Social workers are legally bound under the Care Act 2014 not to offer disproportionate care. So, last April, it may well have been assessed that at that time what was required to meet your mil's care needs was residential care. Now, it may be different. Her needs might have changed. They may be thought better addressed at an assisted living facility.
Many LAs make social workers argue the case that a person needs residential care so it's not necessarily the individual social worker's fault. The res care panel may have just rejected it. And yes, this is partly due to how poorly LAs are funded. If your mil's needs have reduced/can be better addressed by lower order care, then for her to stay in res care means her taking the place of someone else who needs it more. LAs just don't have the money to fund everyone's care, and so a system is needed to rank need.
However, it's also partly about not illegally putting in place care that goes beyond a person's needs. Research shows that to do this discourages independence and leads to learned helplessness. Most LAs these days start off with a care package at home to support nutrition, bathing, etc if the needs warrant it. If needs worsen, then sheltered housing is considered with a warden on site during the day. Next level up is assisted or 'extra care' accommodation where a care team is available overnight and then - and only then - a residential care home. The LA will also review annually to check needs meet provision and if needs have reduced, they will question why that person should be in res care. Why should they pay for a person's place at res care level that someone else needs so much more? The LA money just isn't there to do that.
It may be, as well, rightly or wrongly, that the threshold goalposts get moved. This may appear unfair but LAs can't continue to afford paying social care costs for an increasing number of older people. Adult social care is reliant on government funding. If society wants LAs to do this, they shouldn't vote in a government who repeatedly cuts funding year on year.
Government underfunding of the state sector, whether that be LAs or the NHS (see also the recent thread on the difficulty of securing ambulances in an emergency) is a real thing and hits many people really hard, especially if they are on limited incomes and don't have access to private health care or who can't privately pay for a care home. Being relatively poorer = less choice at the end of the day.
This doesn't help your particular situation, I know, and I can see how worrying and frustrating it is. I only describe it here for the bigger picture to be seen. It's not necessarily the individual social worker to be blamed - or even the Res Care Panel. Arguably, neither is it the LA at fault. Moreover, - and I'm a very far throw from being a Conservative voter - you could argue that the government, too, is following its mandate to the electorate who voted them in.