Social Care Funding: Intergenerational Impact

Baroness Tyler of Enfield Excerpts

Thursday 16th September 2021 Lords Chamber

[Baroness Tyler of Enfield (LD)]

My Lords, I congratulate the noble Baroness, Lady Greengross, on securing this important debate.

We live at a time when the notion of intergenerational fairness is under threat. The accepted post-war norm has been for successive generations to experience better lives than their parents. That is not true anymore for the younger generation, as they are experiencing worse outcomes in terms of pay, job security and housing.

While I welcome the fact that more money is being earmarked for health and social care—although in the first three years it will nearly all go to health rather than to social care—I am disappointed on a number of fronts. First, after so many years of inaction, we were presented with a quickly-hatched and suboptimal solution without the cross-party talks that we had been promised to secure consensus and a long-term sustainable solution. Secondly, the money will come from national insurance rather than through the broader-based and more progressive income tax, thereby hitting low earners and the young hardest. Thirdly, much of the debate has been couched in terms of preventing people from having to sell their houses at a time when so many young people are finding it impossible to get their foot on the first rung of the housing ladder. I have long argued that we should be looking for a solution through the prism of intergenerational fairness in which all generations contribute but no single generation is impacted unfairly. I think that is vital to ensure greater buy-in across the generations.

Despite the dividend taxation and the application of the new health and care levy to the earnings of working pensioners from April 2023, big intergenerational equity issues remain. Tax rises via national insurance, as we have heard, fall disproportionately on the working-age population. A typical 25 year-old today will pay an extra £12,600 over their working lives from the employee part of the tax rise alone, compared to nothing for most pensioners. Some workers earning under £10,000 a year will be affected, but only those earning £12,750 pay income tax.

The extension of the levy to the earnings of working pensioners is welcome, but only one in six pensioner households have earnings. In contrast, two-thirds have private pension income that is exempted from the levy. A levy focused on earnings leaves other sources of income undertaxed, including a lot of rental income, and the package increases the tax gap between the self-employed and employees, raising the incentive for firms to use self-employed labour rather than employees.

Looking to the future and intergenerational fairness, I still hope it may be possible to move to a fairer system, with the majority of money raised through income tax but with a top-up that comes from the over-40s. I always had considerable sympathy with the recommendation of the Barker commission in 2014 that an additional percentage point of employees’ national insurance contributions for those aged over 40, raising some £2 billion, could be earmarked for adult social care. I very much hope that that will be further considered.