It will take enormous political courage to solve the social care crisis
Extra national insurance and savings plans for social care would redress the balance of our current system, says Baroness Altmann
Will Philip Hammond be the first chancellor to meaningfully address the care crisis? After the furore over last year’s Conservative manifesto proposals, it will take enormous political courage.
Funding for elderly care should have been addressed decades ago, but successive governments have kicked the can down the road, continually passing the problem on to the next administration.
With an ageing population and rising life expectancy, and despite royal commissions, reviews, recommendations and even legislation, there are no proper funding plans. We are now awaiting yet another green paper.
No magic bullet will solve care funding shortfalls; a range of reforms are urgently required.
The NHS is at breaking point trying to pick up the pieces of our failing care system; 1.4 million elderly people needing care do not receive it, and that’s before the massive cohort of baby boomers reach later life.
Social care funding is the responsibility of cash-strapped councils who keep cutting provision and extending rationing so there is no funding for prevention or early intervention. Only those assessed with substantial needs can qualify, and families cannot choose the quality of care home or homecare they prefer. If they want that choice, they must pay for it.
Council-funded care is also rationed by the strictest of means-tests. People must use almost all their life savings, often including the value of their home, before they receive help. Even worse, local authorities are not paying the full cost of providing care, so private payers also cross-subsidise care costs of publicly funded residents. Meanwhile, those judged to need ‘health’ care (such as cancer patients) rather than ‘social’ care (such as dementia sufferers), need not pay towards these costs.
Policymakers must find ways of pooling risk both within and between generations, to eliminate these unfairness’s and give families more choice.
A modern welfare state, providing basic protection against life’s uncertainties, should undoubtedly cover later life care, in addition to state pensions and health.
However, public policies for retirement income focus almost exclusively on pensions.
National insurance provides state pensions. And taxpayers spend £40bn a year incentivising private pensions to supplement state provision. The UK has around £1.5tn earmarked for future pensions, but nothing for care. There is no national insurance or specific incentive for funding later life care. No money is set aside for this nationally, locally or individually.
Extra national insurance and savings plans for social care would be a major step forward in addressing the stark unfairness of our current system. The health and social care secretary recently suggested some form of ‘auto-enrolment’ might boost care funding, recognising the success of workplace pension reforms.
For younger generations, this may be a viable proposition. Pensions auto-enrolment has succeeded because employers organise their staff pension schemes, so employees do not actively have to make decisions. The behavioural benefits of inertia are key. But auto-enrolment cannot meet the daunting demographic challenge of baby boomers now reaching their early seventies. As they are already or soon-to-be retired, auto-enrolment is not a realistic option, because they have no employer.
Yet, finding money to support millions of elderly baby boomers is the most urgent social challenge, requiring different approaches.
For example, incentivising care savings plans. Currently, 8 million over-60s have more than £300bn in ISAs, usually not earmarked for particular purposes. Just a fraction of this sum could help with future care costs. Before it is spent on cars, cruises or whatever, the chancellor could encourage up to, say, £50,000 per person to be keep for care. Transfers from existing ISAs into special care ISAs could pass on free of inheritance tax if unused, as long as they are kept as care funds for inheritors. Combined with a cap on care costs, this could make a meaningful difference for millions of older people with savings.
Many baby boomers also have pensions. Since the 2016 reforms, more people are using the new freedoms to stay invested, rather than buying annuities. Allowing tax-free withdrawals from pension funds if spent on care and possibly some insurance options to cover costs up to a cap, could help fund future care needs.
Reforms are urgently required for both older and younger generations. As this crisis keeps worsening, the sooner the chancellor acts, the better.
Baroness Altmann is a Conservative peer and former pensions minister