Review of Adult Social Care Relative Needs Formulae

Relative Needs Formulae (RNF) are used to divide central budgets between local authorities (LAs) according to differences in need. The Department of Health jointly commissioned the public sector funding specialists LG Futures and the Personal Social Services Research Unit (PSSRU) at the University of Kent/London School of Economics and Political Science to:

revise the current Adult Social Care Relative Needs Formulae (ASC RNF) incorporated into the Local Government Finance Settlement to account for differences in eligible social care need between LAs; and
develop new needs-based formulae that will determine funding allocations to LAs for recent (planned) reforms of Government social care policy, as laid out in the Care Act 2014:
1. the cap on lifetime care costs;
2. the extension of the financial means test;
3. additional assessments of care needs for the metering towards the cap; and
4. deferred payment agreements.

The research has now been completed. This webpage makes the reports and supporting files available to download.

The research involved engagement with local authorities and their representatives, gathering and quality assuring data from LAs, providers and public sources, and conducting analysis to estimate the formulae. Data on LA-supported clients were collected at Lower Layer Super Output Area (LSOA) level in a sample of 53 LAs. Data on self-funders was taken from a sample of 918 care homes for older people and/or dementia care that agreed to participate in the study. These data were matched with routinely available need and wealth data (e.g. longstanding illness, home ownership, rates of benefits uptake, etc.) from the Census 2011, the Department of Work and Pensions, Council Tax, etc. For the Care Act formulae, financial eligibility and expenditure requirements were simulated in a representative sample of older people from the English Longitudinal Study of Ageing (ELSA).

A conventional small area utilisation-based approach was used for the new ASC RNF, but (normative) prevalence-based simulation was needed for predicting the expenditure requirements and financial eligibility for the new Care Act duties. The relationship between service use and need and wealth factors was estimated across small areas (i.e. LSOAs), thus allowing the formula coefficients for need and wealth factors to reflect variation within as well as between LAs as well as to ‘clean’ effects of non-need factors potentially related to LA expenditure levels.

Alternative allocation formulae for additional assessments and the extension to the financial means test were generated using a microsimulation method, estimating average relationships between needs and service use across authorities. The correlations between per capita allocations according to the two approaches gave us confidence that each method was properly reflecting differences in need. Per capita funding allocations according to the new and current RNFs were also well correlated.

The empirical analysis contains several significant improvements relative to the existing ASC RNF. The analysis is at much smaller area level, which together with the larger sample of 53 LAs who provided data (versus 17 for the existing Older Peoples RNF), gives a considerably higher number of observations and better exploits variation in service utilisation within and between LAs. The formulae also include new and additional variables (e.g. from Census 2011) that capture more accurately the distribution of need and wealth. Ultimately, the new formulae are expected to better approximate the distribution of need between LAs and improve upon the level of equity of publicly funded social care support.