IWA Analysis: The Economics of Caring

Jack Watkins suggests that understanding of the foundational economy points towards reforms that can help improve social care.

The biggest tax increase in a generation was announced last week with the creation of the Health and Social Care Levy.

Despite being arguably about the most inequitable way possible of increasing funding for social care, this plan has achieved what Andy Burnham and Theresa May could not by gaining the support of a majority in Parliament and in the social care sector, with the result that for the first time in decades the system for funding social care will see a significant structural change. 

However, most people who work in and around the social care system know that this money is not enough to achieve what is being promised. Besides the immediate risk that money gets tied up in the NHS rather than getting to local authorities who commission the majority of social care provision, it is widely recognised that the sector is struggling to recruit and retain staff to deliver against rising demand.

If the experience of recruiting GPs for rural areas, or lorry drivers to cover our creaking supply chains has taught us anything, it’s that an uplift in pay is not always sufficient to entice people away from other job opportunities. 

‘Social care falls into a gap in policy making.

Improving the capacity of the social care workforce is a long-standing aim of policy here in Wales, but some proposals tend to ignore the reality of the sector. There are many people – including the UK Labour Party and the Scottish National Party – who wish to treat the sector strictly like a public service, proposing to nationalise homes and firms to create a unified, single-provider National Care Service. This, it is claimed, would allow for more consistent provision across places, would cut down on profiteering and would enable Ministers greater ability to shape the workforce. 

Having spent time talking to a wide range of people working in the social care sector as part of the IWA’s Foundational Economy project, it is striking how little support there is for this idea.

There is a recognition that dramatic reform would have a disruptive effect in the short term but also that the complexity and diversity of provision is one of the sector’s strengths. Care isn’t provided in hospitals and clinics; it is about meeting people’s needs at home, in residential facilities, in respite retreats, and out and about in shops and on the high street. Even the NHS’ biggest supporters must recognise that it struggles with that kind of reflexive, personalised support. 

‘Social care is perhaps the best example of a sector that is resistant to proposed uplifts in productivity.

As a result, social care falls into a gap in policy making. It is hidden by the long shadow of the NHS, but it also struggles to be heard within those portfolios and departments that are more in-tune with the private sector – notably economic development.

More than anything else, this is the transformative insight that we can gain by understanding the foundational economy – the everyday sectors of health, care, housing, food and utilities that contribute so much to our ability to live good lives. By thinking about these sectors as systems, we can get past traditional distinctions between public and private and start to better understand their complexity and interdependency.

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The huge challenge that this sets for policy makers is to find new ways of building relationships with business, which are not based on productivity but on social value.

Social care is perhaps the best example of a sector that is resistant to proposed uplifts in productivity. The nature of much of the work is low-tech, and any profit to be made has to come either from scale or from cutting costs. As the foundational economy analysis highlights, it is a non-tradable sector that cannot be imported or exported, so its prospects are very different to those of high-tech export driven sectors. Many of the owner-managers who run social care businesses are motivated by doing a good job and by staying open rather than by profit, and are not enticed by big investment opportunities.

Nonetheless, the types of tools that are typically associated with economic development could have important impacts on the provision of social care. Our work on the foundational economy has highlighted that many businesses are motivated by doing good things, but struggle with systems that are designed around the interests of bigger firms. 

‘The foundational economy cannot be expected to deliver world-beating boosts to productivity but can improve the provision of public goods.

On the 23rd September we will be launching a report looking at the impact of regulation on the foundational economy. The report highlights the immense challenges that small and micro businesses (those with fewer than five employees) face in understanding the complex range of rules that are applied to them for health and safety, employment law and sector-specific registration or licensing.

Larger firms dedicate staff to understanding and complying with rules, where small businesses either have to commit extensive management resources or buy-in outside support. This is having adverse impacts in sectors like social care and construction, as small businesses are falling by the wayside in favour of a smaller number of large businesses, often operating on a national or international basis with less commitment to particular places. This is reducing the diversity of who is able to provide care and build homes, and the overall pattern of supply is suffering as a result.

But this is not inevitable. The decline in the role of small businesses building homes is relatively recent, accelerating after the 2008-9 financial crisis.

Our research has highlighted the value of business support programmes, as they demystify complex rules and signpost to opportunities for finance and training. Wales has good structures in place to build on this, through Business Wales, Social Business Wales and the Development Bank of Wales. But doing so will mean choices about resources, and will require a different way of thinking about economic development. 

It will mean having coordinated plans for engaging with these sectors that set objectives across different portfolios and departments, avoiding situations where government facilitates and funds whilst also creating unnecessary regulatory burden. Ultimately it needs to be built around a different set of objectives, recognising that the foundational economy cannot be expected to deliver world-beating boosts to productivity but can improve the provision of public goods. It is a more complex task than putting more money into the NHS, but ultimately it could be just as rewarding.

Interested in finding out more about the Foundational Economy? Join us on Thursday 23 September as we launch our report ‘Regulation and the Foundational Economy’, to find out how regulators can Think Small First. 

Dr Jack Watkins is the IWA’s Foundational Economy Project Lead.

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