The Government is being urged reduce the VAT rate to five per cent for social care providers.
Care Forum Wales (CFW) says it would make paying for care more affordable for local authorities and the NHS – while helping to stimulate the economy at the same time.
According to CFW, the main organisation representing the social care sector in Wales, the latest 2.5 per cent hike on VAT to 20 per cent adds up to an unfair tax on vulnerable people.
They’re calling on the Government to adjust the VAT rules at the next Budget.
Mario Kreft, the Honorary Chief Executive of CFW, said: “We believe the Government has missed the opportunity to be really progressive by stimulating the social care economy as well as the wider economy.
“We are calling on the Government to make a special case for reducing VAT in relation to social care down to five per cent.
“Reduced rates of VAT already exist for things like listed buildings – surely caring for vulnerable people is even more important.
“Extensions to the homes of disabled people are already zero rated for VAT purposes.
“We believe, for example, it would be logical to have a similar, zero-rated exemption for extensions to residential care homes.
“This would have the effect of encouraging people to invest in capital items. As things stand, VAT at 20 per cent is a tax on care which makes it prohibitive; to improve quality.
“It’s going to mean that in a perverse way we’re not going to have the stimulation in the economy that we might otherwise have.
“With two White Papers in relation to social care in the pipeline, the timing of such a change would be entirely appropriate.
“There is an opportunity here for the Government to alleviate the pressure on local government and the NHS in terms of fees because most people are publicly funded.
“On the other hand, such a move would offer a substantial economic stimulus for our communities.
“In Wales, we have more than 1,200 care homes while there are more than 20,000 in the UK.
“An imaginative and progressive approach along the lines we propose would enable independent care providers to improve their service and invest in infrastructure and capital items.
The idea has received the backing of a leading Chartered Accountant, Peter McVeigh, who is a director of Wrexham-based Coxeys.
Mr McVeigh said: “As well as providing a much-needed fillip to the economy, this would also be great news for the 500,000 working in the sector and the 450,000 who receive support.
“While the economy is in a particularly difficult phase, there is an opportunity over a period of one or two years to offer special dispensation to the social care sector to invest.
“It would kick start the economy and provide a boost for local communities while at the same time improving social care in a more progressive and enlightened way.
“It would make the provision of social care more cost-effective for local authorities and the NHS.
“The current situation is daft because it amounts to a tax on better care because these businesses cannot reclaim VAT in the way that most people can.
“The supply of welfare services provided by independent social care provider is exempt from VAT and will not therefore increase in price as a direct result of the rate increase
“However, VAT-exemption means that most providers are unable to reclaim the tax they themselves pay on goods and services purchased to run their businesses.
“The recent VAT increase will therefore inevitably increase costs and a number of providers will need to seek reasonable increases in their charges to local authorities and private individuals to continue to provide their services.
“In addition, if local authorities and the NHS genuinely care about high-quality services, they must also consider providers’ real costs when renegotiating contract prices with the independent and voluntary sectors.”
Mr Kreft pointed to the recent case involving Pembrokeshire County Council where a landmark High Court ruling on care home fees has set a precedent for the rest of Wales.
As a result of the case, the County Council has been ordered to recalculate the fees that they pay to four care homes at the centre of the case and the rest of the care homes in the county.
The way the fees had been worked out originally was unlawful and wasn’t in accordance with the guidance provided by the Welsh Assembly Government.
According to the homes who brought the action, the £390 a week the council paid per resident was far short of what is needed to ensure that they are viable – they pointed to the fact that Pembrokeshire paid their own homes considerably more.
As a result, the new rates will apply to all other care homes in Pembrokeshire as well.
Mr Kreft added: “The case sets an important precedent with regard to the approach which councils in Wales adopt to fee setting.
“It is now clear that it is no longer acceptable for local authorities to adopt an arbitrary approach to determining the amount they are prepared to pay for care services.
“Local authorities all over Wales have largely ignored the Welsh Assembly Government commissioning guidance.
“The judgement makes it quite clear that this can no longer continue and councils will have to show compelling reasons if they deviated from that guidance.
“We already have a template for future cooperation in the form of the Memorandum of Understanding which paves the way for a more structured and inclusive approach to commissioning social care services.
“Care Forum Wales is already collaborating with the Welsh Local Government Association and the Association of Social Services Directors and we hope that the independent sector can now move forward with a partnership rather than having confrontational approach.
“Our over-riding concern is the need to provide high quality, sustainable services for the people for whom we provide care. We must all work together to make sure this happens.”
