The value of the UK domiciliary care market was estimated to have reached just under £96.5 billion by the end of 2014/15, representing an annual increase of 4.8% from £92 billion in 2013/14 and an increase of £16.9 billion over the past five years. The annual rate of increase has fluctuated between 4% and 6% since 2010/11, which reflects local authority budgetary pressures and a changing industry structure, where providers are exploring opportunities in the ‘self-funder’ market and offering care to those not eligible to receive state-funded care provision.

Figure 1: UK Market for Domiciliary Care, 2010/11-2014/15, (£ Million)

Source: MBD analysis of NHS, HSCIC, StatsWales, Scottish Government, DHSSPSNI data and MBD estimates.

Informal and local authority care are the two largest contributors to the value of the UK domiciliary care market. By 2014/15, informal care accounted for an estimated 80% of overall market value (£77.4 billion), while local authority care provision accounted for an estimated 14%(£13.8 billion). The estimated annual increases in informal care have driven growth in the market since 2010 as NHS community care provision continued to be subject to budget cuts, which led to the under-supply of care being taken up by relatives or friends. The value of the private segment of the market has increased by 17% over the five-year review period to a total of £2.3 billion - benefiting from both demographic changes and, albeit less significantly than in the informal sector, the growing numbers of care users who find themselves ineligible for help from the statutory sector.

Figure 2: Segmentation of the UK Market Domiciliary Care, by Type of Purchaser, 2010/11-2014/15, (£ Million)

Source: MBD analysis of NHS, HSCIC, StatsWales, Scottish Government, DHSSPSNI data and MBD estimates

Demographic trends in the UK prove that there is and will be a significant impact on demand for the provision of services for elderly care. Dependency increases exponentially with age so people in their late 80s consume roughly ten-times the health expenditure of 40 year-olds. The latest ONS projections emphasise the importance of this point as the over-75s is expected to nearly double to 10.3 million by 2040, which will increase the spending required towards domiciliary and social care as a whole.

Figure 3: UK Population Projections, by Age Group, 2015-2040, (Million People)

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Source: MBD analysis of ONS data

At the same time, the growth of the elderly population has meant that the number of care users receiving high intensity home care, of 10 hours a week or more, has continued to grow. In 2013/14, an estimated 46% of all home care hours commissioned in England were for clients receiving more than 10 hours of care (with overnight, live-in, 24 hour services) per week. Councils have kept provider fees frozen for a number of years and there are growing concerns about how this has affected the quality of care provided. CQC data published in April 2015 revealed that nearly 9% of adult social care providers inspected were rated as ‘inadequate’, and a further 32% were deemed to be ‘requiring improvement’.

The most notable trend over the review period is the consistent shift away from direct provision of care by local authorities to independent provision. In 2010/11, local authorities provided just under a fifth of all hours of care, with the remaining 80% contracted out to private companies and charities. By 2014/15, this proportion of care provided by local authorities is expected to have fallen to just 14%, as tightening budget constraints have meant that local authorities continue to tender an increasing amount of home care services to the independent sector.

Figure 4: Number of Contact Hours of Home Care Provided in the UK, by Sector, 2010/11-2014/15, (Million hours)

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Source: MBD analysis of HSCIC, StatsWales, Scottish Social Care Survey, Northern Irish government data and MBD estimates for England and Wales in 2014/15 using historical trend rates

Since 2009/10, total UK local authority spending on domiciliary care for older people (65+) fell by £229 million, whilst expenditure on providing care for adults aged between 18 and 64 is estimated to have increased by £1 billion. The majority of this increase has been attributed to an increase in expenditure for adults with learning disabilities, as expenditure declined for adults with mental health needs and remained fairly stable for adults with physical and sensory disabilities.

In England, the number of domiciliary care users per 10,000 adults decreased year-on-year to a review low of 250 by 2013/14 - a decline of 30% over the last five years. The north east and north west recorded the highest rates of care use, with 310 and 295 respective users per 10,000 adults. There is a level of disparity in the rate of domiciliary care clients between UK regions, most noticeably in Scotland, which has significantly lower rates than the rest of the UK. Scotland recorded a rate of 138 care users per 10,000 in 2013/14, whilst Wales recorded a rate of 377 care users per 10,000 adults in its population. Northern Ireland was the only section of the UK to experience an increase in the number of care clients per 10,000 adults over the last five years - increasing from 191 care users in 2010/11 to 192 in 2013/14.

Figure 6: Number of Domiciliary Care Service Users per 10,000 adults, by Region, 2009/10-2013/14, (No. Of Clients per 10,000 adults)

Source: MBD analysis of HSCIC data and Wales, Scotland and Northern Ireland Survey data with MBD estimates based on ONS population projections

A large part of the market is currently accounted for by the provision of domiciliary care to the elderly so the predicted steep growth in this particular age bracket over the next few decades will significantly boost the industry. ONS projections for the UK population up to and including 2040 imply an ever-ageing population, resulting in a far greater number of clients who will need high intensity care. The implications of an ageing population will require increased expenditure on elderly care provision so demand levels are met, while market innovations and technological advancements could also offset some of the extra expenditure needed.

The chancellor announced at the Spending Review in July 2015 that workers over the age of 25 would be paid a NLW of at least £7.20 an hour from April 2016. This will clearly benefit workers, but there are concerns that, unless the additional costs are fully financed without further damaging care provider’s cost structures, local authorities will not be able to support people who receive state-funded care at home and providers will increase their fees so they can pay the new wage. As a consequence, more people will find themselves unable to afford care. The UKHCA estimated that an increase of at least £753 million from councils and the NHS in the first year alone is required to address existing underfunding of home care and the implementation of the NLW.

From April 2015, a large number of provisions from the Care Act came into effect - representing the largest overhaul of social care statute in England in more than 60 years. The act has introduced new reforms to the legal framework for adult care and will give more rights to those in need of care and support, while increasing the transparency of the funding system. However, in July 2015, it was announced that the introduction of a cap on social care costs, and its accompanying and more generous means-test, would be postponed until April 2020. It was hoped that the planned cap on personal care costs of £72,000 (excluding accommodation costs) would help ease the financial burden on care users, but the nationwide introduction of the minimum eligibility threshold will increase difficulties for those with less intensive care needs to access home care services - regardless of the costs involved.

The reduction in low-intensity care offered by local authorities is likely to create demand for this type of care provision in the private sector. Socio-economic trends have also ensured that a growing proportion of females, who provide the vast majority of informal domiciliary care, are entering full-time employment. This has created a significant emerging market for unintrusive domiciliary care for elderly people who would normally be cared for by family members, but who would prefer not to hire someone to provide regular care. Care solutions that enable clients to retain their privacy and independence, such as telecare monitoring systems, have also started to enter the sector. However, as with most new market innovations, they will take time to adapt and fully complement existing forms of care services.

Historically, the domiciliary care industry in the UK has been highly fragmented, as typified by the structure found in many emerging and developing markets. The domiciliary care industry is relatively young compared to many other healthcare sectors, but there is clear evidence that , greater consolidation has occurred in the sector in recent years, with several smaller businesses withdrawing from the market or being acquired by larger corporate companies.

Using UKHCA’s estimate of the hourly cost of home care in the UK (£13.66) and applying the maximum number of hours per care user can receive a week (26), the average cost of providing home care services per year to each user is approximately £20,000 (calculation includes hours provided by informal care). In comparison, trade estimates suggest that the cost of providing residential care services to each user is between £28,000 and £38,000 - depending on whether nursing care services are also required.

Due to these cost differentials, more and more people are being encouraged by the government to be cared for in their own homes instead of moving into residential care or seeking support from the NHS. This is expected to continue to increase the size of the market, and has already attracted financial investors, private equity houses and trade buyers to the industry. These firms are looking to generate higher returns from buying up and investing in home healthcare companies, which has encouraged business owners to sell to take advantage of the high multiples.

The majority of the independent sector’s business activity is derived from local authorities. This dependency is exacerbated by a high level of exposure for many companies to individual authorities. The ability to win local authority business at the time when many social services department are reducing the number of suppliers remains a critical barrier to market entry.

Private equity investors have been largely successful in aggregating small home care providers into businesses operating on a national scale. These providers have proven attractive to outsourcers, who are increasingly looking to enter the market. The biggest deal so far has been an £800 million contract for a partnership including Mitie, which was awarded by an NHS Trust in October 2014. Midsized outsourcers, such as Interserve, are hoping to target these kind of deals.

The highest number of mergers and acquisitions within healthcare services has occurred in the domiciliary care sector, which has accounted for 40% since 2009.

In recent years, domiciliary care providers have reported increased pressure from local authorities to keep fees down. Close to 90% of providers are signing up to contracts that require them to maintain or even reduce fees over the lifetime of the contract or leave price rises entirely in the hands of councils.

Proposed changes to care funding have resulted in more people funding their own care - creating new opportunities for smaller, niche operators to work at a very local level and provide more efficient and tailored services.

At the time of publication, Allied Healthcare remains the largest independent sector provider of home care services with an estimated 6.3% market share. Mears Group has become the second largest provider after its acquisition of Care UK’s domiciliary care business and is expected to become the largest provider in the near future once Saga focuses its attention on private purchasers of care.

Growth is estimated at between 3.5% and 4% over the next five years, albeit at a declining rate to 2017/18 as public spending cuts remain in place until this point at the earliest - which will affect expenditure growth in both local authorities and the NHS. Informal and private expenditure is expected to somewhat diminish the impact of lower spending in LAs and the NHS, with growth starting to accelerate post-2017/18 as the introduction of the new living wage will affect provider’s cost structures and price hikes are likely to occur. This could see more relatives or friends helping to provide care as their own incomes rise. Investors will also be needed to help expand home care services throughout the UK as the impact and care burden of the ageing population will become apparent. Innovative home care services are predicted to start to make a meaningful and efficient impact by the later years of the forecast period, such as in telecare, as they become more tailored to the wide range of users with different care needs. Overall, the value of domiciliary care in the UK is expected to grow by nearly 16% between 2015/16 and 2019/20 - with the market valued at £116 billion.

Figure 7: Forecast UK Market for Domiciliary Care, 2015/16-2019/20, (£ Million at 2015 prices)

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Source: MBD forecasts

Informal care is expected to continue to offset unmet provision by formal care providers over the next five years due to local authority budget restrictions, which are predicted to last until at least 2017, and the stagnant growth in the fees charged for providing care, which have led to smaller. regional care providers struggling to remain in the market. By 2019/2020, informal care is predicted to be worth £96.2 billion (83% of overall market value). Local authorities will still play a role in the market, despite the sector’s contribution expected to marginally decline from 13% to 12% over the next five years, as it will remain the largest commissioner of care to those in need of the most intensive services. The private sector is expected to benefit from the growing number of low and moderate-needs care users, who find themselves unable to secure provision through their local authority. This will be reflected in its own 27% growth in value over the next five years - from £2.3 billion in 2015/16 to £3.1 billion by 2019/20.

Figure 8: Forecast Segmentation of the UK Market for Domiciliary Care, by Type, 2015/16-2019/20, (£ Million at 2015)

Source: MBD forecasts

Domiciliary care has a high proportion of independent sector providers, which the public sector has little direct influence over. Local authorities, acting as commissioners, increasingly look to the sector to provide care services. This has, however, been criticised as they are thought to impose overly prescriptive contracts and pass on their own cost constraints to independent sector care providers. The proposed introduction of the national living wage from April next year could lead to a complete overhaul in outsourced contracts and apply greater budgetary pressures as providers will be forced to pay the rate to workers over the age of 25. The additional costs attributed to the proposed wage change could further exclude services for those with less intensive care needs, as the nationwide minimum eligibility criteria attaches increased importance to expanding independent sector provision to reduce the likelihood of earlier admission to a residential or hospital care setting. The increasing rarity of care users being able to receive state-funded provision of home care services is likely to ensure that the full and partial ‘self-funder’ market continues to grow over the coming years. The challenge for both care commissioners and providers is to have adequate resources and flexible service provision readily available to simultaneously meet the needs of those with the most and least intensive care and support needs.

A large majority of home care providers (84%, according to UKHCA in February 2014) are based in the independent and voluntary sector, but operate in a market led by statutory sector purchasers. These purchasers are largely made up by local authorities, who utilise their purchasing power to pay for care from their constrained budgets. The UKHCA believes that they currently purchase more than 70% of all hours of care delivered by the independent and voluntary sector, which is still a fairly large proportion in light of the cuts to their budgets.

With local authority commissioning plans continuing to change, there will be a further shift away from purchasing large home care contracts. Instead, there will be more spot-purchasing against current framework agreements. This could lead to downward pressure on prices for home care services in the short to medium term, which could open up further opportunities for new market entrants. It could also lead to a reversal of the polarisation of providers - which currently involves larger businesses concentrating on local authority work and smaller businesses seeking out self-funding care clients.

Many local authorities also currently provide service users with direct payments that are either made directly to them or to a designated individual. This arrangement allows the care user the freedom to source their own care and choose providers outside of the council’s own commissioning.

The introduction of the national minimum threshold criteria earlier this year has increased the risk of LA-funded domiciliary becoming a residual service, available only to those with the lowest incomes and the highest needs, leaving thousands of people and their families struggling to meet the costs of care and support they need. This has provided the independent sector with a great opportunity as they can now create and provide services that target those with less intensive care needs.

However, the challenging financial situation has affected both state and independent sector care provision. This has been highlighted by several councils, including North Yorkshire Council, awarding multi-million pound home care contracts to a lower number of providers. With care fees remaining low, smaller and more regional providers have exited the market as they do not have the same economies of scale that larger and more nationwide providers are able to exploit. This could lead to a lack of competition in the awarding of home care contracts around the UK, which could then lead to a more consolidated and monopolistic market that has little incentive to keep prices as low as economically feasible.

The Better Care Fund, designed to promote integrated care, was first announced in the 2013 Spending Review. In 2015/16, the funding pot was to be made up of £1.9 billion top-sliced from the budget of NHS commissioners; £1.1 billion of transferred money for local authority social care; £400 million put aside for both carers and recovering patients; and £400 million from the government’s capital budget. However, these proposals were changed in 2014 and £1 billion of the fund has now been allocated through a local ‘performance pot’ for each health and well-being board, with the money each board receiving dependent on its performance in reducing hospital admissions (a target of 3.5%). There are concerns that the majority of the fund has been used to protect care services from budget cuts, instead of driving integrated care services and innovation - which has threatened the quality of care that users receive.

The issue of ‘bed-blocking’ in hospitals is not a new phenomena. However, quantified research recently showed that the savings made from an elderly person avoiding a stay in hospital, for an average of 12 days following such incidents as a fall, could be used to provide care at home for a week to more than 27 elderly people. These potential savings could relieve some of the pressure on care services, with more hours of care provided at home, while the number of people receiving public funding to meet non-personal support needs, such as cleaning and shopping, falls.

However, in February 2015, figures obtained under the Freedom of Information Act showed that a rising number of council affiliated home care visits to the elderly and disabled lasts for less than five minutes. In December 2014, it was claimed that three-quarters of councils provided 15 minute (or less) appointments between 2010/11 and 2012/13, whilst eight councils provided more than 593,000 care visits to elderly residents that lasted less than five minutes. This implied that care users were offered a ‘one size fits all’ service, rather than a service that supports the needs and priorities of each individual.

Fifteen minute visits are unlikely to help older people or those with a disability to complete their everyday routines. However, some councils explained that some of these five minute visits included those where the resident was out or that involved simple tasks, such as reminding a pensioner to take medication. Evidence that the duration of home visits are being further shortened was disclosed by media outlets, which revealed how councils have tried to employ agencies to carry out the cheapest possible care visits. The documents included one instance of a council in the north west trying to persuade agencies to carry out three fiveminute visits each day to give an elderly woman her medication. The contract was turned down by all the firms to which it was offered. These findings show how the home care sector is trying to adapt to financial pressures at a time when demand for services is rising.

A report published by Adass in June 2015 found that 147 of the 151 English council bosses that responded to the association’s survey between April and March 2015 believed that the £1 billion budgetary cuts to social care services for older and disabled people over the next year will leave tens of thousands facing reduced help with basic activities, such as washing and dressing. Council bosses also claimed that the quality and reliability of local services will suffer as a consequence of turmoil in the private care sector, partly caused by a further freeze on care fees paid by councils - which will ultimately undermine attempts to maintain a ‘caring, compassionate and trained workforce’. This, alongside the newly imposed minimum eligibility criteria framework, will lead to councils offering less intensive care per user or offering care to less people.

The Local Government Association estimates that there will be a potential funding gap of more than £4 billion by 2020/21, and that finding additional funding for social care must become an urgent priority for the government following the lack of an announcement regarding social care spending plans in the Spending Review.

The UKHCA released home care fee information in February 2015 regarding the national and regional breakdown of domiciliary care funding. The report exposed the level of risk that councils in Great Britain and HSCs in Northern Ireland place on the already financially strained system. Only 28 councils, of the 203 authorities that average prices were calculated for, paid their independent and voluntary sector home care providers fees at or above UKHCA’s own recommended minimum price for home care of £15.74 per hour.

The average price for an hour of home care for older people in a sample week was:£13.66 per hour in the UK;£13.77 per hour in England;£14.28 per hour in Wales;£13.68 per hour in Scotland; and£11.35 per hour in Northern Ireland. With lower prices paid for care than can realistically cover costs, there is a risk that there will be an insufficient resources and training to cope with the ever-growing intensive care needs of an increasing number of older people. This has led to the belief that some local authorities are finding it hard, amid the public spending cuts, to pay care providers a high enough fee to cover the true costs of delivering domiciliary care services. This could then negatively impact working conditions and lead to higher staff turnover rates - which could jeopardise the health of clients and the development of the industry. Lower fees may also lead to providers leaving the market as it will not be economically viable in the long term to continue to operate in.

However, from 4^th September 2015, Cornwall Council will increase the hourly rate it pays private companies for providing traditional domiciliary care for people living in their own homes. The council currently spends approximately £30 million a year on commissioning packages of traditional domiciliary care, with rates paid before this date in the lowest quartile across LAs in the south west. The council is one of the first to respond to the UKHCA’s claims that the fees provided across the UK to care providers are not currently matching the costs involved with providing suitable care services. Cornwall Council took into consideration the impact of economic growth on the ability of providers to attract and retain staff to meet care requirements, which resulted in an additional £4.5 million into its adult care budget. It is worth noting that not all councils will be able to achieve this, as some have larger funding gaps than others and different spending priorities.

Recent research conducted by the Financial Times found that during 2014 150,000 elderly disabled people, who would have received help with washing and dressing in 2010, no longer qualified under eligibility criteria as councils tightened their service provision to only help those with the most severe needs. However, public satisfaction with how councils are run has remained largely constant in most areas, and councils are becoming more entrepreneurial as they seek alternative sources of revenue.

The Care Act introduced a legal right for people to obtain a statement of the amount of money needed to meet eligible care needs. These are known as ‘personal budgets’. This legal right applies whether care is provided by the council or not and ‘self-funders’ can also apply for an ‘independent personal budget’. These are important as the care cap is expected to finally be implemented from April 2020, and personal budget amounts will be totalled and counted towards the cap.

However, the lifetime care cap on care spending was initially expected to be introduced this year. This means there is still a risk of endlessly spiralling care bills and, as long as there is no cap in place, older people with assets will justifiably worry that they could be financially ruined if they are unlucky enough to need long-term care. This also risks exacerbating pressures on the NHS by increasing emergency admissions and delaying discharges from hospital.

From August 2015, West Midlands ADASS and SCIE began working in partnership to support the implementation of the Care Act in the region. All LAs and their respective partners in the West Midlands will be able to access a programme of support and workforce development. The aim is to develop joint support at regional, sub-regional and local levels to avoid duplication of effort and to share approaches to the key challenges posed by the introduction of the Care Act. This approach could be taken up in other regions if feedback is shared while the programme is ongoing, and could lead to increased efficiency and cost savings in a time of financial restraint.

The UK pensions reform, which has come into effect from April this year, was criticised by the OECD, as it ended the obligation to buy an annuity at retirement. It believes that the reforms will lead to a significant number of pensioners running out of money in old age. With investors likely to be faced with an environment of low yields and low returns for the short term at least, the only way for people to guarantee themselves a satisfactory income in retirement is for workers to save more for longer. Unless individuals can plan for the long term, it is very likely that their current savings plan may not cover their elderly years and the services they will require, including greater expenditure on care.

The Chancellor also announced plans to pay workers aged over 25 a National Living Wage of at least £7.20 an hour from April 2016, with this figure due to rise to £9 by 2020. There are fears among industry experts that unless the additional costs of introducing a new NLW are fully-funded there is a greater risk of local authorities not being able to support people who receive state-funded care at home.

The demand for supporting long-term health conditions is set to grow rapidly over the next two decades and beyond. The NHS and other care providers will need to increase their use of technology if they are to continue to offer high standards of service. For example, a 2014 UK government survey revealed that more than 30% of people said they suffer from a long-term health condition. In 2012, the Assisted Living Innovation Platform launched ‘dallas’ (delivering assisted living lifestyles at scale), a large-scale demonstrator of independent living products and services.

The dallas programme has encouraged and helped businesses take advantage of the growing number of older people in the UK, who want stay in their own homes for as long as possible, by promoting the use of innovative products, systems and services. The success of the programme will ultimately be determined by investment from key players into communications infrastructure, service design and employee recruitment in the high-tech domiciliary care market. If the products and services supplied are not efficient enough, usage will not become as widespread as first hoped.

The government’s five-year telecare scheme, 3millionlives, was unveiled in 2013 and superseded by Technology Enabled Care Services in late 2014. It aims to help maximise the value of technology-enabled care services for patients, carers, commissioners and the wider health community. This change came following a study by the London School of Economics in July 2014, which suggested that 3millionlives cost nearly £300,000 for each quality-adjusted life-year (QALY) gained as a result of providing telecare, compared with the £30,000 threshold that the NHS usually pays when introducing new interventions. The study suggested that telecare may have been too one-dimensional and that it should be tailored more towards each client’s individual needs for full benefits to be extracted from the equipment.

In June 2015, the ADASS released its annual budget survey on the state of adult social care finances and how directors of adult social services across English LAs plan to respond to the dual challenge of meeting increased demand levels and reduced resources. For 2015/16, 75% of directors put a medium or high importance to ‘assistive technology’ in helping councils achieve budgetary savings, which rises to 83% of directors putting a medium or high importance on ‘assistive technology’ to help make budgetary savings in 2016/17.

Care staff are often confident about using assisted or digital technology, but few know how to make decisions based on the wide range of options open to them. A curation service could collect, manage and present information about assisted or digital technology in a way that helps assess the potential relevance of different options to a range of care users and their differing needs and situations. Workforce training and engagement are also vital if progress is to be made in improving the efficiency and outcomes of using home care technology