Funding of Care and Support

Lord Lipsey Excerpts

Thursday 24th November 2011 Lords Chamber

[Lord Lipsey]

My Lords, I declare an interest as president of the Society of Later Life Advisers, which trains independent financial advisers specialising in elderly care. I want to concentrate on the role of the private sector. I strongly endorse, as every speaker has, the key features of Dilnot, which build on the minority report of the 1998-99 royal commission of which the noble Lord, Lord Sutherland, was such a distinguished chairman. Sadly, however, four months after Dilnot, his core proposal, a cap on care costs, is in danger of going down the pan; first, because of the cost and, secondly, because the Government are chary of opening up this wicked issue. The job of the House today is essentially to save Dilnot.

On private insurance, there are only about 30,000 insurance policies for long-term care extant at the moment. There are so few largely because of a lack of demand. People do not know about care costs and too many assume that the state will pay, which is why the work of SOLLA is so important; why local authorities need to do more to help self-funders understand their options; and why a state information campaign—call it a national care service, if you like—is essential. However, that does not apply just to the demand for policies, but to the supply.

The main reason why insurance companies have been so chary of getting into this area is the fear that people will live longer and longer—we have just heard from the noble Lord, Lord Sutherland, about how fast the expectation of life is increasing—and that the costs of that care will bankrupt the companies. Without a state-funded cap which limits the liabilities of insurance companies, mass private insurance is a dead duck. With a cap, one can envisage a huge expansion in policies, many of them funded from the proceeds of equity release on people’s valuable houses. Enhanced annuities are another promising avenue; for example, a pension that increases if an individual becomes disabled later in life and needs care. In Asia, policies have been developed whereby a sum of money is set aside which can be used for a person’s care if they need it but can be left to their children if they do not, and so on. However, without a cap at some level or other, none of those schemes is likely to develop on any scale.

What should the cap be? I have just one criticism of Andrew Dilnot’s admirable report. As a cap on the costs that an individual must bear, £35,000 is too low for three reasons. First, it would cost the state too much—£3.4 billion by 2025-26. At a time of austerity, that will not happen. Secondly, it gives too much benefit to the better off. Let us remember that the poor will not get a penny of this money because their care is free now. Therefore, it goes entirely to middle to upper income people or, rather, their heirs. I do not say that they should not get any of it but if it is too high a cap, too much will go to the better off. Thirdly, because the cap is too low, most people will not bother to insure privately. They will say, “I can run to £35,000 out of the proceeds of my £300,000 or £400,000 house. I won’t bother”.

What should the level of the cap be? I am afraid that I do not know but that is not due to a lack of assiduity on my part. On 11 July, I asked in a Question for Written Answer what the cost of a £100,000 cap would be. The Minister replied with what I think these days we should call a “Baroness Trumpington”. In private communication the Minister has been his usual helpful self, but we still have no figure of a £60,000, £75,000 or £100,000 cap. I take with a pinch of salt his department’s contention that this is a hard calculation to do—with a ruler I could get quite near it myself. We will have to see what a freedom of information request can do to get an answer out of the Government.

But the more fundamental argument that the Minister uses against a higher cap is that the financial services industry does not want it. He cites the Government’s consultation on Dilnot, which favours a £50,000 to £60,000 cap. My own consultations with the financial services industry—I am in quite close touch—suggest a more mixed picture. Some companies want a low cap, say £35,000, and some want a high cap, say £75,000. However, the crucial point is that nearly all financial services companies agree that we need some cap. The Government’s consultation, cited by the Minister, states that support for the cap is overwhelming. The point is that the choice is not now between a £35,000 cap and a higher cap because the Government will not fund a £35,000 cap in present circumstances. The choice is between a higher cap and no cap at all. If there is no cap, there will be no role for private insurance. It is as simple as that. A cap is what we must get.

What do we want from this process? We want a settlement that will endure and enable private insurance to play its part alongside state provision and state funding in a deal on the matter. When do we want it? We want it, if not now, at least by the time of the White Paper next April, before another generation is condemned to inadequate care and crippling financial anxiety.