Managing Income

A strategic approach

Charging policies

Accounting for income

The type of services provided

Debt management

Maximising income

The relative wealth of the population

Income from fees and charges for social care services come from three main sources, each with different national regulation and guidance:

• Residential services for adults and older people (covered by national regulation and guidance).
• Home support services and day services (covered by the 'Fairer Charging' guidance).
• Other (such as community meals and community alarm services).

Over 16 per cent of gross expenditure in Social Services is derived from contributions from service users towards the cost of their care (Exhibit 16). However, the large variance between councils poses questions about whether all councils have a strategic grip on this source of funding in relation to financial planning and budget management.

Source: Department of Health Key Indicators 2001/2

It is important for councils to consider their performance in this area in the context of the allocation of Government funding through FSS (and previously SSA), as there is an element in the formula which estimates the level of income from fees and charges which could be raised by the council linked to the demographic and economic profiles of the council.

This section deals with a range of issues relating to setting charges, factors which have an influence on the levels of income received, and debt management.

A strategic approach

However, the Audit Commission study into charging for local government services ('The Price is Right' 1999) concluded "One source of local government income remains curiously neglected" at a time when the pressure to find the resources to meet the demand for services remains high - read more.

While the study related to all local government charging, charging for social care services featured strongly and a number of the findings are highly relevant:

• Few Councils have resolved the fundamental questions surrounding the acceptability of charging and subsidising different users. Note: Charging and subsidy are two sides of the same coin. The outcome of the application of a charging policy can either be viewed as a charge to the service user, or a subsidy by the council towards the cost of the service needed by the user (the net cost to the council of arranging the service).
• Councillors get poor information about the impact of their charging policy decisions.
• Charges are regularly reviewed, but this is driven by the budget setting cycle and results in incremental change. 63 per cent of charges were found to be simply increased in line with inflation.
• Charges are often divorced from service objectives and corporate priorities. For example, only 20 per cent of councils' anti-poverty strategies linked access to services with charging and concession policies.
• Meaningful objectives for charges are rarely set. Financial targets are mainly about extra income in response to budget problems rather than what income charges should yield in the longer term or the impact on user access to services.
• Charges do not deliver their full potential. Income is often foregone as charges are set below what users are willing and able to pay.

The main areas in which the council has discretion over charging policy and the levels of charge to be made are as follows:

Residential care services for adults (including nursing home care)

Charges are mainly determined by application of the Charges for Residential Accommodation regulations (CRAG) - read more - but are also influenced by the Direction on Choice and the introduction of free nursing care.

The main areas of policy discretion for councils are:

• The council can disregard the capital value of a property if the property continues to be occupied by someone who was a carer or close relative (not a spouse). This is of particular significance for the former carer, who could be required to leave the property if the capital value is to count in the assessment. Property values would usually result in the user paying the full cost of the residential placement, and so any council policy in this area needs to be sensitive to the needs of the carer and their commitment to the service user as well as the level of income which may be lost to the council.
• When a spouse remains in the home, the council is required to take account of that person's ability to meet the costs of running and maintaining the home, which could result in an element of the resources of the service user to be disregarded in assessing their ability to contribute to the cost of their care, or reduce the liability of the spouse to contribute towards the cost of the user's care.
• For temporary or short term care, the council has discretion about whether to undertake a financial assessment to determine a person's ability to pay, and, if it does not, then care needs to be taken to determine the level of charge it might reasonably expect a person to be able to pay.
• The council may seek contributions from a third party where the user chooses to be resident in accommodation that costs more than that which the council would normally expect to pay ('third-party top-ups') in accordance with the Choice of Accommodation regulations. Councils should treat such third party top-ups as income for accounting and budget management purposes. Note: councils cannot artificially hold down the price it would normally pay for residential accommodation in order to secure more third-party top-ups to ease budget problems.

Non-residential care services for adults

The 'Fairer Charging' guidance requires councils to reflect the following conditions in their charging policies:

• Service users should be left with a minimum level of disposable income before income can be assessed for charging purposes. This minimum level is based upon the current levels of income support applicable to various age ranges plus 25 per cent.
• While councils can take account of Attendance Allowance (AA) and Disability Living Allowance (DLA) in determining a user's income for financial assessment purposes, the council has to take account of the user's needs for other services and support plus additional living expenses because of their disability, to determine the proportion of these allowances which can be included in calculating the user's financial contribution.
• Councils cannot take the value of a user's property into account as a capital asset for assessment purposes.
• Councils must ensure that the charges raised for each service (for example, home care and day services) do not cumulatively mean that the above conditions are not met.

This leaves councils with considerable discretion to set policies in a number of key areas:

• The rate of charge that can be applied providing that this charge does not exceed the cost to the council of providing the service (for example, the charge to the user does not exceed the hourly rate being paid by the council for home care services).
• Any other income which should be disregarded for assessment purposes
• Whether to apply a maximum charge for a service or total service package (which effectively provides a subsidy for all those whose contribution would otherwise exceed the maximum contribution).

Other services such as community meals and community alarm services

These are not subject to the 'Fairer Charging' guidance and councils have total discretion over the level of charge providing it does not exceed the cost to the council of providing the service.

Care assessments, care planning and the cost of commissioning services

Councils cannot charge users for these activities or include the cost in any calculation of the total cost of providing a community care service.

Supporting People

Anyone eligible to be considered for a subsidy must be financially assessed using the council's 'Fairer Charging' policy. Where a person is also receiving a non-residential social care service, they should have already been assessed. The outcome may be that no further contribution is required, but that the contribution made has to be split between Supporting People and non-residential care income budgets.

Services provided using Health Act flexibilities

The extent to which charging can be applied to Social Services and National Health services are determined by the regulations which apply to both service areas. There is much less scope for charging within the National Health service, and this applies only to services which are ancillary to the delivery of healthcare.

Whenever services are being provided under joint arrangements, irrespective of whether these are supported by 'pooled budgets', great care must be taken to ensure that the differences between services are clearly identified for charging purposes and the service user informed.

An example of the difficulties which can arise relates to the provision of joint intermediate care services. Government recently introduced new guidance which prohibits any charging for intermediate care services for the first six weeks of the provision of the service including those services which might be regarded as social care services (Local Authority Circular LAC(2003)14).

Accounting for income

Councils should follow the guidance of the Chartered Institute of Public Finance and Accountancy (CIPFA) when accounting for income due to the council, including all contributions from users of social care services.

Proper accounting of income is essential for effective budget management and control of costs.

For services provided directly by the council, this is a relatively straightforward process as budgets for income should be established for each service area and the accounts should be credited with the income when bills to users are raised.

For services purchased by the council, the council has a choice about whether to adopt a gross or net cost payment arrangement for the services being purchased but this has to be acceptable to the service user. The policy is usually enshrined in the contract for that service. Accounting for income and debt management is very different depending on which policy option is chosen:

• Gross cost payment arrangement: This arrangement means that the full cost of purchase of the service is paid to the service provider, and the council has the responsibility for raising the bill to the service user and collecting the debt. For example, a residential home owner or home care provider would receive the full contract price for providing this service. The accounting arrangements should ensure that when the bill to the service user is raised and entered into the debt management system, the accounts are also credited with this income. The higher transaction cost of this approach needs to be considered in the light of the need to set up specific accounting arrangements for the net cost approach.
• Net cost payment system: This arrangement means that the amount paid to the service provider is the agreed full contract price of the service less the amount that the council has calculated should be paid by the service user. This leaves the service provider, such as the residential home owner or the home care provider, with the responsibility for collecting the due amount from the service user. This means that there is no systematic way of capturing the data needed to account for the income or managing the debt.

Councils need to ensure that they have adequate arrangements in place to record all debts due to the council irrespective of whether the service providers are expected to collect user contributions - read more (Good Practice Example: Hartlepool council). These records should be used to ensure that all income due is recorded against expenditure (ie recorded expenditure is increased from the net cost paid to the full cost of the purchase of the service) and income budget lines in the council's accounts.

There also needs to be clear contractual obligations on service providers to collect debts on behalf of the council and to notify the council immediately any debt collection problems arise.

• The council does not properly account for its income, and that its data regarding the cost of services and levels of income are inaccurate. This may account for the low proportion of gross expenditure recouped through income from fees and charges for some councils.
• Financial planning becomes less accurate because of the difficulties in forecasting expenditure, and income implications arising out of changes in demand, reshaping the pattern of services, and changing charging policies.
• Unit costs are inaccurate.

The type of services provided

The performance of councils regarding the proportion of gross expenditure recouped through fees and charges should be considered alongside its performance in key areas of service delivery. The clearest example of this is in respect of residential care and home support services for older people:

• Residential care: Because of the national charging regulations (CRAG) - read more - the proportion of gross costs recouped through fees and charges is likely to be high. However, the key performance indicator for this service is PAF C27 'Admissions of supported residents aged 65 or over to residential/nursing care' and 'good performance' - read more - is regarded as being low.
• Home support services: Because of the application of the 'Fairer Charging guidance for non-residential care services' in October 2001 - read more - the proportion of gross costs recouped through fees and charges is likely to have changed, and for many authorities may be lower. The key performance indicators relating to this service are PAF C28 'Households receiving intensive home care per 1,000 population aged 65 or over' and PAF C32 'Older people helped to live at home per 1,000 population aged 65 or over' - read more - and 'good performance' for both of these is generally high.

Key message: A desire to improve performance in the proportion of gross expenditure that is recouped through fees and charges has the potential to conflict with service policy objectives. High performance in this area may result from an over-reliance on the more institutional forms of care.

Debt management

• The scale of income as a proportion of gross expenditure means that it is a very significant budget management issue in its own right. A council which has a gross annual revenue budget for social services of (say) £120 million is likely to have income budgets for fees and charges of around £20 million.
• The nature of the debt management process is different. Most debts to councils are one-off transactions, while most social services debts are 'rolling debts' because of the ongoing nature of the services being provided (for example, a debt will be raised for a weekly charge for care in a residential home or for home care and bills sent out periodically, and while this debt is being managed and the bill paid the next debt is already accruing). Poor debt management can result in outstanding debts increasing very rapidly.
• councils cannot withdraw community care services as a sanction against non-payment of debts once it has assessed a user as being in need of a service, unless those needs have changed.
• Transaction costs can be high.
• The Government has introduced the 'Deferred Payments' arrangements which allows users not to sell their properties during their lifetime. Specific grants have been made available to councils for the period 1 April 2001 to 31 March 2004 to help cover the cost to councils of cashflow lost by deferred collection of income due - read more.

Poor performance in debt management can have an adverse effect on income budgets and create problems in budget management in a number of ways:

• Poor management of debts can lead to high levels of write-offs, reducing the level of income, and creating underachievement of income budgets.
• Decisions to adopt 'net' payment systems can result in inaccurate accounting for income and expenditure. Even when arrangements are in place which require service providers to collect debts on behalf of the council, the debt remains a debt to the council and not the service provider.
• Because budgets will be credited with the income when bills are raised, a build up of irrecoverable debts will go un-noticed until a decision is made to write-off the debts, when the amounts are then debited to income budgets unless provision for bad debts has been made.
• Unless there is clarity about accountability for debt management, then poor performance in debt management could undermine budget management accountabilities.
• One way of easing the budget management problem would be to make a bad debt provision, but remember, allocating resources for this takes resources away from frontline services. There is no substitute for good debt management.

Maximising income

'Fairer Charging' guidance allows councils to include contributions from disability-related benefits such as Attendance Allowance (AA) and Disability Living Allowance (DLA) in their assessments of users' income and ability to pay for non-residential services - read more.

If councils have adopted a policy for charging for non-residential care services which takes these benefits into account, then it is in the council's interest to ensure that those service users who are entitled to these benefits actually receive them in order to maximise income. Increasing income levels can allow resources to be redirected to allow more care provision. See Good Practice Example: Stockport MBC.

There is a link between this ability to increase income for social services with broader corporate council objectives and national priorities to tackle poverty. There is a link to longer-term corporate financial planning as levels of take-up of these benefits is data which is used for statistical purposes to calculate the council's FSS which could result in an increase in the FSS.

There are a number of policies the council could adopt in order to maximise income in this area:

• Make arrangements to ensure benefits checks are triggered as part of the assessment of need, particularly when the outcome of the assessment is likely to lead to the provision of a complex package of care.
• Work with partners to promote benefit take-up campaigns.
• Employ or commission staff to support benefit take-up on an ongoing basis.
• Integrate with national initiatives such as Care Direct. There have been recent developments with the 'pilot' Care Direct project in the South West to produce a more integrated approach - read more (Good Practice Example: Devon County Council).

councils should undertake a cost-benefit analysis to determine which of these approaches it should adopt and the level of resources to be allocated.

The relative wealth of the population is likely to influence the level of income to be derived from charging policies, when the policies are directly linked to a person's ability to pay, and the numbers on Income Support who will either pay the minimum contribution for residential care services or no contribution at all for home support services.

councils can compare their performance in this respect by using the data from indices of deprivation including number of employment deprived and number of income-deprived people.