Counting the Cost of Choice and Control: Evidence for the costs of self-directed support in Scotland

6 FINDINGS 4: COSTS AND MODELLING THE FUTURE

Introduction

6.1 In this chapter we describe the micro-simulation model which we used to project aspects of SDS in Scotland. We present our analysis of the user interviews and Local Authority data sets, and what the data in this study and other research tells us about the future costs of SDS in Scotland. The development of the costings model used here was informed by the quantitative and qualitative data presented in the earlier chapters.

Microsimulation

6.2 This section describes the micro-simulation model which was used to project aspects of SDS in Scotland. The model began by generating a Scottish population in a chosen base year. The population does not regenerate: there are no births, therefore analyses with the model should not extend beyond a 10 to 20 year time horizon.

6.3 The populations were generated from life tables. These were constructed separately for each Local Authority in Scotland from data produced by the General Register Office Scotland. The base year from which the initial life tables were drawn is 2007. Projection runs started from this year. There were separate projections for each Local Authority.

6.4 The life-table calculations estimated time to death of each individual measured in months - thus date of death was calculated in months from the beginning of 2007. With a monthly time interval, it was feasible to make detailed calculations of lengths and costs of spells of disability. The model converted these monthly data to annual equivalents as required.

6.5 Due to its use of life tables from Local Authorities, the model accurately simulated differences in life expectancy across Scottish Local Authorities. It also provided estimates of age specific populations in each Local Authority over the projection period. These life tables can be manipulated to simulate changes in mortality, but such manipulations do not form part of this study.

6.6 The projections also considered care needs in the population as a whole by generating intervals during which individuals may require social care. These were derived by matching the Scottish Household Survey by age, gender and Local Authority to the population generated from the life-table. Some of these individuals were disabled in the base year, others become disabled over the course of the projection. The simulations assumed constant rates of disability by age, gender and Local Authority. Therefore, for these projections, we implicitly assumed no change in "healthy life expectancy".

6.7 We used these estimates of disability to drive estimates of the population that are offered and elect to use SDS. The shares of SDS users in each Local Authority were adjusted to be consistent with numbers of SDS users by age, gender and Local Authority published by the Scottish Government. In our projections we adjusted these shares to show the effects of changing rates of take-up of SDS.

6.8 The outputs of the micro-simulation model should be regarded as projections rather than forecasts. Given the lack of detailed market information relating to SDS, forecasts of future numbers and costs of SDS users are extremely uncertain. This is partly due to the wide variation in take-up at the Local Authority level, which cannot be explained by variations in level of disability. There is also uncertainty, as there was with free personal care, about the effect that the legislation will have on levels of demand. However, the right to request SDS has existed for some time. The Scottish Government has made this point clearly (see below).

If I am entitled to social services, am I automatically entitled to self-directed support?

Yes, most people who get social services have a right to self-directed support. There are some limited circumstances where self-directed support is not given and your council will be able to tell you about these.(Scottish Government, 2008: p.14)

6.9 More users may choose to exercise this right after the passage of the Social Care (Self-directed Support) (Scotland) Bill since the process of legislation will itself draw attention to the availability of SDS. However, unlike the case of free personal care, any increase in take-up will be due to increased visibility of an existing right, rather than due to the creation of a new entitlement.

6.10 After the passing of the legislation relating to free personal care, there was a large and unanticipated increase in demand for personal care at home. This is a so-called "woodwork effect": the provision of the entitlement appeared to cause an increase in demand. The implication was that many users that had personal care needs and had previously not been in contact with Local Authorities were willing to engage when a legislative entitlement to free personal care was enacted.

6.11 There is limited information on woodwork effects in relation to SDS. One of the few papers addressing the issue is Benjamin and Matthias (2001). They conclude that "organisation of services (i.e., the relative presence or absence of consumer direction) is probably less important than the age of the recipient in understanding unmet IADL needs." (In the US, the equivalent terminology for self-directed support is "consumer direction"). They argue that young users are more likely to have changed their provider and are more likely to be dissatisfied with the hours they receive. As a result, young users are more willing to argue that support packages should satisfy their unmet needs, irrespective of the organisation of the service.

6.12 The authors do not address the issue of whether these differences in willingness to challenge the composition of a care package are cohort, rather than age, effects. That is, the existing population of older people may be more willing to accept more modest care packages, but that cannot be assumed for younger cohorts. As younger cohorts age, they may display different preferences compared with those that are currently old. In particular the "baby boomers" may be more demanding than previous cohorts and may thus drive a significant increase. This group may seek to drive an increased volume of care, perhaps using consumer direction as a mechanism to facilitate such change.

6.13 We return to some of these issues when we discuss the projections.

What did we learn from the DP user survey?

6.14 In total we received responses from or completed on behalf of 59 DP users across three Local Authorities who received direct payments. 40 responses were completed directly by the users. Twelve of the responses were completed by a person caring for, or informally supporting, someone receiving DPs. Finally there were seven responses completed by those acting as guardian or with the power of attorney for individuals receiving DPs.

6.15 The sample was distributed across different geographical locations. Around 28% lived in cities. The same proportion lived in villages or small groups of houses. The remainder lived in large towns or small towns. Thus there was a wide geographical spread among the respondents, with medium-sized towns perhaps being under-represented in our sample.

6.16 The majority of the respondents were aged between 19 and 59. There were relatively few older people, which may reflect their less intensive use of DPs. There were somewhat more females than males. All respondents aged over 80 were female.

6.17 On average, individuals had received direct payments for six years. However, there was a very wide variation around this mean, with a minimum period of six months and a maximum claimed of 24 years. The distribution of DP durations is shown in Figure 6.1.

Figure 6.1 Distribution of durations of direct payments from user survey

Source: DP User Survey

6.18 The main reason that users qualified for DPs was overwhelmingly physical disability. Seventy per cent of respondents fell into this category. Next most important was learning disability which accounted for 17% of those responding.

6.19 The median weekly value of the DP package was £160. The mean was £391.5. The difference is attributable to some very large packages (up to £1,800 per week). The relationship between the calculated scores based on the ability to carry out tasks and the weekly value of DPs, when calibrated using a simple regression, is positive but not significant. This implies that the cost of the package rises with increased inability to carry out tasks, but not significantly so. A similar result is found when hours of care are substituted for the value of the package in the regression. These results imply that the size of the DP package or the number of hours of care does not necessarily equate to the severity of disability. This may be because the DP represents only a component of the full package. As well as DPs, individuals may have unpaid carers to provide help. They may receive additional benefits from the Local Authority such as telecare systems or additional hours of conventional Local Authority care, though we have no indication that this is the case.

6.20 As reported in Chapter 5 (Table 5.3) buying personal care from a PA was more common than buying it from an agency which in turn was more common than buying from a Local Authority. Only 11 respondents used DPs to buy meals. Virtually none used them to buy childcare. On the other hand, a majority used DPs to buy leisure activities. Using DPs for work or study, for private health, or for accommodation was unusual, but 48 per cent of clients used DPs for transport and/or for shopping. Other uses to which DPs were put included a domestic worker, developing life skills, emotional support, mediation, a deaf blind communicator, cleaning and to provide transport to enable the respondent to engage in voluntary work.

6.21 A relatively large proportion of respondents used PAs for support rather than Local Authority "in-house" provision. This may partly reflect the lower cost of PAs compared with "in-house" provision. Our data indicates that many DP users believe that they receive better value for the budget made available to them by the Local Authority by employing a PA rather than using Local Authority staff. This issue is important in relation to modelling the costs of SDS and we explore it further in our micro-simulations.

What did we learn from the Local Authority sample?

6.22 We received matched samples of SDS and conventional social work (the control group) users from two Local Authorities. Together, these comprise the records of 265 individuals split almost exactly between the SDS group and the control group. These were matched across a number of variables. For example, Figure 6.2 shows the distribution of the control group and SDS group by form of disability, while Figure 6.3 shows the distribution by age. On both these dimensions, it is clear that the control and SDS group were reasonably well matched.

Figure 6.2 Distribution of Local Authority sample of users by user group

Source: Local Authority sample

Figure 6.3 Distribution of Local Authority sample users by age group

Source: Local Authority sample

6.23 There were virtually no differences in the distribution of user group type between the control and SDS groups. The main difference in age structures was that there was a slightly higher proportion of older users in the control group.

6.24 If one assumes that the control group and SDS group are well matched, one can test whether their respective packages involve differing level of resource. One simple test is whether the number of hours provided in an SDS package differed from that in the control group. This can be assessed using a simple test of difference in means. The results are shown below:

6.25 Mean hours for the SDS group was 1.02 hours less than that for the control group. However, such was the variability of packages in terms of hours, both for SDS and control group users, that this difference cannot be statistically distinguished from zero.

6.26 This analysis suggests that for matched users, the numbers of hours incorporated in their packages did not differ by mode of delivery. There were undoubtedly difficulties in assigning hours to DP packages, but our understanding is that the Local Authorities involved in the survey based their estimates of hours on packages agreed with users. This might differ from the actual hours provided, if, for example, the user found that market prices differed from those assumed by the Local Authority. Nevertheless there would be no cost implication if the original budget agreed between the user and Local Authority remains in place. If market prices are less than those assumed by the Local Authority, then users will be able to enjoy a better standard of care. If market prices are higher, then users may seek to renegotiate their package.

6.27 While this result may partly assuage fears that a shift to greater SDS provision would result in greater demand being placed on limited Local Authority budgets, there are a number of caveats. Whereas we understand that the data relate to DPs, there is always the possibility of confusion between DPs and hours provided through traditional Local Authority care. Hopefully, the matching process has reduced this possibility. But in addition, it might be the case that not all the hours listed in the Local Authority records were actually delivered. Unfortunately, there is no easy way to resolve this difficulty.

6.28 We also tested the significance of the difference between average hours received by the control and SDS groups after allowing for individual characteristics. However, the number of such characteristics was limited by the variables made available by the Local Authorities. Thus, for example, one could construct a model where, conditional on age and gender, one could test whether there were significant differences between SDS and control group users. As with the simple test of means, the results suggested that the differences in average hours did not come close to statistical significance.

6.29 These results seem to imply that the resource costs associated with SDS packages will be no greater than those from existing modes of delivery. If Local Authorities calibrate SDS packages based on their own costs, then, as stated above, users may be able to enhance their packages by purchasing, for example, more hours of care. This might come about if users using SDS rely more on relatively cheap modes of support, such as PAs. Thus, this conclusion depends on (A) the hourly costs and (B) the overhead costs associated with SDS packages. We now discuss this issue.

6.30 The evidence on cost savings associated with the introduction of individual budgets is limited. Where there are claims that SDS costs less than traditional care packages, one should be wary about whether start-up and delivery costs, and informal support resources such as family and friends have been properly accounted for.

6.31 In a recent study of the extension of individual budgets in Coventry (Hurstfield 2010), there was not felt to be any need for additional resources to support their rollout. However, there was some requirement for setup costs to recruit staff and to develop a model focusing on outcomes.

6.32 The most relevant comparable study is IBSEN (Glendinning et al. 2008) which was based on a large scale pilot study to evaluate the implications of individual budgets (IBs) in England. This study was able to compare resource costs in considerable detail. It concluded that:

'We found very little difference between the cost of support received by the comparison group and the cost for IB holders. Over the full sample, IBs funded a mean of about £280 of support per week compared with an estimated mean weekly cost of about £300 for support packages for people receiving standard mainstream services. This difference was not statistically significant, but it is likely from this evidence that IBs would be at least cost-neutral.'

6.33 This suggests that differences in the costs of support are negligible. Note that the mean weekly cost in the IBSEN study was £280 per week for IB users. The equivalent mean value from our user survey was £391 per week. However, the effects of inflation (the IBSEN study was carried out in 2008) may partly explain the difference. Further, note that the average weekly value of SDS packages in Scotland in 2010, was £207 per week while the median was £121 per week (Scottish Government, 2011), considerably below either the IBSEN estimates or those from the data supplied by Local Authorities to this project. Those included in the Local Authority survey were well above average in terms of the value of their SDS packages.

6.34 Taking this evidence together, it seems unlikely that the extension of SDS is likely to cause a significant increase in the demands on the social care budget. However, the evidence does not relate to the supply side of the market. We discuss the implications for the supply side, particularly in relation to contracts, in the next section.

The effects of SDS on contract structure

6.35 Many existing care packages are delivered using block contracts. These are arrangements where a Local Authority and provider agree an amount of care to be delivered during the contract period. This can lead to a formulaic approach to care provision that is focused on timekeeping and the delivery of specified tasks rather than outcomes.

6.36 The introduction of SDS changes the focus much more towards outcomes, which is difficult to deliver under block contracts. Under SDS, since users decide which services to purchase, individual providers cannot be assured of a pre-specified level of demand. This is likely to make the market more dynamic. Some providers may seek new opportunities in areas such as training and brokerage. Small providers may emerge in rural areas where transport costs render provision from a distance uneconomic.

6.37 An alternative model that better suits this more consumer led market is a "framework agreement". This is an agreement to provide care for a certain price but with no assurance on volume. This means that the provider is exposed to considerable risk. In a normal market, suppliers would charge a "risk premium" to compensate for the uncertainty associated with a framework agreement. The risk premium would be the equivalent of the cost of insuring against variations in demand. In the worst case, a supplier might not attract any users and be forced to cease trading. The more dynamic providers will then have an opportunity to expand.

6.38 Yet another alternative is the so-called "spot contract". This is a sample agreement to supply services immediately, or in the near future, at an agreed price. For providers, this is the most risky form of contract since they cannot readily plan for volume. For purchasers, spot contracts carry very little risk since there are generally no penalties for changing provider. At present there is little evidence about the willingness of users to change providers, but there is some evidence that when people are happy with their provider, they will make an effort to maintain the relationship. For example, where councils have opted for a new provider as a result of the tendering process, many users have opted to stay with the original provider, using DPs as a mechanism to achieve this goal.

6.39 In principle one would expect providers to charge a premium for spot contracts or framework agreements since they bear an increasing share of the risk with such arrangements. The transactions costs associated with framework agreements and spot contracts are likely to be greater simply because there are likely to be more frequent transactions. These costs must be recovered either in higher prices being charged by suppliers or by Local Authorities subsidising providers to facilitate such agreements. Local Authorities themselves will have increased costs associated with a greater number of transactions as an increasing share of their business is moved from block contracts to framework and spot contracts. These relationships are portrayed in Figure 6.4.

Figure 6.4 Relationship between costs and volume for different types of care contract

6.40 The vertical axis measures unit contract costs. These costs will include both administrative costs and the costs associated with risk. The horizontal axis measures the volume in terms of numbers of users covered by contract. Block contract costs decrease with volume since there is only one contract, whose costs are being defrayed over an increasing number of users. The framework agreement follows the same pattern, but at a higher level due to the increased costs of risk associated with uncertainty over volume. Finally the spot contract has the highest unit costs, since administratively a separate contract has to be constructed for each user. These costs may decline with the number of users due to administrative economies of scale.

6.41 However, in a monopsonistic market (where there is a concentration of market power on the side of purchasers - in this case Local Authorities), there may be a tendency to try to force costs downward below marginal costs. This has arguably been the case with block contracts. This may endanger the sustainability of the market if producers withdraw, which will reduce choice for users. Whether this effect will be replicated as the market shifts to SDS is less clear, partly because SDS users, as we have seen, frequently use PAs, who effectively are individual suppliers and, as such, increase the choices available to users. These PAs may have previously worked for larger providers and therefore have a set of relevant skills in care provision. However, they may not have the necessary business-skills to operate a small enterprise, which may create market opportunities for companies willing to supply such business-related expertise.

Interviews with Local Authority informants

6.42 Our interviews with Local Authority informants suggested that the move towards SDS will result in a wider range of contract types, and particularly the phasing out of block contracts which are not well suited to SDS. However, some existing contracts are not due to expire for some time so if there was policy pressure to expand SDS quickly respondents felt this could cause market difficulties. Users can opt into framework agreements, often receiving a better rate than they would under a spot contract. Framework agreements perhaps best fit the SDS agenda, particularly where those previously with DPs were precluded from accessing council contracts. Where there are differences in quoted provider costs, councils may seek to standardise rates on grounds of equity. This is a sensitive issue in relation to the equality agenda, but Local Authorities may find it difficult to ascertain a unique sustainable market price.

6.43 Providers will have to adapt to the new market structure as block contracts are phased out. They will also have to be more open about their pricing, which up to now has largely been agreed with Local Authorities. Instead of having a single purchaser, the market is likely to have many potential buyers. As a result, providers will have to advertise their pricing structure. This will have to be easily understandable for potential users.

6.44 They will also have to make new provision in respect of debtors that they had not previously considered. This means pursuing late and non-payments, which may take up considerable administrative resources. Again, this is a function that other companies might be willing to undertake for a fee.

6.45 Local Authorities have given some thought to the increase in advice and support systems necessary to undertake an extension of SDS. One estimate was that 6% of the amount spent on DPs should be allocated to advice and support services.

6.46 In the future, the function of contract managers will partly be to stimulate markets to ensure that sufficient market capacity is available. This will be particularly important in rural areas where providers are much less dense and transport costs therefore higher. Opportunities for diversification are also more limited in rural settings. For example, in urban settings, providers may be able to generate income from taking over administrative functions for PAs, providing advice to users or perhaps training for PAs. Local Authorities may choose to support the uptake of PAs, since these are more cost-effective than in-house services, though there is concern over their accreditation. Again, the need for PA accreditation services may provide a market opportunity for existing providers.

6.47 One provider estimated that the transactions costs associated with SDS amount to 2% of turnover. On the council side, one estimate is that £66,000 worth of administrative assistance is required for every 500 DP users. This would imply a cost of £132 per year for each DP user, or 0.6% of the average DP cost, similar to the IBSEN findings (Glendinning et al, 2006).

What can we learn from elsewhere about the effects of personal budgets on care providers?

6.48 Wilberforce et al (2011) reviews the effects of the introduction of Individual Budgets (IBs) in England. They argue that care providers regard their introduction as positive in the sense of potentially improving outcomes for users. However, there are concerns around administrative and workforce issues.

6.49 The research was conducted through a set of 16 semi-structured interviews with providers and seven commissioning managers in the four pilot sites in England. They argue that commissioning practices restrict choice in two main ways:

• Because contracts are arranged with a limited set of providers, some services are unavailable to users. Commissioning managers may favour the cheapest, or in-house, tenders as a matter of policy.
• The use of long-term block contracts, which are more easily subject to downward price pressures give providers little incentive to "personalise" services for individual users.

6.50 The research examined three hypotheses:

• Home-care providers would lose business as service users opt for PAs
• Day care services would lose out because they are generally perceived as unpopular
• In-house providers would be too expensive and would therefore not be popular amongst IB holders. This is based on Local Authorities basing charges on actual hourly staff costs, rather than on costs prevailing in the private sector, where overhead charges and hourly labour costs are likely to be much lower.

6.51 The providers felt quite keenly that competing with PAs posed a challenge. However, the general perception was that the loss of business would not be extensive. Further, confirming our responses from finance directors, it appeared that providers could offer IB holders administrative services such as payroll and reference checking. Providers could also cover for holidays and sickness.

6.52 Commissioners of services noted that the high unit cost associated with in-house services meant that their use was increasingly difficult to justify. As mentioned above, higher overheads and labour costs mean that, in general, in-house services are more expensive than those purchased externally. Some services were developed in response to IB holder demands. For example, one provider saw an opportunity to work more closely with telecare and meals on wheels organisations with a view to subcontracting components of IB budgets to these partners.

6.53 The new forms of service most commonly chosen by IB holders included cleaning and domestic assistance, gardening, transport and shopping. Care workers working with an IB holder were expected to show greater flexibility since there was less rigid adherence to specified care plans.

6.54 Some of the administrative costs included those of invoicing individuals and following up on non-payment. The introduction of individual invoices to replace block contracts resulted in significant increases in administrative costs. Some providers were experimenting with alternatives such as swipe cards to reduce paperwork.

6.55 Finally, the authors felt that improvements in care services due to increased choice, competition and coproduction would take some time to become established. This would partly reflect inertia amongst those users provided with in-house services before IBs became widespread. This was particularly true for older people, who were least likely to adopt a consumerist approach. It may be the case that a substantial reorientation towards IBs will occur when new cohorts of users are offered these as an alternative at their initial assessment.

6.56 The implementation of IBs in England has been supported by the National Reform Grant. It had a value of £520 million over a three-year period and one seventh of this money was used for provider and market development.

6.57 Important points for Scotland from this study in England include:

• Changes to the structure of care service provision are likely to occur at a relatively slow pace. Thus, changes in the relative demand for in-house provision, care providers and PAs may take some time to filter through.
• Care providers are likely to act innovatively to improve the care they deliver and to develop new services which are required as a result of the introduction of SDS (e.g. PA training).

What does the model tell us?

6.58 In this section we present the findings from our analysis of some micro-simulation runs relating to SDS. As described in the methodology section, micro-simulation methods are used to answer "what if" questions. We baselined our projections on 2010 Scottish Government SDS data. That is, we tried to ensure that the model produced broadly the same number of disabled people receiving SDS by age, disability type and Local Authority as indicated in the March 2010 Census of Direct Payments. It also replicated the published estimates of the total value of SDS packages in Scotland for 2010. As mentioned previously, the average value of such packages is £207 per week.

6.59 The driver for the number of SDS packages was the level of disability by type, age and Local Authority. Home care provision is not a strict substitute for SDS in the sense that, as our user survey reveals, individuals may opt to purchase services that are outwith conventional Local Authority provision. However the two are likely to be closely linked, since home care users form a large proportion of those that currently receive social care services and therefore most, but not all, the growth in their SDS expenditure will be on the purchase of care services. It will also depend on the availability of unpaid care and its distribution across different forms of care, such as personal care and domestic help. As we have seen, some purchases within SDS packages are made to support leisure, education and other activities. Our perception is that the value of such purchases is relatively small, though our user survey did not give sufficient detail to estimate their actual size.

6.60 One important issue for the simulations is the proportion and relative cost of PAs. The Scottish Government SDS data for 2010 indicate that 39% of SDS packages involve the employment of a PA. We have therefore used estimates of PA costs from the Department for Education and Skills in England. These suggest that additions of 12% for National Insurance, 15% for holiday pay, 11% for sickness pay, 12% for insurance costs and 15% enhancements for overtime bank holidays etc. should be added to the basic hourly pay rate. This would imply that a user receiving £10.50 per hour from a social work department for a DP could only afford to pay a PA £7.50 an hour. This is consistent with a sample survey of 512 PAs by Reid and Howie Associates (Scottish Government, 2010) that found that PAs in Scotland earned between £7 and £9 per hour gross, with a mean of £8.27 per hour. We have therefore used this as our guide rate for PA care before adding national insurance and other oncosts.

6.61 We have based our estimates of the costs of Local Authority services using data on Local Authority charges collected by Learning Disability Alliance Scotland. Local Authorities are unlikely to charge above marginal cost per hour of social care. Otherwise, they might be accused of making profits from disabled people. However, some may feel that they should charge close to marginal cost, given the financial constraints under which they are now operating. Thus, given the distribution of care charges shown in Figure 6.5, we would argue that actual Local Authority costs are likely to be towards the upper end of the distribution. Therefore, in the absence of published data on Local Authority charging policies, our initial assumption is that that Local Authority charges for social care services are likely to be around £15 per hour.

Figure 6.5 Local Authority charges per hour for social care Scotland 2011

Source: Learning Disabilities Alliance Scotland

6.62 We focused on PA costs and "in-house" costs because they provide the lower and upper end of the costs distribution. Private and third-sector providers are likely to incur costs that are intermediate between these extremes. Likewise, their aggregate costs will be intermediate between those that are exclusively based on PA or "in-house" provision. Thus, we did not explicitly model this sector in the current experiments.

6.63 We have conducted a number of experiments with the model based on these assumptions of the hourly costs of PA and "in-house" hours. First, we have constructed a "base run", which shows how much expenditure on SDS is likely to increase between 2010 and 2020 based solely on an ageing population and consequent increasing numbers of disabled people. The incidence of SDS is constant across Local Authorities (0% growth), but the numbers increase due to increases in the number of disabled people. Second, we have assumed that the take-up rate of SDS in each Local Authority increases each year by 1% and 5% respectively. Third, to allow for overheads associated with the establishment of a viable market in SDS, we have increased hourly charges for both PAs and Local Authorities by 33% from the first year. Finally, we have increased the average charge made by Local Authorities from £15 per hour to £20 per hour, while holding the hourly wage for PAs (before on costs) at £7.50 per hour. Consequently we expect a shift towards the use of PAs and have simultaneously assumed an increase in the take-up of PAs take-up from 39% to 60% of SDS packages. Results are shown in Figures 6.6 and 6.7.

Figure 6.6 1% and 5% changes in take-up rates of SDS

Source: Micro-simulation model

6.64 With no change in Local Authority take-up rates of SDS, annual expenditure would increase from just above £40 million in 2010 to £64 million in 2020. If each year, the numbers receiving SDS increase by 1% in each Local Authority, expenditure increased to around £70 million and if it increased by 5% each year, expenditure would more than double by 2020 to £102 million.

6.65 Most of the increases in spending would be offset by reductions in spend on traditional services such as day care and home care. This would be true if Local Authorities value SDS packages in an equivalent way to conventional Local Authority delivered care. Indeed, users might be able to enjoy a better quality of care if they were able to find more efficient uses of the budgets allocated to them. For example, if they are able to hire care workers at a lower price than the Local Authority, they may be able to buy goods and/or services outside the normal range of Local Authority provision.

Figure 6.7 Alternative cost drivers

Source: Micro-simulation model

6.66 Alternative drivers for cost increases are shown in Figure 6.7. These focus on increased costs, rather than changes in incidence. For comparison, we show the base run, where cost increases are driven solely by population ageing.

6.67 We then increased both PA and Local Authority hourly charges by around 33%. Hourly pay of PAs increases from £8.27 to £10 per hour, while Local Authority charges increase from £15 per hour to £20 per hour. These increases might capture increases in transactions costs associated with SDS, which will impact on both PAs and Local Authorities. For PAs, there are the increased administrative costs associated with training, contracting, administration etc. For LAs, there are increased unit costs due to reduced volume and high fixed costs. Under these assumptions of increased unit costs, total SDS expenditure increases by around £25 million between 2010 and 2020.

6.68 Secondly, we assumed that LA costs increase to £20 per hour. We further assumed that in response to this cost increase, SDS clients increase their utilisation of PAs from 39% to 60%. Costs then increase by only £15 million due to the lower hourly costs of PAs compared with LA provision. However, such an outcome assumes that LAs are willing to switch additional funding into support for PAs and that there is quite a marked response from SDS clients to take advantage of cheaper provision.

6.69 Overall, the experiments show that projected SDS expenditure is quite sensitive to changes in assumptions regarding the rate of roll-out of SDS and the relative costs of PA and conventional provision. There are no targets for this roll-out and there is clearly wide and persistent variation in the existing provision of DPs across Local Authorities. In these circumstances, it is difficult to transform any of these projections into a forecast in which one can have any confidence.

6.70 The increase in SDS spending will be offset by reductions in the aggregate costs of conventional Local Authority social care packages. If these forms of provision were exactly substitutable at the same cost, then the change from conventional packages to SDS would be cost neutral. If SDS packages can be delivered more efficiently than those provided by Local Authorities, and Local Authorities use their own costs as a guide to setting SDS budgets, then the likely outcome is no increase in costs other than those driven by demography, and some improvement in the quality of provision for disabled users receiving SDS packages.

Summary

6.71 The key findings from this chapter were:

• The passage of the SDS Bill will highlight an existing right rather than create a new entitlement, as was the case with the legal framework for Free Personal Care.
• It is difficult to predict the increase in take-up of SDS. It will depend on the extent to which it is promoted by Local Authorities and will also be influenced by age and cohort effects that are not fully understood.
• The statistical linkage between severity of disability and size of the DP package (measured either as cash, or in hours of care) in our data was not strong. This may be because DP packages are only one component of the overall care package.
• There was no significant difference in the number of hours of care supplied to DP clients and the Local Authority control groups, implying that increased take-up of DP would not significantly change the number of hours demanded.
• Attempts to compare the costs of DP with Local Authority provision have generally been unsatisfactory due to uncertainties about the accuracy of the measurement of costs. Analysis of English pilot studies did not reveal significant differences.
• Changes in the structure of contracts may mean increased risk for providers. They are unlikely to be able to pass on the costs of this additional risk, because they are largely confronted by monopsonistic purchasers - Local Authorities. In these circumstances, providers may seek to diversify into other related activities such as training or brokerage.
• Local Authority informants did note higher administrative costs associated with arranging individual contracts, or contracts based on a "framework" agreement compared with the traditional block contract.
• However, costs may be reduced if a greater proportion of supply is given by PAs rather than channelled through the traditional Local Authority route. The extent to which this occurs will depend on the relative price and relative quality of PA and Local Authority provision.
• Spending on SDS will increase even if there is no change in the take-up rates by Local Authority, simply due to the effects of population ageing. Increased take-up is likely to result in some reduction in Local Authority costs. The net effect will depend on the balance of the considerations listed above.