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Analysis

Adult social care funding pressures: 2023–35
Estimated costs to meet growing demand and improve services in England

Published 15 May 2025
Time to read clock icon About 5 mins
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Key points

  • This analysis projects the costs of meeting growing demand for adult social care in England and making some improvements to people’s care up to 2034/35.
  • There is no national budget for adult social care. The amount spent is determined by local authorities based on their overall finances and other spending pressures, the amount of targeted funding transferred from the NHS and central government grants.
  • Government has provided additional grant funding for social care in 2025/26 but the outlook beyond this remains uncertain.
  • We estimate the additional funding needed for social care under three scenarios:
  1. To meet growing demand for social care and cover rising costs to employers, we estimate an extra £3.4bn would be needed in 2028/29, towards the end of this parliament. An extra £9.1bn would be needed in 2034/35, requiring a 3.1% annual real-terms increase in overall funding.
  2. To meet demand, cover rising costs and improve access to care (modelling the cost of providing around 90,000 more care packages), we estimate an extra £6.4bn would be needed in 2028/29. An extra £12.7bn would be needed in 2034/35, requiring a 3.9% annual real-terms increase.
  3. To meet demand, cover rising costs, improve access and boost pay (modelling the cost of paying workers in social care at least NHS Agenda for Change Band 3), we estimate an extra £8.7bn would be needed in 2028/29. An extra £15.4bn would be needed in 2034/35, requiring a 4.5% annual real-terms increase.
  • Wider changes are needed to improve our care system, including funding reform to provide people with fairer and more generous state protection against care costs. These estimates do not cover the costs of more fundamental reform.
  • This is part of the REAL Centre’s work to help health and social care leaders and policymakers look beyond the short term to understand the implications of their funding and resourcing decisions over the next 10 to 15 years.
 

1. Introduction

The adult social care system is in desperate need of reform. We believe there are four key priorities for action: 

  • meet the growing demand and costs for social care
  • improve access to care
  • improve pay and conditions for staff
  • provide fairer and more generous state protection against care costs.

In this analysis, we begin by summarising the current funding and policy context and describe the assumptions made in our calculations. We then present our latest estimates for the funding required to meet future demand and to improve services. We conclude by describing some of the potential policy options and the wider reform needed in the sector.

 

2. Current funding and policy context

Our priorities for action need to be considered in the context of recent policy and funding announcements on social care. These have the potential to significantly impact the adult social care sector in the coming years. Here, we summarise key announcements and the assumptions made about them in our estimates. 

Local government finance settlement

The final local government finance settlement for 2025/26 promised up to £3.7bn in additional funding for (children’s and adult) social care authorities, including an £880m uplift to the social care grant. This announcement includes some funding for children’s social care and council tax flexibilities that historically have not been fully used by local authorities for additional social care funding. Given the uncertainty around what will eventually be spent, we do not directly account for these announcements in our projections and instead rely on long-term trends in expenditure.  

Employer’s National Insurance and the National Living Wage

In the Autumn Budget 2024, the Chancellor announced an increase to the National Living Wage and changed Employer National Insurance contributions, including by lowering the employer threshold for paying this tax on employees’ earnings. These changes disproportionately affect sectors like social care, with many part-time workers on low wages. We have accounted for the immediate cost of these policy changes across all scenarios. But we have not modelled their implications for labour market dynamics – for example, if providers were to respond by employing fewer workers.

Adult Social Care Commission

In January 2025, the government announced the launch of an independent commission into adult social care – designed to inform the creation of a National Care Service. Split over two phases and first reporting in 2026, the Commission has been asked to ‘set out a vision for adult social care, with recommended measures and a roadmap for delivery’. So far, there is limited detail on the scope of the Commission and significant uncertainty over its implications for social care funding in the long term.

Employment Rights Bill

The government is currently legislating to strengthen worker rights in the UK, including changes to statutory sick pay, zero-hours contracts and labour market enforcement. This also includes plans to introduce a new adult social care negotiating body in England, bringing together worker representatives, employers and others to negotiate a fair pay agreement (FPA) on minimum terms and conditions in the sector. 

The government expects this to result in pay rises and better conditions for the care workforce. As yet, there is uncertainty regarding when the new rights might come into force, how they might work in practice and the costs for social care. The government expects the FPA to increase costs for local authorities and self-funders, which ‘could result in greater costs to the Exchequer’. Given the uncertainty, we do not include potential funding pressures associated with the Employment Rights Bill in our analysis, but scenario three includes cost estimates for uplifting social care pay to at least NHS Agenda for Change Band 3.

 

3. Our estimates to meet future demand and improve services

In our analysis we use three scenarios to highlight the potential funding pressures in adult social care up to 2034/35. These reflect some of the key issues that need to be addressed to meet future demand and to stabilise and improve adult social care.

This updates our previous analysis from September 2023. Our estimates have changed over time as the underlying data and context have developed (Box 1). The datasheet and technical annex are available to download below.

The Health Foundation has previously produced similar estimates of the funding needed to meet growing demand for social care and improve access, as well as wider improvement options. 

We update our estimates regularly to account for changes in the external context. Over time, the assumptions underpinning our analysis have also changed. Download the data sheet (Tab 2: Historical overview) to view these changes and explore the underlying assumptions. 

The key reasons that our estimates change over time include:

  • using the latest inflation data and presenting costs in real terms to account for changes in the economy
  • using the latest data on social care spending to account for recent trends in local authority spending on social care
  • using new information on expected demand for social care in the future to account for population ageing and growth
  • refining our modelling assumptions; for example, to account for new social care funding announcements, anticipated additional costs like a minimum wage uplift or other technical changes.

To calculate the additional funding required in future years, we first calculate baseline expenditure. We estimate this for 2024/25 and 2025/26 by growing 2023/24 social care spending data (latest available) by 2.8% – the average growth in net current expenditure since 2014/15. This figure is subject to a high level of uncertainty. But our approach reflects that government announcements often represent an upper limit for social care funding (see technical annex). Sensitivity analysis suggested that higher alternative growth rates would not alter the funding pressure figures significantly.

For years beyond 2025/26, we use our projected 2025/26 real-terms expenditure as the baseline, therefore assuming no real-terms growth because of significant uncertainty around future funding. We then compare this baseline spending to the funding needed to:

  • meet future demand and additional cost pressures
  • meet future demand, additional cost pressures and improve access to care
  • meet future demand, additional cost pressures and improve access and improve pay.

We compare the estimated costs of achieving these scenarios against baseline spending for each year. We describe this difference in the coming years as a ‘funding pressure’, reflecting the uncertainty over future expenditure. 

Each scenario builds on the first: meeting future demand for care, for which we use projections from the Care Policy and Evaluation Centre (CPEC) at LSE. CPEC estimates that the number of people receiving local authority funded care will rise from around 520,000 in 2022, to just over 750,000 in 2042. 

Scenarios

This scenario is based on:

  • meeting the expected growth in demand from an ageing population
  • providing local authorities with additional funding to meet the increased costs of Employer National Insurance and the National Living Wage.

This additional funding could maintain the current level of access under the existing social care system.

In 2028/29 (towards the end of this parliament), we estimate this would lead to a funding pressure of £3.4bn. In the longer term (2034/35), we estimate a funding pressure of £9.1bn, requiring a 3.1% annual real-terms increase in funding.

This scenario is based on:

  • meeting the expected growth in demand from an ageing population
  • providing local authorities with additional funding to meet the increased costs of Employer National Insurance and the National Living Wage
  • adding to local authority budgets to increase the amount of care people already receive and/or to expand care to more people by providing nearly 90,000 more care packages (equivalent to a 10% increase).

The current system of heavily means and needs testing access to publicly funded social care likely contributes to unmet need. There are limited good data on the numbers of people going without the care they need, but the Health Survey for England estimates that 22% of adults aged 65 years and older in 2021 had some unmet need for help with activities of daily living. In scenario 2, we model the additional funding needed for local authorities to provide a 10% increase in care packages provided, as an approximation of funding to help address likely unmet need. This corresponds to around 90,000 more care packages.

In 2028/29 (towards the end of this parliament), we estimate this would lead to a funding pressure of £6.4bn. In the longer term (2034/35), we estimate a funding pressure of £12.7bn, requiring a 3.9% annual real-terms increase in funding.

This scenario is based on:

  • meeting the expected growth in demand from an ageing population
  • providing local authorities with additional funding to meet the increased costs of Employer National Insurance and the National Living Wage
  • increasing local authority budgets by 10% to increase the amount of care people already receive and/or to expand care to more people
  • providing local authorities with additional funding to increase pay for staff, help care providers meet the costs of providing good care and improve the financial sustainability of the social care market.

This additional funding could allow local authorities to cover higher hourly rates for providing domiciliary care and higher weekly rates for providing residential and nursing care.* This scenario is based on the wage floor in social care being at least NHS Agenda for Change Band 3, among the most common pay policy proposals. We model an increase in the wage floor for domiciliary care workers to the level of an NHS healthcare assistant at Agenda for Change Band 3. With 2+ years of experience this is currently £13.13 per hour. For nursing and residential care workers, the modelled hourly rates in our data source vary by role type but are approximately equal to or exceed £13.13.

Extra funding could be used in other ways to improve social care, for instance, by investing more in care facilities. We have chosen to focus on improving pay in the sector given existing evidence suggesting that higher wages contribute to lower staff leaver and vacancy rates – which are associated with better quality of care – and given the current government’s aims to improve pay in social care.

In 2028/29 (towards the end of this parliament), we estimate this would lead to a funding pressure of £8.7bn. In the longer term (2034/35), we estimate a funding pressure of £15.4bn, requiring a 4.5% annual real-terms increase in funding.

*These are Health Foundation estimates based on the UK Home Care Association minimum costs of domiciliary care. The cost estimates for residential and nursing care are sourced from research by LaingBuisson into the cost of care. See our technical annex for more detail.

Figure 1:

 

4. Policy changes

Our scenarios explore potential funding needed to meet growing demand for care, improve people’s access to care and boost pay in the sector. This extra spending would need to be matched with wider policy changes to meet these objectives. The government’s planned fair pay agreement for example, offers an opportunity to increase pay for the care workforce.

Ultimately, more fundamental reform is needed, including to the way social care is funded. Funding reform would provide people with fairer and more generous state protection against care costs. Policymakers have a mix of options for doing this, from better protecting people from potentially catastrophic care costs to offering a more comprehensive system of free care and support. We modelled the costs of different funding reform options in 2024. We estimated that introducing a Dilnot-style cap on care costs and more a generous means-test, as planned under the previous government, could cost around £3.5bn by 2035/36 (in 2023/24 prices). 

Technical annex - funding pressures
(340.25 KB)
Datasheet - funding pressures
(26.81 KB)

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