Professor Martin Green, Chief Executive of Care England, examines how chronic underfunding, rising demand and structural inequalities are undermining a sector that is, in reality, a major driver of local and national economic growth.
Social care is a vital part of the health and welfare system, providing support to people who need support and assistance due to age, disability, or mental health issues. The economics of social care is a complex interplay between funding, demand, workforce challenges, and its impact on broader economic health. Over the years, successive governments have failed to address either the economic needs of social care or to acknowledge its important role as an engine of economic growth.
Funding for social care primarily comes from local authorities, which assess needs and provide care services. Over the past decade, funding for social care has been under significant pressure from austerity measures and rising demand. The Care Act 2014 aimed to reform the system by standardising care assessments and emphasising well-being, but financial constraints have hampered its full implementation. What is not recognised is the important role self-funders play in supporting local economies. Many older people remain economically inactive until they require social care, and once admitted to a residential service, they may suddenly inject between £1500 and £3000 per week into their local economy. This is money previously tied up in assets or capital that was not being used. In many local areas, social care is the biggest employer, and social care workers live locally and spend their money in local businesses. In this way, social care becomes a powerhouse of the local economy, and it needs to be acknowledged for its contribution by national and local government.
Local authorities have clearly stated that central government funding is insufficient to cover rising costs. According to the Association of Directors of Adult Social Services (ADASS), the social care sector has been underfunded for years, leading to a shortfall that has resulted in cuts to services and increased reliance on unpaid family caregivers. The economic implications of underfunding are substantial, as inadequate care can lead to poorer health outcomes, increased hospital admissions, and ultimately higher costs for the National Health Service (NHS). However, this narrative that local authorities lack sufficient funds to sustain social care is not necessarily true across the entire system, and there are substantial inequalities in how funds are allocated among children, working-age adults, and older people. The reality of our current system is that funding is not allocated according to need; it has been distributed in various ways, with some groups subject to discrimination. This is particularly true for older people, where ageism riven through society manifests in how people are funded for social care. The older you are, the less you get and the greater the expectation that you will fund your own care. I’ve seen situations where children are on care packages of £40,000 a week, yet older people with complex needs are told their local authority will not pay more than £600 a week for residential care. This inequality is a stain on the current system, and resources should be allocated based on need, not on prescribed age limits, or in ways that mirror the discrimination that is riven through society.
The demand for social care services is increasing, driven by an ageing population and a growing prevalence of chronic health conditions. The Office for National Statistics (ONS) projects that by 2040, the number of people aged 85 and over will have more than doubled, reaching approximately 3.2 million. This demographic shift places immense pressure on the social care system, requiring a re-evaluation of funding and resource allocation. This new challenge will not be met unless we undertake a radical review of how we allocate resources and downstream as much as possible, so that it is preventive rather than reactive in addressing the crisis.
Another significant challenge we face in social care is the disparity between health and care funding. The NHS has just received an extra £30 billion, which is more than the entire social care budget. Yet, the reality of the 21st century is that we must enable people to live well in communities despite conditions that cannot be cured. The funding allocation between health and social care was established in 1948, but no longer serves its intended purpose in the 21st century.
The COVID-19 pandemic has exacerbated these challenges, highlighting vulnerabilities in the social care sector. During the pandemic, many care homes experienced staffing shortages and had to adapt to new health protocols, further straining resources. The pandemic’s economic impact on social care is expected to be long-lasting, as the sector seeks to recover while continuing to meet rising demand. The public enquiry into the pandemic needs to make some clear recommendations about the focus in any future crisis, being on people rather than on institutions and organisations such as the NHS.
The social care workforce is crucial to delivering quality services, yet it faces significant challenges. The sector employs more than 1.5 million people, yet recruitment and retention remain critical issues. Many social care workers are on low wages, which leads to high turnover rates and difficulties in attracting new talent. According to Skills for Care, the average hourly wage for a care worker is substantially lower than the national average, making it hard to compete with other sectors.
The economic implications of workforce challenges extend beyond social care. High turnover rates can lead to a decline in the quality of care provided, impacting the health and well-being of people who use services. Moreover, training and developing a skilled workforce require investment, which is often lacking in an underfunded system.
A delicate balance of funding, demand, and workforce challenges characterises the economics of social care. As the population ages and demand for services rises, addressing these issues is increasingly urgent. Sustainable investment in social care is essential to ensure that people receive the support they need while also contributing to the broader economy. Policymakers must prioritise reforming the funding structure, improving workforce conditions, and recognising the essential role that social care plays in the health system and the economy. Without such measures, the risks of underfunding and inadequate support systems will continue to grow, ultimately affecting society’s well-being.
