Cost of care loans scheme 'massively underestimated' by Government

The care loans scheme set up to help older people pay for care, could be almost five times more expensive to administer than the Government estimates, according to the Local Government Association.

The Government estimates the scheme will cost £230m but the Local Government Association (LGA) claims it has carried out an analysis showing the cost of the initiative could reach more than £1.1bn by 2025.

The care loans scheme will work in a similar way to student loans on a deferred payment scheme. People will be able to borrow money to pay for their care against the value of their home.

The loans would then be repaid from the sale of the house when the person dies.

Sir Merrick Cockell, chairman of the LGA, said: “The costs for running the deferred payment scheme have been massively underestimated by the Government. With costs likely to exceed £1.1bn, councils are at real risk of incurring costs that they simply can’t meet.

“Deferred payment schemes can offer peace of mind to people worried about how they are going to pay for care in old age. This needs to be part of a huge overhaul of the system that brings care up to a standard fit for the 21st century and ensures that our increasingly ageing population can lead happy, healthy independent lives long into their old age.”

LGA calls for a new body to administer scheme

As the Care Bill is debated in Parliament this week, the LGA is calling for a new national body similar to the Student Loans Company, underwritten by central Government, to oversee the scheme, and manage the financial costs associated with it.

The Government has pledged £110m to help councils cover the new costs incurred for the first year, but whether this is sufficient will depend on how many people opt into the system to receive loans.

In subsequent years the adequacy of funding will depend on the number of people requiring loans and the amount of time it takes for the debt to be recovered once a loan is complete.

The LGA has estimated that the length of a loan will be 2.7 years, but demographic pressure and inflation will impact how much money councils will need to have tied-up in loan funds at one time.

Sandie Keene, president of the Association of Directors of Adult Social Services (ADASS) added: “Early indications from local authorities suggest the Government may have underestimated the cost of the reform, and could risk failing a generation unless councils are properly paid for it.

“It is vitally important that older people everywhere can be reassured that these vital decisions they are taking concerning their old age and the security of themselves and their loved ones are made within a common, state-backed context where everybody will be treated equally. A scheme along the lines of the one that the LGA and ADASS have proposed will have an important role to play in helping our social care services get fit for purpose in this 21st century.”

The LGA claims the Government has failed to include a number of unaccounted costs where councils will lose revenue such as the loss of council tax in empty homes.

The Chartered Institute of Public Finance and Accountancy (CIPFA), Age UK and National Association of Financial Assessment Officers (NAFAO) are all supportive of the proposal to set up a separate national organisation, similar to the Student Loans Company, to run the deferred payment scheme on behalf of councils.

However the Department of Health called the LGA's figures "misleading" and said the scheme will be "cost neutral".