South Tyneside Care Home Owners Association & Ors, R (on the application of) v South Tyneside Council

When setting usual fees for publicly funded residential care, a local authority must pay due regard to the actual costs of providing care. This includes return on capital, although the authority may decide how that cost should be assessed. A profit analysis which relies on higher private fees, ignores capital costs or uses unrealistic occupancy assumptions does not satisfy that duty.

Where guidance requires different usual costs for groups with materially different needs, the authority must address those needs specifically. A blended rate may be unlawful where it cannot rationally reflect differing proportions of higher-cost residents. Consultation must provide sufficient information to permit an intelligent response, and an equality impact assessment must address risks arising from the underlying decision-making process.

The claimants, representing and operating care homes in South Tyneside, challenged the Council’s decision to introduce a new contract and fee structure for residential and nursing care. They alleged failures to account for actual care costs, irrational fee banding, inadequate consideration of elderly mentally infirm residents, defective consultation, financial errors and breach of the public sector equality duty.

The Council had relied on information from nine providers, a profit and viability analysis, quality bands and a £10 weekly EMI uplift. The central issues were whether the Council had complied with its statutory and guidance-based obligations when setting the fees and whether its consultation and equality assessment were legally adequate.

1. Claim succeeded. The Council’s decision to issue the contract and adopt its fee bands was quashed.
2. Return on capital is a real cost of providing care and falls within the requirement in paragraph 2.5.4 of the Circular LAC (2004) 20 to have due regard to actual costs. The Council could conclude, on proper evidence, that capital costs were met by capital growth, but it had first to consider the issue and pay due regard to it.
3. The Council adopted an arithmetical approach but failed to identify and include the capital-cost element of return on equity. Its profit analysis also took account of higher payments from private residents, contrary to the requirement that fees should be sufficient without resident or third-party contributions. The assumption of 95% occupancy lacked a rational basis, and the failure to allow for inflation was a significant error undermining the analysis.
4. The Council was entitled to move from a building-based model to a quality-based model. However, there was no rational evidence explaining the allocation of 25% of the quality score to GLP grading or showing that the figure reflected actual costs. Ground 2 therefore succeeded.
5. The Council failed to pay due regard to the usual cost of care for EMI residents. Circular LAC (2004) 20 contemplated more than one usual cost where the cost of care for a specific group differed. The inconsistent evidence and absence of contemporaneous reasoning did not establish a lawful departure. A blended rate could not rationally meet higher EMI costs where homes had substantially different proportions of EMI residents.
6. Consultation was unlawful. The Council should have disclosed sufficient anonymised information about its methodology and analysis to enable providers to identify errors and respond intelligently. The equality impact assessment was also defective because it was conducted against an already flawed decision-making process and failed to address material risks, including those affecting EMI residents and care standards.
7. The Court declined to withhold relief. The errors went to the heart of the decision-making process, notwithstanding delay, budgetary disruption and the fact that some providers had signed the contract.

First-instance judicial review. No appellate history was stated in the judgment.