A local authority’s social services budget has been thrown into chaos after the High Court unleashed a barrage of criticisms of the way in which it set the fees it pays to private care home owners. The Court identified a series of fundamental arithmetical and other errors in South Tyneside Council’s approach and directed it to reconsider the issue.
A group of care home owners (the owners) mounted a judicial review challenge after the council – which was faced with having to make £35 million in savings due to government funding cuts – announced a new fees structure and contract arrangements in May 2012. The owners argued that the fees proposed were simply not high enough for them to make a living let alone a reasonable profit.
Upholding the owners’ challenge, the Court agreed that the council had failed to pay due regard to the real costs of providing care to many elderly and mentally infirm residents and the care home owners’ need to make a reasonable return on capital that they had invested in their businesses. In declining to disclose documents revealing the basis of its financial analysis and methodology, the council had also failed in its duty to fully, fairly and properly consult the care home operators.
The Court noted that there had been ‘a very significant error of approach’ on the council’s part in that it had failed to take into account the effects of inflation when calculating the care homes’ projected profits so that inevitable cost increases were not reflected in the fees to be paid.
In reaching its ‘flawed’ decision, the Council had also failed to take adequate account of its duties under the Equality Act 2010. The council had also made mistakes in the calculation of bed occupancy rates and had failed to recognise ‘obvious errors’ in spread sheets that formed the basis of its decision.
The Court recognised the financial constraints on the council and the serious impact that the ruling would have on its already over-stretched budget. However the council’s errors went to the very heart of the decision-making process and it would be quite wrong to refuse to grant the owners substantive relief.
The Court quashed the council’s decision to issue a new contract to the owners and to adopt the fee bands contained within it. The ruling means that the council must now fully consult the care home owners and consider the entire issue of contract terms and fees afresh.