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2. The policy intention is to deliver all nursing care through the NHS because this will be free at the point of use and will also remove the current overlap whereby both the NHS and councils can provide nursing care. Patients will benefit from the new arrangements because the involvement of the NHS will give it a greater interest in ensuring that people get the right care in the right place at the right time when they are discharged from hospital. Previously this was seen as purely a social services responsibility and so encouraged cost-shunting between councils and the health service. NHS involvement will also encourage partnership working, joint commissioning and the setting up of pooled budgets all of which will improve services to patients.

3. To effect these changes it will be necessary to extract from councils the funds spent on nursing care by local government, and to pass them to the NHS for re-allocation to primary care trusts.

Transfer calculation

4. Currently most of the public expenditure provision for nursing costs in nursing homes is held by councils. We estimate this will be £375m in total in 2003/04, but there is no separately identifiable funding stream because most of it is within the PSS SSA although a small amount is funded through the preserved rights grant.

5. The transfer of £375 million is based on an estimated unit cost of £85 per resident per week, multiplied by 52.18 weeks (to convert to an annual amount), and that sum is multiplied by 85,000 which is an estimate of the number of council supported residents in 2003/04.

£85 a week unit cost

6. A common assumption, based on length of stay, is that nursing home residents placed by local authorities are more dependent than self-funders when they first enter a nursing home. So it was possible that the average cost of nursing care for this population might be higher than for self-funders. To test this, in March this year, we gathered information on a number of council supported clients (355) in nursing homes who were being assessed for nursing needs as part of local programmes of assessment. The survey was designed to reflect a proportionate balance of urban and rural locations.

7. The evidence from the survey implies an average nursing cost for council supported residents of about £75 per week, based on the nursing care fee bands at 2001/02 prices, ie £35, £70 and £110 a week. We have uprated the £75 to 2003/04 prices to reflect a 4% increase in nurses' pay for 2002/03 and an estimated 4% for 2003/04. This gives a revised unit cost of £81.

8. The fee bands do not include the costs to councils of providing continence services in nursing homes. It would be reasonable to add £4 to the unit cost to take account of these costs which would increase the unit cost to £85 a week.

85,000 supported residents

9. The figure of 85,000 is based on the number of supported residents in nursing care (72,000) plus the number of preserved rights cases in nursing homes (15,000) in April 2001 - see the table below. The data in the table suggest that the numbers have been falling by about 5,000 a year. However, as the Department has provided additional resources to overcome bed-blocking and to enable councils to support more people in care, we are expecting that numbers will not continue to decline but will level out at 85,000, including 10,000 preserved rights clients from 2003/04.

Extracting the resources from the SSA

10. The monies to be taken from councils will come from two sources - £330m from the PSS SSA and £45m from the preserved rights grant.

Option 1, top-slicing

11. This is the most usual approach. The funds would be top-sliced at a national level from the two relevant SSA control totals. 91.5% of the sum would be taken from the Elderly Residential SSA control total, and 8.5% of the sum from the Other Social Services control total. This reflects the proportions of older and younger residents among supported residents in nursing homes.

12. The downside to this otherwise straight-forward approach is that there would be a mismatch between the funding that would be taken from each council and actual spend, as the SSA is not a good indicator of actual spend on nursing care in nursing homes.

Option 2, withdraw resources in line with estimated local expenditure

13. Under this approach, each council would lose a sum from its PSS SSA that would reflect current estimated expenditure on supported residents in nursing homes. The sum would be estimated as the number of supported residents in nursing homes multiplied by £85 per week and then scaled to the total of £330m (the remaining £45 million will be taken from the PR grant).

14. A key advantage is that under this option the monies would be withdrawn in line with actual numbers of supported residents in nursing homes. The withdrawal of funds under option 2 would, however, effectively take the form of a negative element to the elderly (and possibly other services) SSA formulae, which could not be sustained indefinitely. Moreover, there would be difficulties using data on supported residents later than March 2002 data, as councils could in theory reduce their losses by substituting residential care for nursing home placements. We, therefore, need an exit strategy so that by, say, 2005/06 the funds are withdrawn from the PSS SSA by a top-slice.

15. When this transfer was consulted on last year, before implementation was delayed, most respondents were in favour of this option.

16. We propose to take this option because funding would be withdrawn at least in the first year (2003/04) on the basis of actual numbers supported by each council and it was the favoured option when this was consulted upon last year.

Extracting the resources from the preserved rights grant

17. We propose to top-slice the £45m from the preserved rights grant. We could not extract the resources from each council's grant allocation on the basis of the number of nursing care clients it was supporting because, although the PR grant for 2002/03 is distributed on the basis of councils' caseloads, the data on PR residents are broken down by age but not by type of home. We do hold some data on PR residents by type of home but with the important exception of some of the recent data on out-of-area placements.

Conclusion

18. The Government proposes to transfer £330m from the PSS SSA to the NHS to reflect the transfer of responsibility from 1 April 2003 for meeting the cost of nursing care; a further £45m would be transferred from the preserved rights grant. The transfer from each council's SSA would be based, at least in the first year, on the actual number of nursing care clients it was supporting. The transfer from the preserved rights grant would be top-sliced.

19. Any comments on the sums to be transferred from the SSA and the preserved rights grant and the methods of extracting those sums should be sent to Geoff Barratt at the Department of Health, Room 215, Eileen House, 80-94 Newington Causeway, London SE1 6EF (email address Geoff.Barratt@doh.gov.uk) by 20 September 2002,