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The “Social Care Premium” – a solution to the social care funding crisis?

Where are we?

In the first half of this year, we’ve seen the start of the injection of the promised £2bn from the Spring 2017 budget which, according to the now home secretary Sajid Javid has “enabled councils to increase provider fees, provide for more care packages, and reduce delayed transfer of care” [1].   On top of this, an additional £150m is being provided this financial year [2], and furthermore most local authorities (148 out of 152) have opted to increase their precept by 3%, as permitted by central government, in order to put additional money into Adult Social Care [3], with further increases permitted next year.  These measures were put in place as a stop-gap solution until long term funding arrangements were agreed following the deferral of the “Dilnot Cap” proposals until 2020 [4] and subsequent abandonment of them as unaffordable in December last year [5].  However, on a regular basis we are still seeing headlines about the NHS and Social Care being in a dire position, funding-wise, so it is clear that something longer term is needed.

The longer-term funding arrangements were expected to have been announced in a green paper on social care this summer; however, there has been a delay announced to the publication of this until the Autumn [6].  We were treated recently, though, to a joint report published by the Housing, Communities and Local Government Committee and the Health and Social Care Committee.  In it, they call for the introduction of what they term a “Social Care Premium”.  This would be either as an additional element of National Insurance or other ring-fenced fund exclusively for the use of social care [7].  A key element of this proposal is that the tax, unlike current National Insurance, would be applicable to the Over 65s (provided their income from pensions etc. meant that it would be affordable for them) while those under 40 would be exempt.   The idea behind this is one of inter-generational fairness: for example, home ownership levels are down among the younger generation – according to the Resolution Foundation, the number of families with children living in the private rented sector has increased by 300% in the thirteen years since 2003 [8].  Looking at statistics published by the Institute of Fiscal Studies in this area, individuals draw on just under a third of their net wealth between the ages of 70 and 90 [9], with most of the rest being passed on to the next generation.  However, the next generation are likely to be in their 40s by the time they receive this, which leaves this wealth trapped with the middle and older generations, who are most likely to need care and support, and are most able to pay for it. 


The press reaction to this proposal has been mixed: the targeted nature of the approach has already led to the tabloid press to refer to it as the “Over 40s Tax” [11], but even less positive articles such as this are not overtly hostile to the idea as, I suspect, there is a realisation that the money to fund the care of a steadily aging population will need to come from someone.  Clearly, the government should be keen not to repeat the mistakes from the last general election, where they announced (and then rapidly dropped) a plan to provide free care at home to all with assets under £100,000 which was dubbed the “dementia tax” because of the small print which allowed for unlimited exposure to care costs until assets were depleted to £100,000 and took into account the value of the person’s property for community based provision – something which currently is not. [10]  The report itself recognises this, stating the issue should not form part of an election campaign, with a cross-party approach is essential, with the scoring of party political points by using terms like “dementia tax” and “death tax” being an unhelpful barrier to reform.

So, is there a catch this time?  The first thing that is apparent from reading the detail of the recommendations, the tax is recommended to be taken from employers and employees to fund the personal care costs only.  It does not cover the cost of accommodation in a residential setting which is planned to continue to be means tested and therefore, someone could still pay years of additional tax and in the end be subject to a large amount of additional cost if they needed residential care.  The report does recognise this, and proposals include additional inheritance tax on estates valued above an as-yet to be defined threshold, with caps on percentage of total value with the objective of pooling risk, one of the six principles that the committee recommend should underpin the development of social care policy  -  the others being good quality care, considering working age adults as well as older people, ensuring inter-generational fairness, aspiring over time to universal access to personal care free at the point of delivery, and earmarking payments. Some of these we have looked at earlier, others are self-explanatory, but it is worth dwelling a moment on good quality care.

The report defines this by stating that the “funding should be sufficient to achieve the aims of social care [requiring] universal provision of high quality, personalised care delivered by a stable well-paid and well-trained workforce alongside well-supported carers to a wider group of people than currently receives care”. This is quite an impressive aspiration. My experience is that in many areas the market is broken.  In some areas there simply aren’t sufficient staff to meet demand, resulting in workers on temporary contracts brought in from outside the area to fill shortfall and a lack of consistency in care. In other areas we’ve got provider failure – for example with preferred contracts being awarded for low bids to suppliers who are unable then to make ends meet with such tight margins. Then there is the well-documented case of residential care home closures and the movement of residents with dementia as a result – moves that in many cases would not be in the best interest of someone who finds a change in setting at best confusing and at worst a potentially contributory factor in the deterioration of their condition. I fully support the goal – but what’s the cost? How much extra do staff require in their pay packets to attract and retain good staff? What’s the cost to the business of providing this, and how much therefore do the rates that they need to increase by? Can efficiency savings, technology change, and economies of scale help? These questions are key to understanding how much money needs to be raised if we are to look at this sort of model. The report also acknowledges that over time the demands on the health and social care system are likely to increase as life expectancy continues to increase. Again, demand is another key factor in looking at the overall cost of this recommendation.

We therefore have a proposal that has identified that there is a current over-spend, that the care being received could be better and more in keeping with the aims of the Care Act and would probably if fixed cost more to provide, that the population in need of the care is growing (and is likely to continue to grow further), that the current burden of payment by individuals is unfair, and that the politicians are wary of attempting to commit electoral suicide by proposing reform perceived by the public – rightly or wrongly – as toxic.

Alternative Models

It has been seven years since the publication of Andrew Dilnot’s report recommending the £35,000 care cap in his fully costed report [13], and in this time while we’ve had valuable legislation brought in with the Care Act, in the area of funding reform the politicians and experts have been batting the issue back and forth without any clear end in sight.   Many different models have been considered as part of the various consultations and reports. Efficiency savings have been attempted – some have appeared to be successful, while others have squeezed the bottom line of suppliers who have suppressed wages.

Some might argue for an increase in general taxation. This, the report theories would garner less public support, as the money would be seen as disappearing to the government, never to be seen again.There are constantly different crises in both national and local government, with different priorities competing for funding, so without ring-fencing the money, it is surmised, the public believe that it would be quietly reallocated to whatever the current political hot topic is, or perhaps tax cuts as election bribes! So, rather than an increase in income tax, how about an increase in VAT, or an increase in duties on things considered “bad” for us? Recently, additional NHS funding was proposed to come from increases in fuel and alcohol duties [12]. We’ve been here before though…  Fuel duty is not only notoriously inelastic (people still need to get to work, goods and services such as food still needs to get to its destination), but it is also a regressive form of taxation, as it disproportionately affects those on lower salaries - ironically many of these people staff providing domiciliary care where in much of the country they need to do so in their cars. Any rise in VAT is even worse, as this again is a regressive form of taxation which will impact greatly on the lowest paid.

An alternative argument proposed is that people should be able to purchase social care insurance, and that this should be able to pay out to cover the provision of private sector services. Leaving aside the ideological issues of this, there would be significant practical issues to overcome, such as what happens to those people needing care now who don’t have a private pot? What about those people who can’t afford private care provision? What about those people who simply don’t bother - convincing twentysomethings now that they wanted to put money from their earnings now into a private pension that they will get in the distant future when they’re well into their sixties is a hard sell. It would be a much harder sell to try and get them to put money into a scheme where they may or may not see any benefit when they reach possibly their eighties or nineties, to insure against them having to sell a house that they don’t yet own while at the same time they are paying off student loans. I suspect therefore this sort of solution would be considered as toxic as the “dementia tax” and would definitely not find any form of cross-party support.

We’re also not in a world where doing nothing is a palatable option. Leaving aside the funding, as discussed above, in current system if you are unlucky enough to suffer from dementia you risk expensive care costs while if you have a costly medical illness you are treated for free. This has always struck me as being grossly unfair – as does the postcode lottery of free personal care being provided under the Scottish legislative system for people living in Gretna Green, while those living five minutes down the M6 but in Carlisle are charged for the same care under English legislation.   

So, what is the solution?

In my view, the principles this report is based on are equitable and sound, and I would therefore encourage the government to look carefully at the Social Care Premium proposals recommended in this report, fleshing them out with some realistic numbers which must be made to add up to be acceptable. To my mind it seems logical to structure any additional tax burden in such a way as to tap into unused but available wealth from those who can afford to pay, while at the same time spreading the risk across the population, much in the same way as current taxes go to fund the National Health Service. They must also gain cross-party support and the support of the public and media through extensive consultation. These points I believe are key and once achieved comes the implementation.

On that note, I’ll end with the following - an excerpt from the conclusion King’s Fund summary report on the 2011 Dilnot recommendations:

 “The coalition agreement stated that the government understood the urgency of reforming the social care system. A year on, the need for reform is even more pressing. Where they have failed in the past, politicians from all parties must now seize the best opportunity in a generation to ensure that people can access the care and support they need in later life. With the number of over 85s set to double over the next 20 years, the question is not whether we can afford the Dilnot proposals but how can we afford not to.”

This remains as relevant today, seven years on.  Changing the market and the societal model will take time, but we have to start somewhere, and if we don’t start now, then when?

Author: Chris Sweeney, Adult Social Care Lead, Liquidlogic