such residents’ received ‘the level of service they could expect if the possibility of resident and third-party contributions did not exist’ (para 2.5.7).

The question the court had to decide was (essentially): ‘can a council, having worked out what is the average actual cost of providing a bed in residential care home in its area, then decide to pay less than this[5] on the basis that many of the care homes will have self-funding residents who (because they are paying higher care fees) can then subsidise the council funded residents?’

Of course including self-funder payments in the equation only works if the care home has self-funding residents.  As the court noted, where a home had a high proportion of council funded residents this approach would mean that they could operate at a loss ‘irrespective of whether they are run efficiently’ [para 63].

Beatson LJ (in his dissenting opinion) held that it was unlawful to take such payments into account as this would result ‘in a calculation which ignores whether the usual cost is “sufficient to meet the assessed care needs”’ [at para 52].

The majority however opted for a micro analysis of the 2004 guidance.  In their opinion it was lawful for a council to take this approach – so long as it did not expect the residents it funded to pay a top up fee.  In essence it held that it was wrong to expect residents to pay for the shortfall in their care costs but perfectly OK for other residents (ie strangers) to pay an ‘excess’ to top this up for them.

The majority did not regard it as relevant (or was ignorant of the fact) that:

  • the system only operates because self-funders pay £1.3 billion a year to ‘top-up’ the fees of council funded residents:[6] that the ‘entire care home sector for older people is being kept afloat through cross subsidies’ of this kind – what LaingBuisson quite correctly refers to as a hidden ‘care tax’. Self-funders make these payments because their bargaining position is weak – or put it another way, directly as a consequence of councils abusing their dominant position in this market;[7]
  • that the families of 25% of council funded care home residents are being coerced (unlawfully) to ‘top-up’ the fees for their relatives – payments that can ‘run into thousands each year’: what Age UK’s quite correctly refers to as a ‘stealth tax’[8] (except this one is unlawful).

What sort of welfare state is it that can only operate by: (1) requiring one group of people to contribute to the bill of someone they do not know;[9] and (2) by unlawfully encouraging the relations of poorer residents to make payments to ensure that their basic care needs are met?

Even without this seriously troubling approach, councils are required to run a system that has (to quote Sir Andrew Dilnot[10]) the ‘most pernicious means-test’ in the British welfare state.  Whether you pay for social care or not depends on the whim of the Gods.  Many pay nothing and some pay huge amounts.  Those that have more than £23,250 savings will (as we see above) also be required to pay for poorer co-residents and many families – aghast at the inadequate (or downright dreadful) standard of the placement offered by the council – will feel compelled to pay for the additional cost of providing some basic dignity.

This is the system that regulated health care before the creation of the NHS: a system that closely resembles the Poor Law – and many older people consider a move into a care home in much the same way that pre-1948 older people viewed a placement in the Work House.  Every argument against a free at the point of need healthcare system (and the Tories rolled most of them out in the debates on the NHS Bill 1946) applies with equal force to the provision of social care and every argument in favour of such a healthcare system applies with equal force to the provision of free social care.

Getting rid of the current system would not be ‘unaffordable’[11] for UK Plc. Less than 2% of the Exchequer’s budget is spent on social care today (and for older people the cost is 0.7%).  We as a country pay for social care – but instead of it being paid for by a fair system, it is funded by the most arbitrary and pernicious of capital taxes.  No one knows if they will pay it until it is levied and even then, no one can tell them how much they will have to pay.

Social care should be funded by through taxation and (paraphrasing Richard Murphy[12]) taxes should be ‘fair, certain, convenient and efficient’.  The current ‘stealth tax’ / ‘hidden tax’ / most pernicious of taxes’ certainly fails on all counts. The 1999 Royal Commission came to this conclusion and so did (in a roundabout way) the Dilnot Commission.[13]  In reality the most sensible approach would be for this to be paid as a form of capital taxation[14] – but not the current version – where those who become liable, risk losing all their capital with the exception of the final £14,250.00.

 

Does this judgment apply to the new English and Welsh social care regimes?

England

The judgment is based on pre-Care Act law, and the guidance at the centre of it has been revoked.  The judgment notes [at para 4] that the barrister for the council suggested that the outcome in this case will have [a[15]] relevance to decisions under the new regime whereas the barrister for the care home considered this ‘unlikely’ because ‘the focus of the new regime is different’.

Although the specific requirement in the 2004 guidance to determine ‘usual’ and ‘actual’ costs is not to be found in the 2014 Act – section 5 places a duty on councils to promote an efficient / effective local market ‘with a view to ensuring’ that there is a variety of providers and high quality services to choose from.  In addition, the Statutory Guidance is surprisingly direct and likely to be cited frequently in future cases of this kind. It reminds local authorities that the way they commission services is ‘a prime way to achieve effective market shaping’ (para 4.4) as these have a ‘significant influence on the market’ (para 4.7).  The effect of the guidance will, inevitably, make the provider market fee levels ‘more transparent’ and this, together with the obligation to mitigate provider failure and have an overview of the market will – in the opinion of ADASS – ‘exacerbate providers’ concerns about the fee levels local authorities are willing’[16] and will in consequence lead to further litigation in this field.[17]

 

Wales

Prior to the Social Services and Well-being (Wales) Act 2014 coming into force, the guidance considered by the Court of Appeal in this case operated in much the same way in Wales as it did in England.  This is no longer the case and neither the 2014 Act nor its Codes appear to replace / restate these obligations.  Although the Act (section 16) seeks to prioritise the support of ‘social enterprise’ / ‘not for profit’ care – it does not appear to contain market oversight duties equivalent to those in section of the Care Act 2014 (and the Statutory Guidance).[18]

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[1] £30,000 in Wales.
[2] Joint Committee on the Draft Care and Support Bill, Draft Care and Support Bill, Stationery Office, HL Paper 143 HC 822, 2013, para 114.
[3] LAC (2004) 20 Department of Health (2004): Guidance on National Assistance Act 1948 (Choice of Accommodation) Directions 1992 and National Assistance (Residential Accommodation) (Additional Payments and Assessment of Resources) (Amendment) (England) Regulations 2001.  Very similar guidance existed in Wales – The National Assembly for Wales (2004) Guidance on National Assistance Act 1948 (Choice of Accommodation) Directions 1993 NAFWC 46/2004.
[4] LAC (2004) 20 para 2.5.4.
[5] ie set its ‘usual cost’ figure below this.
[6] https://www.laingbuisson.com/wp-content/uploads/2017/01/LaingBuisson_Care_Cost_Benchmarks_8ed_PR.pdf
[7] LaingBuisson County Care Markets Update 2017: Financial challenges in the light of proposals for long term care funding reform (LaingBuisson October 2017).
[8] ‘Behind the headlines: the ‘3rd party top ups’ stealth tax https://www.ageuk.org.uk/latest-news/archive/top-up-fees/ (27th July 2017.
[9] And to do this not through taxation but by making a payment directly to a private profit making organisation.
[10] Amelia Hill Social care reviewer condemns UK system and calls for new tax Guardian 6th April 2017.
[11] S Sutherland The Royal Commission on Long Term Care With Respect to Old Age: Long Term Care – Rights and Responsibilities Cm 4192-I (Stationery Office 1999) para 10.17.
[12] Richard Murphy The Joy of Tax (Bantam Press 2015)  p 130 when adopting the approach of Adam Smith, The Wealth of Nations, 1776, Book V, Chapter II, Part II.
[13] The Commission on Funding of Care and Support (2011) Fairer Care Funding: The Report of the Commission on Funding of Care and Support (the ‘Dilnot’ Report).
[14] See for example Richard Murphy Social care has to be paid for: charging capital gains tax on houses on death is a way to do it at Tax Research UK18 May 2017 and see also the comments of Nicholas Timmins that in any discussion on this issue ‘housing wealth will come into it somewhere’ – Nicholas Timmins Social care: who cares Institute for Government 13 June 2017.
[15] In the transcript this appears as ‘the outcome in this case will have any relevance to decisions under the new regime for future years’ but the context suggests that the word ‘any’ should in fact be ‘a’.
[16] LGA and ADASS Joint consultation response Care Act: regulations and guidance (August 2014) at para 31.
[17] See generally ‘Care Act 2014: overview guide’ at http://www.lukeclements.co.uk/resources/.
[18] See generally ‘Wales social care: overview guide’ at http://www.lukeclements.co.uk/resources/.

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