Social Care Funding: Intergenerational Impact

Baroness Greengross Excerpts

Thursday 16th September 2021 Lords Chamber

Asked by

[Baroness Greengross]

To ask Her Majesty's Government what plans they have to address the intergenerational impact of proposed changes to social care funding.

[Baroness Greengross (CB)]

My Lords, I draw attention to my entry in the Lords register. I hope the Government will reflect further on this issue and commend them on bringing forward proposals to address the challenge of funding social care sustainably—something that has been ducked for far too long.

The Intergenerational Fairness Forum, which I am honoured to chair, in 2018-19 held a year-long inquiry that considered sustainable funding for social care and intergenerational fairness. I thank the noble Baronesses, Lady Altmann and Lady Watkins of Tavistock, Baroness Howe of Idlicote and the noble Lords, Lord Howarth of Newport and Lord Willetts, in particular, for the support they gave to that work.

Our inquiry report, Grasping the Nettle: Sustainable Funding for Social Care and Intergenerational Fairness, supported the Dilnot recommendations on a threshold below which people should not have to contribute to their care costs and a £35,000 cap on the total care costs that people should have to pay, which would rise in line with inflation. This lower cap than that planned by the Government would help more people with relatively modest total assets—for example, those whose homes are less valuable.

We recommended that the resources needed to fund social care should be raised by a distinct new, mandatory social care insurance contribution levy at a rate of 1%, which could rise to 2% for those aged 50-plus if additional resources are needed to meet rising care costs.

We also proposed that this new levy should apply only to adults over the age of 40 and that it should then be paid by all adults for as long as they continued to work. We proposed this age threshold because our aim was to develop a system for funding social care that met our test of intergenerational fairness—one in which all generations contribute, no one generation is impacted unduly and costs are not simply left for future generations to bear. Our recommendations would also ensure that the heaviest burden falls on those best placed to contribute.

We recognised that funding free social care through 1% social care insurance contributions on working adults over the age of 40 alone fails to meet the test of intergenerational fairness because the burden for paying for social care would then fall too heavily on these workers, while retired people would contribute little or nothing.

Like the Government, we rejected the use of income tax to fund better social care, because this is the system that has been tried, and has failed, in recent decades. Funding social care through income tax would mean that it continues to be at risk of suffering from rationing as a result of spending restrictions or when social care is not a high political priority in comparison with competing public services or tax cuts. A hypothecated, mandatory system of social care insurance is not exposed to this risk.

Apart from the absence of an age threshold for the Government’s new health and social care levy, my two major concerns about the Government’s proposals are that they will not deliver additional resources to the social care sector quickly enough and that, of the £36 billion that they expect to raise, only £5.4 billion is earmarked for social care. Yet again, the social care sector is playing second fiddle to the NHS, when its need for additional resources is at least as urgent.

Like many others, I also believe that, politically, it may be very difficult in the future for the Government to claw back from the NHS the money raised by their health and social care levy to allocate it to social care. Our recommendations also aimed to ensure that sufficient resources were raised to extend the provision of social care so that more of the people whose needs are currently unmet would be covered. So, in addition to a 1% social care insurance contribution levy, we recommended additional measures that would allow the Government to increase funding for social care significantly in the short term. These recommendations fell into two broad categories: those raising additional funds for the Government, which we wanted to be ring-fenced for social care, and those saving the Government money that we wanted to be redeployed to social care.

We recommended that people working beyond the age of 65 should pay national insurance contributions, albeit at a reduced rate of 6%. We recommended that the Government should replace higher-rate tax relief with a lower flat rate of tax relief. Some experts estimate that, if this were set at the rate of 20%, it could save up to £10 billion a year. We also recommended that the pensions triple lock be replaced by a double lock, whereby it rises in line with average earnings or inflation but not by at least 2.5% every year. We recommended rolling the value of the winter fuel payment up into a higher state pension, which would be taxable, making the system more progressive.

We also wanted the Government to incentivise people to save for their potential care costs—so we recommended that the Government should introduce a care ISA, with an annual contributions limit of £20,000 and a lifetime cap on contributions of £100,000. This would also have the benefit of raising awareness of the importance of saving for care costs—something that too many people fail to consider. To help people whose only savings—apart from their homes, if they own them—are their pensions, we also recommended that the Government should allow tax-free withdrawals from private pensions to fund the costs of care.

We did not recommend that employers should pay insurance contributions for social care because of the potential impact of this on jobs. We also did not recommend complicated new wealth taxes or increases in inheritance tax because we did not want to discourage people from saving for their retirement and possible later-life care costs. We also noted that the OECD estimates that, in 2017, the UK collected the second largest amount of property tax of any OECD country—more than double the average of OECD countries.

I hope that the Government will consider introducing an age threshold for their levy as soon as possible to mitigate the effect on young people. I hope that they will also make it a social care-only insurance contribution levy as soon as possible and that they will supplement their proposals with further measures to broaden the impact of their fundraising and to enable significantly more spending on social care much more quickly than under their current plans. The sector cannot afford to wait. If it does, a package of proposals will emerge for funding social care that better meet the test of inter- generational fairness, making it more politically and financially sustainable so that a change of Government will not see this work undone.