Social Care Funding: Intergenerational Impact Debate

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Department: Department of Health and Social Care

Social Care Funding: Intergenerational Impact

Baroness Tyler of Enfield Excerpts
Thursday 16th September 2021

(1 month ago)

Lords Chamber

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Department of Health and Social Care
Lord Howarth of Newport Portrait Lord Howarth of Newport (Lab) [V]
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My Lords, I thank the noble Baroness, Lady Greengross, with whom it has been a pleasure to work on this issue in the past, for tabling this Question for Short Debate and for setting forth her constructive proposals.

The failure of successive Governments over many years to reform the social care system has done as much as anything else to bring government and Parliament into disrepute. Now this Government have made a stab at the funding aspect of the problem. But the solution —though we cannot properly call it that—which they have come up with is enough to make one weep. Indeed, it will make many younger, lower-paid workers weep.

Of the various possible ways to raise money for social care, to increase national insurance contributions on their existing basis is the most regressive, unjust and destructive. The cynicism of the Government’s approach is chilling. They did some polling and found that the public think, wrongly, that national insurance pays for the National Health Service. They concluded that they could get away politically with raising national insurance contributions rather than raising income tax, which would have spread the burden fairly. Here the noble Baroness and I may disagree.

Presumably, those polled did not understand that employees’ national insurance contributions kick in at earnings of £184 per week, equivalent to £9,568 per year, far below the £12,570 per year at which income tax starts. Presumably, they also did not understand that national insurance contributions are levied at a higher rate on lower earners and that retired pensioners who are comfortably off do not pay national insurance contributions at all. Therefore, the policy means that miserably paid care workers will be more highly taxed, while affluent retirees will pay no more tax. The Government’s cunning plan is that young workers, struggling on low wages to save for a mortgage, will pay the new levy to enable pensioners who need social care to retain their homes and the bulk of their wealth through the cap on personal care costs of £86,000.

While it is far from certain that more than a derisory part of this national insurance increase will end up improving funding for social care, what we do know is that social care providers, paying higher employers’ national insurance contributions, will find it harder to employ staff and those staff will find it harder to make ends meet. In seeking to ingratiate themselves with elderly homeowners at the cost of the young and low-paid, the Government will not commend themselves to the country. A far cry from one nation conservatism, this politics of division exposes the fatuity of the Prime Minister’s levelling-up rhetoric. The policy drives a wedge between the generations, while it will fail to provide the resources required to address the social care crisis, by increasing the availability of social care to match actual need and developing the social care workforce.

Baroness Tyler of Enfield Portrait Baroness Tyler of Enfield (LD)
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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.

Lord Lipsey Portrait Lord Lipsey (Lab)
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My Lords, the noble Baroness, Lady Greengross, rightly highlights one of the central features of the Government’s proposals—namely, the generational redistribution between poorer workers, who pay for the cap, and the older people who benefit from it. Actually, so far as I can see, in all the commentary the main redistribution that is going on here has not been noticed at all. It is not about generational redistribution; it is redistribution within the generations from the poor to the rich.

I shall try to explain this briefly. Half the recipients of care do not pay for it anyway; they have insufficient assets or income so are not affected by this measure either way. Of the remainder, half will be paying for care in a way that counts towards the cap. However, only costs that are strictly categorised as care count towards the cap—what are called hotel costs they will have to pay themselves—so it will take quite a while to reach that £86,000 cap; three years would probably be a generous estimate. On average, people are in care homes for less than three years, so most older people are not going to benefit from the cap at all. Of the rest, most will not benefit from it for long. Some people live in a care home for 10 years and good luck to them, but that is very unusual; sadly, most people will pass on soon after they reach the £86,000 threshold.

Let us think what this means. It is not these older people, for whom we probably have great deal of sympathy, who will benefit from this. There will not be a rash of cruises around the world or teas at the Ritz that they are going to enjoy: where the money actually ends up is in the pockets of their children, to whom they will bequeath it. The poor have to pay for their own homes; the better-off, because of this cap, will find it much easier to buy bigger, better homes, because they are being saved the cost of Mummy’s care by the Government with this measure. It is redistribution, yes, but it is from the poor to the better-off among the younger generations.

The Tories once described Labour’s plans to pay for care as a “death tax”. Now we have the Tory equivalent: an inheritance subsidy. That is why the case for paying for the cap through a tax on wealth—inheritance tax, capital gains tax, annual wealth tax—rather than through national insurance is so compelling.