First of all, they CAN do this – cost effectiveness is a lawful consideration to inform the council’s decision as to what to offer. But they have to go through hoops in the Care Act, like finding somewhere that’s actually suitable, with a vacancy that DOES cost less for a proper package of care, with no top up being required, than it would cost to deliver care at home, and promote wellbeing, and abide by the Mental Capacity Act and the Human Rights Act, all of which takes time and legal literacy.
But that aside, a council can certainly take a view at some point when the cost of meeting needs at home, and the cost of a care home, if such a setting would at least not be an inappropriate way of meeting the needs that have been identified – become too wide apart to be sustainable, whilst being fair to everyone else in the area, for whom the council must care. So, limiting the budget that it is prepared to fund, in order to keep the person at home, is something that is lawful, in individual situations, as long as due process is provided when coming to that conclusion. A case that shows that this happens in the real world is a case called Re X in 2016 https://cascaidr.org.uk/2017/03/21/a-local-authority-v-x-2016/
