National Care Service will have 'neutral impact' on councils' finances

Health Secretary Humza Yousaf introduced the National Care Service (Scotland) Bill in June promising to “end the ‘postcode lottery’ of care.”

The legislation - which is currently making its way through Holyrood -  will see the government set up ‘care boards’ directly accountable to the Scottish Ministers who will take on functions and staff that are currently managed and run by local authorities and health boards.

Nicola Sturgeon has described it as the most significant reform to public services since the creation of the NHS.

Criticism of the Bill has been mounting, with MSPs, councils, unions and organisations and carer’s charities urging the government to pause or think again.

Audit Scotland has raised serious concerns about the financial memorandum accompanying the legislation. They warned that ministers had underestimated “the margin of uncertainty” in their cost estimates, which have ranged from £650m to £1.3bn. 

According to the public spending watchdog, the potential for additional cost is “significant”

They have warned that pensions, VAT changes, changes to capital investment costs and health board transition costs could lead to the overall budget skyrocketing.

In his letter to the committee, Mr Stewart responded to a series of questions following his appearance in front of him earlier this month.

On tax implications, the minister said external advisors believed the care boards could “potentially fall under Section 33 or Section 41 of the VAT Act 1994”.

If they are the former, that means the boards could recover all VAT costs associated with both taxable business and non-business activities. 

If they are Section 41 they can “claim a refund of VAT incurred on some services but not all.”

Currently, the integrated boards responsible for delivering adult community health and social care services, have a “broadly neutral” VAT accounting arrangement with HMRC. 

Before that deal was negotiated with the treasury, the VAT cost was estimated to be circa £32m.

However, in his letter, the Minister told the committee: “As this was for adult health and social care functions only, the worst-case VAT cost impact associated with the creation of the NCS would likely be in excess of this estimate.”

Mr Stewart added that “further work will therefore need to be undertaken to refine this estimate.”

He also said ministers were “looking to achieve a fiscally neutral VAT position” with HMRC. 

On IT costs, Mr Stewart said the government were looking to create  a "nationally consistent integrated and accessible electronic social care and health record." 

While "early discovery work has started" on what is needed for this record, the cost had not been included in the financial memorandum. He said this would "be subject to a formal, dedicated business case." 

The committee also asked Mr Stewart to expand further on his claim that the NCS would mean “no detriment to local government finances.” 

In his letter, Mr Stewart said: “We recognise that in establishing a NCS, including any transfer of accountabilities (and associated financial resources from local authorities), we need to take into consideration the impact on local authorities’ ability to resource and deliver other important public services.

“The nature of the impact on local government from the establishment of the NCS will depend on the details of the transfer of functions to Scottish Ministers, and on local decisions about how services are to be provided.

“We will continue to work closely with local government to understand current costs and financial impact of any detailed options being considered following co-design.”

Mr Stewart said the government would publish a Programme Business Case, in early 2023, which would share detail on costs, and “the strategic, economic, and commercial value of this reform, as well as a plan for its effective management.”

He added: “It is important to note, that the NCS Programme is at a relatively early stage in terms of delivery. The Scottish Government is committed to getting this reform right for everyone.

“That means taking the time to undertake meaningful co-design work, with the people who use and deliver health and social care services; the organisations which represent them; and our delivery partners.

“The business case for NCS delivery will have to evolve alongside our understanding of the needs of people receiving and working in social care, which will grow as a result of our evidence gathering and co-design work. 

“The Programme Business Case will set out key decision points and how these key decisions will be made in a robust, evidence-based way, is subject to proper scrutiny; and how these decisions will be made in a way which delivers the best value for the people of Scotland.” 

He said this could mean “the delivery of more detailed business cases throughout the lifetime of the NCS Programme, to support future decisions.”

Responding to the minister's letter, a spokesperson for COSLA said there were still many unknowns: "One of our key concerns in relation the National Care Service (Scotland) Bill is the focus on structural change and the potential transfer of 75,000 staff from Local Government to the National Care Service.

"There has been no impact assessment on what this could mean for Local Government and certainly should have taken place before the legislation was laid.

"The fact that there has been no such assessment has resulted in uncertainty for service users and for staff as articulated by Local Government Trade Unions.

"As Audit Scotland and others have stated, there is a real lack of clarity regarding the finances of the National Care Service proposals, especially the impact on local authority budgets and staff, and the costs that have been presented are likely to be underestimates.

"A clear Business Case setting out the rationale, costs, benefits and risks of the National Care Service should have been published before the draft Bill, to enable proper scrutiny by Parliament, the public and affected organisations.

"The proposed structure and governance of the National Care Service means it is likely to be liable for VAT, at least until arrangements can be made to exempt it.

"Clearly, this would significantly increase the operating costs of the National Care Service, and reduce the funds available to spend directly on social care support.

"However, there is still no up-to-date estimate of exactly how much this would cost.

"COSLA welcomes the development of a single integrated health and social care record.

"An integrated approach has the potential to streamline the efficiency of service delivery, improve access to data, reduce administrative burden and minimise the need for people to re-tell their stories to professionals.

"This will require robust data and digital infrastructure across health boards, local authorities and third and independent sector organisations and will require significant investment.

"For some organisations, this will mean upgrading legacy systems but for others, it will mean investing in information management systems and tools for the first time."