Cast your mind back to April 2017. Theresa May was riding high in the polls after calling a snap general election. ‘Conservatives on course for landslide victory’, declared one Guardian headline reflecting their double-digit lead over second place Labour. A mere seven weeks later and May’s parliamentary majority was gone. What was responsible for such a dramatic change in fortunes? The ‘dementia tax’.
That’s how toxic social care reform is for politicians, and why despite the fact that everyone violently agrees that urgent action is needed, no one wants to touch it. As May found to her eternal dismay, there’s a lot of political downside and very little upside.
And yet her proposal to require older people with assets, including property, to contribute to their care is fair and reasonable. As the manifesto put it: “Those who can should rightly contribute to their care from savings and accumulated wealth, rather than expecting current and future taxpayers to carry the cost on their behalf.”
This intergenerational point is too often missed in discussions about social care. No one cried ‘a tax on youth!’ when in early 2017 May injected £2 billion into adult social care. Yet it was, quite clearly, a redistribution of monies from younger taxpayers to, generally, wealthier pensioners.
In fact, one in five pensioner households are millionaires and the wealth gap between young and old is widening. This generational inequity will only worsen as the age dependency ratio increases – put simply, a decreasing proportion of working-age adults are supporting an increasing proportion of pensioners through their taxes.
If the new government is serious about finding a sustainable solution then it must involve some form of insurance scheme. Which is exactly what is rumoured to be favoured by Matt Hancock, the man charged with delivering a plan.
It is also the approach that Reform has advocated. Shortly after the 2017 election, we published a paper arguing that the government should move away from a ‘pay as you go’ approach to a pre-funded solution. Each generation should set aside money for their own entitlement, a model used for funding pensions in countries like Denmark and Mexico. We recommended a state-backed, compulsory, ‘Later Life Care Fund’.
Individuals would contribute a proportion of earnings into a mutual fund, pooling risk with their peers. Top-ups would likely still be needed, from a mixture of the tax and individual savings depending on the means-test set, but over the long-term a pre-funded solution would cost less and deliver greater fairness.
What about the short-term? People who need social care now, or in the near future, don’t have time to pre-fund. But funding their care from general taxation while requiring those same taxpayers to pay into an insurance scheme creates a double burden.
Which brings us back full circle to the political poison of the ‘dementia tax’. Boris Johnson has said that one of his “guiding principles” for social care reform is that “nobody has to sell their home to pay for the cost of their care”.
But some people who move into residential care already have the value of their property included in the means test. If they meet the eligibility criteria then they can enter a deferred payment agreement with their local authority.
The Government should extend this type of equity release scheme – Mr Johnson can honour his commitment that no one has to sell their house, at least not while they are alive, and younger generations can avoid funding the care of asset-rich pensioners.
This will still leave a funding gap, which, to minimise that double burden requires savings to be made elsewhere from pensioner-related spending. Again, the doomed 2017 manifesto got it right: means-test Winter Fuel and recycle the savings into social care. It won’t plug the gap, but it will make a dent. Over a longer trajectory, the government should also consider re-indexing the state pension to earnings. The triple lock is over-generous, again prioritising pensioners over younger generations.
Successive governments have shamefully kicked the social care can down the road. Will Mr Johnson be the first PM with the backbone to transform the system? It’s too early to know, but achieving a fair and sustainable social care settlement would be one hell of a legacy – and he may just have the political capital to do it.
This article was originally published in the Local Government Chronicle
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