Lord Lilley is a former Secretary of State for Trade & Industy and for Social Security.
It sounds harsh – but the chaos of Kabul will soon be forgotten. Once Parliament and public return from their staycations, attention will turn to domestic issues about which people care far more deeply.
Among the most pressing is the Social Care system. It is also the most intractable, which is why it has been repeatedly postponed.
It is intractable because it muddles two distinct issues. The political hot potato is peoples’ understandable fear that the entire value of their (or their parents’) homes will be used up paying for social care in old age.
The less publicised, but even more serious, nightmare is the precarious state of local authority social care provision. Its finance has been squeezed to the core. The proportion of people over 85 living in care homes has shrunk from 25 per cent to 15 per cent and cannot go much lower. The national living wage is driving up costs and demand for care is rising. Covid costs mean many care homes are on the brink of closure.
Existing provision can only be saved from collapse by allowing council care budgets to grow again. Whitehall’s knee-jerk solution is additional taxes to fund this, regardless of manifesto pledges not to raise taxes. Hopes that the public will not notice this breach of promise or additional burden if it is labelled as an “elderly care insurance contribution”, are a delusion. In any case, increased expenditure can only be funded long-term by resumed economic growth. And the economy will not grow if we burden workers and businesses with higher taxes.
The Government is apparently also tempted to try to allay home-owners’ fear of potentially catastrophic costs of social care by throwing money at it – either setting a limit on the amount anyone has to pay; exempting from means testing, say, £100,000 of the value of a home; or even making social care, free for all.
Any of these options inevitably gives the greatest benefit to owners of (or heirs to) the most valuable houses – particularly in London and the South. This would not fit well with the government’s agenda to level up between the South and North.
Moreover, it would pre-empt public funds desperately needed to ease the pressure on councils’ social care budgets – or add to any increased tax burden.
Yet there is a solution to the problem of catastrophic costs of social care in old age which does not use up funds needed by the existing care system. It is insurance. Voluntary insurance – not taxation dressed up as ‘social insurance’.
Voluntary insurance against the risk of having to sell your home to pay for social care in old age was one of the first solutions to be considered. But it was immediately dropped because private insurance firms categorically refuse to provide such policies.
They won’t do so for two reasons. First, because of uncertainties about future government policy and possible medical advances prolonging frail longevity. Second, because people won’t pay for such policies during their working lives on top of saving for their pensions and repaying their mortgages.
But there is an alternative to private insurance, which has been ignored.
It is for the state to offer such insurance. And the alternative to asking people to contribute during their working lives is not taxing them: it is enabling them to pay for such insurance, after they retire, by taking a charge on their homes. The state would then be reimbursed when they die and/or sell their homes.
The Dilnot Commission on Fairer Care Funding in 2011 calculated that the average cost for such a premium would be comparatively modest: £16,000 pounds in today’s money. The arithmetic is simple: only one in four people ever need to go into residential or nursing homes; the average length of stay is 30 months; and the cost of social care is around £25,000 per annum (plus about £10,000 for the cost of accommodation food and basic living costs which are normally paid out of state pension, benefits or other income, not covered by insurance).
Under my proposal in Solving the Social Care Dilemma – A responsible solution, the actual premium payable by any individual would be proportionate to the value of a person’s home (net of their mortgage). People would be given the opportunity to take out a policy within a couple of years after reaching state pension age. They would not have to pay any cash, since the premium would be a charge on their home. The premiums would be set by actuaries to meet the average costs.
Any cost to the taxpayer is likely to be small, and to arise only in circumstances (like an unforeseen increase in frail life expectancy or change in government policy) when the state would in any case be forced to pick up the tab. That is one reason why a state-guaranteed body would be able to undertake this role, even though the private sector (which would normally be preferable) cannot.
It would be absurd to reject this option just because it involves a state-backed company, if the alternative is the state taking over responsibility for all social care at great cost to the taxpayer. We should not make the best the enemy of the good.
My fear is that officials, having concluded a decade ago that private insurance was not an option, never having considered publicly provided insurance, and having worked on tax funded proposals ever since, will be reluctant to go back to the drawing board.