Getting serious about social care

Three reasons why a Later Life Care Fund is the right answer

Last week it was reported that one of the options being considered by the PM to transform social care funding is our model, detailed in Beyond caring: a new funding model for later-life social care, of a Later Life Care Fund. It created quite the furore.

Solving social care means taking “difficult” decisions, and being bold in facing up to the scale of the challenge and trade-offs involved, as Baroness Casey has argued.

That furore was therefore expected: there is no appealing solution. But much of the outrage seems to be from people who haven’t actually read the paper, or are pretending that the fiscal context for these reforms doesn’t exist.

So here are three reasons why we think our proposal is better than any of the other options.

And if you don’t agree, then we’d love to hear your alternatives.

When is a tax not a tax

We want a 1.8% social care levy, paid by everyone from age 34 to pensionable age. Sounds like a tax, right? Would certainly feel like a tax – your payslip would show an amount being taken out of your earnings, alongside the line for income tax and national insurance. The Sun newspaper has even helpfully provided a calculator to work out how much that would cost you.

But this is where the design principles are really important.

First, that money goes into a specific pot – a Later Life Care Fund – not the Treasury’s coffers. That means it can’t be used to fund other things. If it were a general tax a new government could come in and decide their spending priorities lie elsewhere and redeploy that money towards the NHS, or defence or education.

Second, unlike other taxes, you pay something in you get something back (yes, yes, we all get stuff for our taxes, but it’s not a direct line and some get far more than others, plus you might think you will get something and you don’t…see social care). Contributing to the Later Life Care Fund means that when you get to old age, and you very likely need some form of social care (4 in 5 people will), the Fund pays out. You’re guaranteed a basic level of care, free at the point of use, worth around £7,000 annually (around 60% of the value of the state pension). For those with higher needs, there would be means-tested co-payments. For eligible contributors with assets below £75,000 (our floor), the individual pays no co-payment and the Fund meets their eligible care costs. If your total wealth is between £75,000 and £100,000, the State, via the Fund, pays 90%; for those with £100,000 to £600,000 it’s 80% – that’s 56% of people having to make a co-payment of 20% or less. At the top end, for people with wealth over £2 million the State still funds over 50%. And if you haven’t paid in or paid in sufficiently you get a much less generous model. It’s not a personal pot like a pension, the only way this works is by pooling risk across cohorts, but it is guaranteeing you financial support for your care needs.

In other words, it’s a form of social insurance.

Third, the Fund is privately managed to maximise market returns, and those returns, given the long-run time, will be substantial – meaning people’s contributions can go much further. Again, that’s not what’s happening with your tax, a shockingly high amount of which is in fact going to service the interest on government borrowing. Which brings me to my next point.

The answer is emphatically not cut welfare/abolish the triple lock

Ah, the classic. Rather than raise new money, simply redeploy existing spending. Sounds sensible, in fact it sounds very Re:State (every taxpayer pound should be spent to the greatest effect). The problem is, a core principle at the heart of our work is also sound public finances. And we actually mean it.

In early July, the OBR published their latest ‘Fiscal risks and sustainability’ report. It says debt is on an “unsustainable and ever-rising path”, with the baseline seeing it hit 300% of GDP in 50 years. Factor in a higher medium-term primary deficit, plus regular shocks (OBR: “as has been the case over recent decades”) then it hits 300% before 2060.

Anyone serious about the public finances wants to see the triple lock abolished and the ballooning welfare bill reeled in in order to avoid this terrifying trajectory. If we just spend the money saved on something else, like social care, we haven’t done anything to make the public finances more sustainable. It’s a double whammy of intergenerational fairness – we’re both making younger people pay for older people’s care, and saddling them with eye-watering future debt to deal with.

If you want a more immediate reason to cut spending rather than redeploy it, just look at what we’re spending now on just paying the interest on our debt: over £100 billion a year.

Anyone arguing that the answer to the social care problem is taking billions of current spending from elsewhere is missing this point.

No, taxing the old isn’t enough – but we should do it

Our proposal does create a double burden – it’s kind of people to point this out for us, but we’re very explicit about this challenge in the paper (“Moving from the current PAYG system to a prefunded social insurance model requires managing a period where some contributors will face an effective ‘double burden’: paying both for today’s care and significantly contributing to their own later-life care”).

This is one of those classic moments when there is no easy answer, no simple move that would deliver a sustainable, fair and effective system. The PM told us there has been 22 reviews in the past 30 years, and there is a reason for that: money; no one wants to find it.

There are absolutely ways of raising more money now – we recommend extending national insurance to pension income, which the IFS say would raise around £750 million per 1% charged. An 8% rate (the basic working-age rate) would raise £6 billion a year. We should also expect current and soon-to-be social care users to release equity from their properties – we already have the mechanism of Deferred Payment Agreements. Poorer younger generations shouldn’t have to pay even more for the care of older wealthier individuals in order to protect their assets (which many of those younger people can’t afford to buy themselves): one in four pensioners is a millionaire, and pensioner incomes are forecast to exceed working-age incomes across the income distribution.

And no, current older cohorts haven’t paid in enough to mean younger cohorts should pay for them. They had to fund far fewer later-life adults’ state-funded care needs, divided among far more of them (compared to current working-age adults), and the later-life care needs older cohorts funded were less complex and thus less costly. Add to that the incredible asset inflation that older generations have benefited from, and the protection of pensioner-related welfare over the past 15 years at the expense of the working age, and it’s clear they must pay more.

Not that any of this is politically palatable, of course – cue screams of death or dementia tax – but that’s precisely why previous attempts at reform have failed. Saying you will solve the crisis is a whole lot easier than actually doing it. Burnham will indeed need to spend a lot of political capital. If the other parties were actually interested in the national interest they would work with him in doing so.

But increasing the contribution of older cohorts towards the cost of their care – essential as that is – is not enough. It’s not a long-term sustainable solution, and that, more than anything is what is urgently needed. Creating a new model is all about trade-offs, and ultimately us all paying more in to get something out.

Inaction will mean today’s current younger generations becoming tomorrow’s elderly, looking back upon a new generation of young people they have failed.