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The push by Andy Burnham to reform how we pay for social care for elderly people moves on almost every day. The latest twist is the warning yesterday that there will be “difficult, difficult decisions” on taxation.
So, it looks like there will be higher taxes. But he is very well aware that many people already feel they are getting bad value from the state, and that there is a danger that any additional tax will just go to pay the great mass of public spending, rather than being allocated to the specific service that it is supposed to fund.
The Government’s recent tax increases will have reinforced this view. Rachel Reeves’s increase in employers’ national insurance (NI) contributions in her first budget was not specifically allocated towards benefits and pensions, the stated purpose of the scheme. It went to “fix the foundations of the economy”, restore economic stability, and help fill a £22bn black hole of unfunded spending that she had inherited.
The only way to make sure that any new tax really would go towards social care for the old would be to ring-fence it so that any new government was legally unable to touch it. But even if that were credible, it would raise two other problems.
The money raised might not be enough if care costs rise faster than expected. And since each generation of working people would have to pay for the care of the existing retirees, there would be no pot of money being put aside for them if they needed care themselves. It’s easy to imagine some prime minister in 20 years saying that there had to be “difficult decisions” on funding social care and that the Government would have to “ask a little more” from taxpayers to pay for it.
So what’s to be done? The first thing to say is that ideally this should be a cross-party decision. When people are trying to plan for something that may or may not happen in 30 or 40 years, it is reasonable that the rules cannot be changed at the whim of some future government. So Burnham is quite right to seek to involve the Tories and Lib Dems in a discussion about what should happen.
Some people feel that the net should be wider than that, to include Reform and the Greens. But while cross-party approval is enormously important, we have to be realistic and accept that even if there were widespread support now for some new system, there may not be a generation hence.
We’ll see what the Casey Commission – that’s an independent review on social care chaired by Baroness Louise Casey – recommends, but it’s not easy to see any particular model that will endure the political and financial pressures ahead. Nor is it easy to see the plan for a National Care Service that Burnham himself supported back in 2010 when he was health minister in Gordon Brown’s government being rehashed. That was to be funded by the “death tax”, the extra levy on people’s estates after they died, which would therefore in effect be paid by their heirs. The plan died when Labour lost office.
But something has to be done because the present system is deeply unfair, with no cap at all in practice on care costs, and some people’s life savings being wiped out as a result. So what are the options?
The simplest would be to put a limit on what anyone should pay for social care – say, £100,000 – and fund it out of general taxation, either with a penny on income tax or a bit more on NI. (The advantage of income tax is that everyone with an income would pay it, whereas if it were NI, only people in employment would pay.)
Another way forward would be to have a compulsory insurance system, whereby everyone would save during their lifetime to pay for care after retirement, on the lines of the auto-enrol system for private sector workplace pensions. The additional funds would go into an insurance scheme, which could either be run by the Government or by the large financial institutions, or both. Workers in the public sector would simply pay a higher pension contribution.
The problem there is that this could work very well for the next generation of retirees, but would not help anyone already facing the need for social care. So there would have to be some bridging arrangement, paid for out of general taxes.
But if you stand back, this is a global problem and surely the sensible thing to do is to try and learn from other countries. There are a wide variety of options. Some, such as Singapore and Japan, have mandatory insurance, sometimes partly supported by the Government, to cover whatever care is on medical grounds.
A few – notably Denmark, which has a very good system – pay for the whole lot out of general taxation. The Netherlands has two public insurance programmes; one that pays for nursing homes, the other for nursing and personal care at home.
The US and UK rely more on self-funding than most other nations. The inevitable consequence of that is that if we are going to change things, one way or another we will have to pay more tax.
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The really big decision that has to be made is whether to patch the present system or make some radical reforms to it. Patching would involve increasing the cap on care costs in care homes and developing some way of improving the help for people who look after family in their own house or flat. Radical change means taking over much more responsibility, and that could happen in a number of ways.
These include taking the NHS model and using some new tax to pay for care on NHS lines for older people who need it. That seems to be the way Burnham inclines, given what he has said in the past, but let’s see. Or it could be a compulsory insurance model, which – dare one say this – could in turn become a model for reform of the NHS.
Yet overriding everything will be the need to find more money. Even if we go to an insurance model, funded by higher pension contributions, we still have to find a way of making life fairer for current retirees who won’t have paid those contributions. And public finances right now are really fragile, even more so than most people realise, largely because of the rising cost of servicing the national debt.
The strange thing – and I will try to write more about this – is the contrast between what is happening on the bond markets, where 10-year yields are stuck around 5 per cent, and the performance of the FTSE, which passed through a new intraday high yesterday. Bond markets are really worried about inflation, public finances and so on – all pretty negative signals for this new Prime Minister.
Equities don’t seem to care. As I say, something to come back to, but not a happy background for the budget come the autumn.
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