How good social care can be funded: a handy guide to the options

Fatalism about lack of funds is not the right response to the crisis in social care

There are plenty of ways in which more money could be raised for better social care services. This aims to be a handy guide to some of the main ones. They all have pros and cons and none is easy. It is a matter of political will as to whether we choose to fund social care properly or whether we should give up and get used to a deteriorating crisis in state services as numbers of very fragile elderly people rise.

The main reason I disagreed with the new year letter to the voluntary sector from Sir Stuart Etherington, NCVO’s highly respected Chief Executive, is that it based the case for a bigger role for volunteering principally on an implicitly fatalistic view that we must get real about the limitations of the state and accept that state services cannot be supplied in the future as they were in the past. The days of tax and spend as a response to rising demand are over, is Sir Stuart’s apparent assumption, so we need more volunteers to step up to the plate instead:

https://andrewpurkis.wordpress.com/2017/01/24/problems-with-ncvo-chiefs-new-year-message/

3. Yet it is charities such as The Kings Fund, Joseph Rowntree Foundation, the Institute for Fiscal Studies (IFS), the Nuffield Foundation and the Health Foundation who have led the way in demonstrating how, if the political will were there, funding for social care could be found, and not just from taxation. I recap some of the options briefly here.

Council Tax. Council tax in England is currently based on house valuations from, absurdly enough, 1991. Since then house prices have increased by over 240 per cent. Many lucky occupants have seen their wealth soar but have not had to contribute notably more in council tax. Successive Governments haven’t dared to do the necessary revaluations, despite being urged to do so by the European Union and the British Property Federation among many others. The current situation is particularly unfair on less wealthy homeowners compared with the wealthy and on those on low incomes, according to the IFS. Higher council taxes where equitable could also help reduce excessive house prices and take some of the weight off Stamp Duty, paid by those who move and buy a new house but not by the lucky majority who sit tight. Scotland has already uprated the upper bands.

There are other ways of increasing the contribution from council tax. The Government has already allowed local authorities to impose a 2% and latterly 3% additional levy on council tax earmarked for social care, and in principle such levies could be more generous and subject to less central government restrictions. Surry Council is taking the brave step of asking its voters to back a 15 per cent precept for social care in a referendum.

The trouble with relying on council tax alone is that, as the Kings Fund have pointed out, it raises least in the areas that need it most. But it does not have to be the only arrow in the quiver.

Shift priorities within existing taxes

The Government has already earmarked some of the NHS budget to the Better Care Fund, which is to rise to help meet social care needs. One of the solutions urged on the Government by the Nuffield Trust, Health Foundation and King’s Fund in a joint statement of 8 November 2016 was to bring forward the longer term planned growth in the Better Care Fund.

Scotland has decided to spend more money on its policy of free personal care (contrasting with England’s means tests) than on other demands on its devolved budget – a political choice about priorities.

Another option is to hypothecate a planned total for health and social care, as recommended with due caution recently by a former Treasury Permanent Secretary, Sir Nick MacPherson. Creating a single budget of this kind was also a key recommendation of the Commission (chaired by Dame Kate Barker) set up by the Kings Fund, in 2014 and again in an urgent and angry statement in November 2015. This could protect a given amount of resources for social care as well as health, in an integrated way, instead of ring-fencing the NHS and leaving social care vulnerable to cuts. These demands have been accompanied by recommendations for ways of raising additional resources (see next section) so they are not simply diverting money away from other Government requirements. The Barker Commission comprised, not naïve idealists, but such veterans as economist Dame Kate, former Permanent Secretary Lord (Michael) Bichard, former Age Concern Chief Executive Baroness Sally Greengross, social policy academic  Sir Julian Le Grand and local authority Chief Executive Geoff Alltimes. They considered that the overall budget for health and social care should rise to between 11 and 12 per cent of GDP by 2025 – a level already met for health alone in many developed countries.

Raise More Central Government  Money for Social Care

There is a growing body of opinion that the baby boomer generation has been privileged over younger generations and that the current tax system is unbalanced, contributing to this inequity. The ONS has said recently: “While retired households’ incomes have soared in recent years, non-retired households still have less money, on average, than before the crash”. There are many options, drawn on by the charities already mentioned, for asking the more fortunate generation to pay somewhat more into the public purse.

Sir Nick MacPherson says that the triple lock on state pensions is the biggest constraint on the ability of the Government to respond flexibly to where the need is greatest whilst making the necessary savings. So one option is to loosen the lock whereby pensions are raised by consumer prices, or earnings, or 2.5 %, whichever is the bigger, costing over £74 billion per year.

Personal tax allowances for older people are bigger than for younger people. That could be adjusted. People over pension age no longer pay National Insurance contributions. Is that necessarily right? Tax allowances for pension saving and for pensioners paying higher rate income tax could be looked at. Inheritance tax arrangements may be politically difficult but are not sacrosanct. At present, no capital gains tax at all is paid on someone’s primary residence, regardless of how much house prices have shot up: is that sacrosanct? And there is the rumbling question as to whether it makes sense for well off older people to receive the Winter Fuel Allowance and free TV licences.

A second approach can be seen as a more or less prominent part of the solution, depending on your point of view, but certainly many civil society bodies including the Tax Justice Network, Tax Justice UK, ActionAid, Christian Aid, Oxfam and others involved in tax justice campaigns, as well as the Public Accounts Committee, see major scope for increasing public revenues by more vigorous pursuit of tax evasion and limiting the scope of tax avoidance, depriving the Exchequer of eye-watering sums. There is proper concern about this across party lines, in a manner inconceivable a decade ago, largely due to civil society’s strong contribution in getting it on the political agenda.

Thirdly, those advocating a hypothecated or ring-fenced budget for health and social care have put forward specific ways of raising additional taxes to help fund it. Sir Nick MacPherson believes that increased National Insurance Contributions could be a good candidate. This could make more palatable tax rises that would otherwise be too politically unpopular. The Barker Commission also made this and other suggestions, some of them already touched on.

Funding from Private Sources

There will always be substantial funding from many individuals for social care. This can take the form of means tested charges, or private payment for care, and they can be incentivised and complemented by different public policies to secure good quality care and equitable overall outcomes. It isn’t just taxes or nothing.

Topically, Laing and Buisson have shown recently that those who pay for their own care home place are cross subsiding those paid for by local authorities to the tune of £1.3 billion per year. That may be unfair, but the scope for cross subsidisation and funding from public and private sources is there.

Another distinguished Commission brought together by the King’s Fund, this time chaired by Sir Derek Wanless, and in collaboration with the LSE, reported in 2006[1] to look at the best overall system for funding good social care in England. They looked at the following main options:

• Universal entitlement not means tested (as for personal care in Scotland)
• Various social insurance schemes, where the state acts as insurer
• Partnership models, where both state and individuals contribute. For example, the user not on benefits has free care up to a certain level of cost, then a matched contribution from the state up to a higher level, and finally pays privately for anything more expensive. Those on low incomes would be supported through the benefits system.
• Limited liability, where you are means tested for 3 or 4 years, after which the state pays
• Existing means tested models, as in England, with adjustments to threshholds and charges.

The Wanless Commission decided that the partnership model was best, taking into account quality of care, support for carers, fairness, affordability and reaching people in need. 45 per cent more people would be reached than under the current arrangements. The overall net increase in public spending would they reckoned be £1.7 billion per year. They acknowledged that each model had its pros and cons and that in the end a value judgement had to be made.

There are other ways of leveraging more private funds. The Joseph Rowntree Foundation led by Richard (now Lord) Best did some excellent work in the 1990s on a compulsory insurance system whereby everyone over a certain age would pay into a social care fund, so that the lottery of who turns out to need long term care, who has to spend many years caring for a disabled person or who has to lose their inheritance could be replaced by a fairer, collective system based on values of solidarity. Other ideas that have been put forward at different times include offering incentives to insurance for social care through the tax system, and facilitating the easier use of housing equity for paying care costs.

It is worth noting that in Germany, for example, the resources of children are included in assessments for paying for aspects of social care, on the assumption that children have a duty to look after their parents financially if necessary. Maybe this is what Minister David Mowat meant in his remarks to a Select Committee reported today, if he was not trying merely to shift expectations so that family carers can expect even less support from the state than hitherto.

CONCLUSION

This has been a quick canter round the various options that exist for overcoming the current shaming crisis in social care services. The instruments are there. Charities are to the fore in creating the public awareness and the collective political will to address the issues. This personal blog by Patrick Hall of The Kings Fund makes some good points about promising ways of making the case: https://medium.com/@patrickjhall/politics-as-unusual-46718434003c#.4crnxdio4

Charities are hard at work as I write modelling the effects of these and other instruments. Their continuing efforts should in my view be celebrated and supported. I am emphatically not an expert and cannot myself evaluate all the comparative advantages and disadvantages. But I conclude there is no justification for fatalism, as if it were naïve and out of date to think that decent state services for a rising number of very frail elderly are possible any longer.

There are all sorts of valid, important reasons for celebrating volunteering and thinking more ambitiously about their contribution, as Sir Stuart urges. Fatalism about paying for social care for highly dependent people is not one of them.

 

Andrew Purkis,

January 2017.

[1] Securing Good Care for Older People, King’s Fund, March 2006

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