A decision by a local authority to increase the rate paid to residential care home providers in 2024/25 by only 1.4% (below the rate of inflation) has been successfully challenged by way of judicial review, with the court ruling that this decision was unlawful and must be re-taken.
In this briefing, we look in more detail at what the court found and why.
What was the case about?
The High Court judicial review ruling in the case of R (on the application of SARCP) v Stoke-on-Trent City Council was handed down on 27 January 2025 and relates to a dispute between Stoke-on-Trent City Council ('the local authority') and a trade organisation called 'SARCP' (formerly known as the 'Staffordshire Association of Registered Care Providers'), on behalf of some of its care home provider members (although none were named).
The dispute centred on a below-inflation rise in the standard contract rate paid by the local authority to residential care home providers for the year 2024/25.
The local authority had agreed the standard contract with care home providers in 2021 and the dispute focused on the part of the contract specifying the mechanism for agreeing annual adjustment of the standard rates the local authority would pay providers for different categories of residents (residential, nursing etc). This stated that the price would be subject to annual indexation at a rate to be determined by the local authority following consultation with the provider, subject to the caveat that the increase could be no less than 1.4% (which was the rate of inflation at around the time the contract was created).
In April 2024, the 'annual indexation' was up for review again. The local authority initially decided there would be zero increase in the price paid for residential care (with the budget focused on increasing rates for nursing home provision), but reversed this decision after SARCP (on behalf of its provider members) pointed out that this would amount to a breach of contract because of the 1.4% minimum increase specified in the contract. Instead, the local authority decided that there would be an increase, but this would be limited to the minimum amount permitted by the contract - i.e. 1.4%. This was less than any current inflation measure and a long way off the 9% increase being suggested on behalf of the care providers to reflect inflation and other factors impacting the cost of care.
The local authority's decision to increase the amount it paid to residential care home providers by only the minimum 1.4% was challenged in the courts by way of judicial review.
What did the court decide?
The court found that the local authority's decision to limit the increase to 1.4% was unlawful and must be re-taken within 28 days.
The judge gave a number of reasons for this finding of unlawfulness (summarised below), but placed a particular emphasis on the fact that, under the Care Act, local authorities must have regard to the sustainability of the care market overall and, in line with associated statutory guidance, must not undertake any actions which may threaten that sustainability - e.g. by setting fee levels below an amount which is sustainable for providers in the long term.
The reasons given for the finding of unlawfulness fell into 3 groups, as follows:
1. Failing to consult adequately with SARCP
The 'failure to consult' argument was complicated by the fact that the standard contract included an obligation on the local authority to consult with providers prior to deciding the annual rate increase, but the judicial review case was being brought by SARCP (rather than by the providers themselves, who were party to the contract) and the local authority did not have any contractual obligation to consult with SARCP. The judge found, however, that - in the circumstances of this case - SARCP had a legitimate expectation under public law principles that it would be consulted in relation to this decision, in light of the local authority's long-standing prior practice of consulting SARCP about contracts and fees.
2. Failing to consider relevant statutory factors or follow guidance
The judgment sets out numerous ways in which the local authority's decision failed to have regard to some key duties under the Care Act 2014, including:
- Failure to take account of its duty to promote the efficient and effective operation of a market with a view to ensuring a variety of providers and high quality services (s.5(1) Care Act)
- Failure to take account of the importance of ensuring the market remained sustainable - e.g. by setting fees at a sustainable level (s.5(2)(d) Care Act)
- Failure to have regard to the importance of fostering continuous improvement in the quality of care services and the ability of providers to comply with CQC standards and improve quality given the pressures on overheads created by low fees (s.5(2)(e) Care Act)
- Failure to have regard to the importance of fostering a workforce able to deliver high quality care, including failing to have regard to how a 1.4% rise in fees could absorb a 9.8% rise in the National Living Wage where staff costs were typically around 70% of actual costs of care (s5(2)(f) Care Act), and
- Failure to have regard to the importance of promoting the wellbeing of care home residents due to the 'indirect impact' on them of local authority fees not covering the provider's actual costs of care, inhibiting providers from meeting all their needs and/or leading them to increase the level of 'top-ups' for residents or their families (s.5(4) Care Act)
The judge also found that the local authority's decision failed to take account of the statutory Care Act Guidance, including the following:
- When commissioning services, local authorities should assure themselves that contract terms, conditions and fee levels for care and support services are appropriate to provide the delivery of the agreed care packages with agreed quality of care and this assurance should understand that reasonable fee levels allow for a reasonable rate of return by independent providers that is sufficient to allow the overall pool of efficient providers to remain sustainable in the long term (Care Act Guidance, paragraph 4.31), and
- Local authorities must not undertake any actions which may threaten the sustainability of the market as a whole, that is, the pool of providers able to deliver services of an appropriate quality, for example, by setting fee levels below an amount which is not sustainable for providers in the long term (Care Act Guidance, paragraph 4.35)
3. Failing to comply with the public sector equality duty and irrationality
This last part of the judge's rationale focused on the impact of the local authority's decision on care home residents. The decision was found to have had no due regard, as required by the public sector equality duty under s.149 of the Equality Act 2010, to the need to eliminate discrimination or to advance equality of opportunity by removing or minimising disadvantages to disabled (and older) people and take steps to meet their needs. On this point, the judgment highlights that residents were not mentioned in the decision at all and the local authority failed to consider the potential discriminatory impact on them of increasing fees at less than the rate of inflation, inhibiting the ability of providers to meet residents' needs or requiring some of them to pay more in 'top-ups' for the same care.
Finally, the judge found this to be a very clear case of 'irrationality' given the unexplained evidential gap failing to justify the local authority's conclusion and inadequacy of reasons. Indeed, the judgment states, the decision "did not give any reasons at all for selecting the increase of 1.4%, still less weigh the interests of the providers and more importantly the residents".
What next?
The local authority has been given 28 days from the date of the court order to re-take its decision about the 2024/25 fee increase, this time ensuring it meets the requirements it failed to comply with previously in terms of consultation, providing reasons, and having due regard to its Care Act duties and the public equality duty. However, the standard contract which was the subject of this dispute cannot be extended beyond March 2025, so new contract terms will have to be negotiated for 2025/26 in any event.
To what extent will this case impact other local authorities and/or care home providers in other areas? The judge was of the view that this case is unlikely to have a significant impact on other local authorities, stating: "given…there is a great variability in the rates different authorities pay (and the Defendant is towards the bottom of the table in terms of fees paid), it seems unlikely that quashing its decision to pay a contractual minimum reflecting inflation in 2021 is likely to have a significant impact on other authorities". However, the case is a useful reminder of the key elements of legally robust decision-making by local authorities in this context, including the importance of them having due regard to the sustainability of the market and the 'indirect impact' on residents when making decisions about how much they pay providers.
