Funding the Future of Social Care: Sustainability, Reform and the Economics of Home Care

The structural squeeze

The funding problem in social care is not a temporary shortfall to be topped up in a good year. It is structural, and it is arithmetic. Demand is rising faster than the tax base that pays for it. The Office for National Statistics projects that the UK population aged 85 and over will nearly double, from roughly 1.7 million in mid-2022 to around 3.3 million by mid-2047 (ONS, 2025). This is the cohort most likely to need daily support, and it is growing while the working-age population that funds public services is not.

That pressure is already visible in the system. Requests for adult social care now run at around two million a year in England, and councils are devoting a rising share of their revenue, over 60 per cent in some analyses, to social care, squeezing everything else they do (King's Fund, 2025). The Nuffield Trust documents the human cost of that squeeze: hundreds of thousands of people waiting for a care assessment, more than 100,000 staff vacancies, and fewer than half of older people with care needs receiving any formal support, which it argues is evidence for comprehensive rather than piecemeal reform (Nuffield Trust, 2024).

Unmet need is the quiet consequence. Analysis of the English Longitudinal Study of Ageing found that a majority of older people with difficulties in the activities of daily living received no help at all, with those living alone and, notably, men most likely to fall through the gaps (Vlachantoni, 2019). Need that goes unmet does not disappear; it re-emerges downstream as avoidable hospital admissions and delayed discharges, shifting cost from the care budget to the health budget rather than removing it.

None of this is cheap to solve. The Health Foundation projects that simply keeping pace with rising demand could require billions in additional annual funding by the mid-2030s: an estimated £8.3bn by 2032/33, with more recent analysis pointing to around £9.4bn by 2034/35 (Health Foundation, 2024). And this is before any improvement in access or quality. Set against that, it is worth remembering what the sector already delivers: adult social care contributes around £77.8bn to England's economy through roughly 1.59 million people, even as it wrestles with high vacancies, heavy turnover, low pay and a growing reliance on international recruitment (Skills for Care, 2025). The question is not whether care is valuable, but how a shrinking relative tax base sustains it.

A graveyard of reform attempts

If the problem is so well understood, why has it proved so intractable? The honest answer is that reform has been attempted repeatedly, and repeatedly abandoned. The landmark effort was the Commission on Funding of Care and Support, chaired by the economist Andrew Dilnot. Its 2011 report recommended a lifetime cap on the care costs any individual could be asked to pay (proposed in the range of £25,000 to £50,000, with £35,000 suggested) alongside a more generous means test that would raise the upper asset threshold to £100,000 (Dilnot Commission, 2011). The logic was insurance: no one can predict whether they will need modest support or catastrophic, decade-long care, so the state should cap the tail risk that no private market will insure.

The Dilnot cap was legislated in the Care Act 2014 and then never implemented. A decade later it was revived in a different form. The 2021 Build Back Better plan introduced a 1.25 per cent Health and Social Care Levy to fund the NHS and social care, together with an £86,000 lifetime cap on care costs from October 2023 and a more generous means test (HM Government, 2021). Within a year the Levy had been reversed, and the charging reforms were subsequently cancelled altogether. Two governments, two versions of essentially the same idea, both dead.

It would be easy to read this as simple political cowardice, but the pattern is more instructive than that. A cap is expensive precisely because it protects the estates of people with significant assets, a distributional choice that is hard to defend when the same money could fund care for those with none. A hypothecated levy is fiscally honest but politically fragile, easily sacrificed the moment budgets tighten. The recurring failure suggests that the binding constraint is not a lack of good analysis but the absence of a settlement that voters, providers and the Treasury can all live with. For a fuller treatment of where reform might go next, see our companion piece on the future of UK home care.

The economics of home versus residential care

Underneath the funding debate sits a quieter economic story about where care is delivered. Home care and residential care are often lumped together as "social care", but their cost structures differ profoundly, and that difference matters for sustainability.

Residential care carries the fixed cost of the building: the property, the estate, the overnight staffing of a whole home. Its economics have been examined closely. The Competition and Markets Authority's study of the care homes market found that self-funders paid, on average, around 41 per cent more than local-authority-funded residents for equivalent care (roughly £12,000 a year more in a care home), with private fees effectively cross-subsidising placements that councils were paying for below cost (CMA, 2017). That is not a functioning market so much as a hidden tax on private payers propping up a public-sector shortfall.

Home care avoids the fixed cost of the building, and it aligns with what most people actually want, which is to remain in their own homes. But it substitutes a different and underappreciated cost: travel. A carer's paid day is fragmented across a dozen addresses, and the minutes spent driving between them are real labour that someone must pay for. Home care's marginal economics are therefore dominated not by bricks and mortar but by scheduling efficiency, travel-time and the density of a carer's round. A poorly planned rota with long gaps and doubled-back journeys can quietly destroy the margin on an otherwise viable contract. It is a point we return to below, and one explored further in our essay on predictive and preventative care.

Two customers, two prices

The cross-subsidy the CMA identified is not confined to care homes; the same dynamic runs through domiciliary care. A home care agency typically serves two very different customers. Local authorities commission at rates set by tight budgets and framework contracts, often barely covering the cost of delivery once travel and on-costs are counted. Private, self-funding clients pay a rate the agency sets itself. The gap between the two is what keeps many agencies solvent (CMA, 2017).

This creates an uncomfortable structural reality. An agency wholly dependent on council-funded work operates on margins so thin that a single unfilled shift or an unexpected rise in fuel costs can tip it into loss. An agency with a healthy proportion of private clients has the breathing room to pay carers a little more, invest in training, and absorb shocks. The client mix is not a marketing preference; it is a solvency strategy. Yet it also raises a fairness question that reform has never squarely answered: should the quality and reliability of someone's care depend on whether their neighbours are paying premium private rates that subsidise the block contract next door?

Practical levers while the big reform waits

Because the grand settlement keeps failing, it is worth taking seriously the smaller levers that could improve provider sustainability without a new Act of Parliament. Several are unglamorous but material.

One of the most significant sits in the tax system. Regulated care is exempt from VAT, which sounds like a benefit but works against providers. Because their supplies are exempt, agencies generally cannot reclaim the VAT they pay on their own overheads: the fuel, mobile phones, software, PPE, insurance and training that delivering care requires (HMRC, 2025). That irrecoverable VAT becomes a sunk cost baked into every visit, an invisible surcharge on the cost of care that neither the council nor the private client sees itemised. A practical and well-targeted lever would be to give care providers relief on the VAT they pay on those overheads, so that the tax system stops quietly inflating the cost of keeping people at home. This is a narrower and more defensible ask than any headline cap: it does not protect estates or pick winners, it simply stops taxing the inputs of an activity the state is trying to sustain. It is worth being precise about the mechanism, because HMRC has recently moved to close the VAT-grouping structures some larger operators had used to recover this cost (HMRC, 2025), which makes the case for a straightforward, sector-wide relief on overhead VAT more pressing, not less.

Beyond tax, the levers are operational: fairer council rates that actually cover the cost of delivery; commissioning that rewards outcomes rather than the cheapest quarter-hour; and, crucially, efficiency gains inside the agency itself. If travel-time and scheduling dominate home care's marginal cost, then better planning is not a nice-to-have. It is a funding lever in its own right, releasing money that is currently lost to dead mileage and idle gaps.

Where homecareOS fits: efficiency as a funding lever

This is the point at which the macro debate meets the daily reality of running an agency, and it is the ground homecareOS was built on. The platform's origins lie in Philip Martin's own funding and sustainability research, including an MBA dissertation that surveyed home care agency owners directly. Its central finding was uncomfortable for the "just give social care more money" narrative: funding alone is not the binding constraint. The owners who were surveyed pointed to margins, staff pay, travel-time economics and the ability to plan for the long term as the factors that actually determined whether their businesses survived, and to a healthy mix of private and local-authority clients as the difference between resilience and fragility. That research now underpins Philip's independent advisory work with the sector.

The design implications are direct. If dead mileage and fragmented rounds erode margin, then scheduling that minimises travel and an cover finder that fills absences with the nearest suitable carer are not conveniences but economic tools. If the client mix determines solvency, then the finance module has to expose visit-level profitability by payer, so an owner can see plainly which council contracts are subsidised by private work and which are sustainable on their own. And if software cost is itself an overhead that eats into thin margins, then the pricing model of the platform matters. homecareOS charges per active carer (the field staff who actually delivered a visit that month) and leaves the office team unmetered, so the cost tracks the work delivered rather than penalising an agency for having coordinators. We make the reasoning explicit in our analysis of per-carer versus per-user pricing, with the full detail on the pricing page, and our complete guide to home care software in the UK covers how to weigh those costs against what a platform actually returns. The smallest agencies, for whom every overhead is existential, use it at no cost. It is a modest contribution to a structural problem, but a real one: efficiency the agency keeps is, in effect, funding the state did not have to find.

An honest conclusion

It would be dishonest to pretend that better software, or even VAT relief, resolves a funding gap measured in billions. The demographic arithmetic is unforgiving, the reliable long-term solution still requires a political settlement that has eluded successive governments, and every lever discussed here carries trade-offs: a cap protects assets rather than the poorest, a levy is fragile, a targeted tax relief still costs the Treasury revenue, and efficiency gains have limits before they start cutting into care itself. Balance demands acknowledging all of that.

But the counsel of despair is also wrong. While the national settlement waits, the sustainability of individual agencies (and therefore of the care thousands of people receive) turns on things that are within reach today: fairer rates, a sensible client mix, relief on the overheads that the tax system currently inflates, and operations efficient enough to make thin margins survivable. Funding the future of social care is partly a question for the Treasury. It is also, more immediately, a question of whether the money already in the system is being spent well. Both need answering.

References

1. Commission on Funding of Care and Support (2011) Fairer Care Funding: The Report of the Commission on Funding of Care and Support (the 'Dilnot Report'). London: HM Government. View source
2. Department of Health and Social Care, Cabinet Office and Prime Minister's Office (2021) Build Back Better: Our Plan for Health and Social Care. London: HM Government (7 September 2021). View source
3. Competition and Markets Authority (2017) Care Homes Market Study: Final Report. London: CMA (30 November 2017). View source
4. Skills for Care (2025) The State of the Adult Social Care Sector and Workforce in England 2025. Leeds: Skills for Care (15 October 2025). View source
5. The King's Fund (2025) Social Care 360. London: The King's Fund. View source
6. Curry, N., Lobont, C., Dayan, M., Hemmings, N. and Oung, C. (2024) The State of Social Care in England and the Case for a Comprehensive Social Care Strategy. London: Nuffield Trust (9 October 2024). View source
7. Office for National Statistics (2025) National Population Projections: 2022-based. Newport: ONS (28 January 2025). View source
8. Vlachantoni, A. (2019) 'Unmet need for social care among older people', Ageing & Society, 39(4). doi:10.1017/S0144686X17001118. View source
9. The Health Foundation (2024) Adult Social Care Funding Pressures: 2023-35. London: The Health Foundation (REAL Centre). View source
10. HM Revenue & Customs (2025) Revenue and Customs Brief 2 (2025): The Use of VAT Grouping Within the Care Industry. London: HMRC (24 April 2025). View source