Elderly Social Care (Insurance) Bill [HL]

Lord Lilley Excerpts

2nd reading
Friday 16th July 2021 Lords Chamber

Moved by

[Lord Lilley]

That the Bill be now read a second time.

[Lord Lilley (Con)]

My Lords, after 37 years in Parliament, I am grateful to have secured a place in the ballot entitling me to bring in a Private Member’s Bill. This Bill is about social care for the elderly, a subject that has preoccupied me for more than 25 years, since I was Secretary of State for Social Security.

I know from recent debates and committee reports of your Lordships’ House that noble Lords are seized of the crisis in social care provision in this country, which has been growing over decades. Local authority budgets have been squeezed to the bone, demand is rising, as we are living longer, and costs are rising, not least because the national minimum wage raises the pitiful earnings that many dedicated staff in the social care sector have had up to now. Many care homes were teetering on the brink even before the pandemic and are now in an even more precarious situation. Every winter, beds in the NHS are blocked as places cannot be found for patients in the social care sector.

Successive Governments have backed off from tackling the issue. That is because there is a live rail running alongside the basic issue, which has given an electric shock to those who have touched it. That live rail is the understandable and natural concern of home owners and their heirs that the potentially catastrophic cost of social care will consume the value of the home that they hoped to bequeath or inherit.

In 2010, Labour’s plan for a tax to finance social care was labelled a death tax. In 2017, Theresa May lost her majority when Labour retaliated by labelling her plan a dementia tax. In between, the Dilnot plan, legislated for by Cameron, was abandoned as too costly. All the solutions so far suggested have proved either unsaleable or unaffordable. At the last election, Labour promised to set a cap of £100,000 on the maximum cost that anyone would incur while in residential social care. Today, we read in the Daily Telegraph that the Government could, as early as next week, adopt that policy, hoping, no doubt, for bipartisan support. However, it is not Labour’s support that they need but that of home owners and the general public. The problem is that a £100,000 cap would be fine for the owner and the heirs of a £10 million mansion in Mayfair, even if they spent decades needing substantial care for dementia, but the owner of a modest, partly mortgaged home in Middlesbrough will see its value disappear entirely in two or three years. That is not a good proposal to go down well with red wall voters.

On the other hand, raising the value of assets shielded from means testing will still mean many home owners having to sell their homes to pay for longer periods in care. Both those options break the Prime Minister’s promise, repeated in his first speech as Prime Minister,

“to protect you or your parents or grandparents from the fear of having to sell your home to pay for the costs of care”.

Both are expensive. The only other option on the table would be to extend free social care to all, but that is the most expensive of all. Even if any of these options were affordable before the pandemic, they are certainly not now, when our debt is topping £2 trillion and we have an unprecedented deficit adding to it. Pre-empting billions of pounds desperately needed to bail out the existing care system in order to subsidise bequests from home owners to their middle-aged children would be a strange priority.

But there is a solution: insurance. 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 by the Dilnot review, and again by the Economic Affairs Committee of this House. However, they and others rapidly abandoned the idea when the private insurance industry made it clear that it could not and would not provide policies to protect people from having to sell their homes. The inherent risk of needing social care is eminently insurable, and at reasonable cost, just as we ensure our homes against fire or burglary. However, there are two reasons why insurance companies will not touch it. Actuaries cannot measure the uncertainties about future government policy or about possible medical advances prolonging frail longevity. That makes this niche market wholly unattractive to private insurance companies. If they could overcome those problems, people cannot be persuaded to contribute to such policies during their working lives on top of paying for their pensions and paying off their mortgages.

There is an alternative to the private sector providing insurance, which has not even been considered, and that is for a state body to offer such insurance. Instead of people making contributions during their working lives, why not enable them to pay for such insurance after they retire by taking a charge on their homes? The state insurer would then be reimbursed when they die or sell their homes.

This Bill will set up a body owned and guaranteed by the state to offer such insurance policies. Everybody would be informed of the option by the DWP as they approach state pension age and for two years thereafter. To avoid adverse selection, people would have to take out the policy within a couple of years of the state pension age. The public insurer would publish a schedule of premiums, which would be larger for those with higher-value properties and smaller for those with smaller homes needing protection.

How much might those premiums be? The Dilnot commission on fairer funding calculated in 2011 that the average costs for such a premium would be comparatively modest—around £16,000 in today’s money. The arithmetic is simple: only one in four people ever needs to go into a residential or nursing home; the average length of stay is 30 months—two and a half years; and the cost of social care is around £25,000, plus £10,000 for the cost of accommodation and food and basic living costs—the so-called hotel costs, which are normally paid out of state pension benefits and other income not covered by insurance. One in four times two and a half times £25,000 comes out at a premium of around £16,000.

I spelled this out in a pamphlet called Solving the Social Care Dilemma? A Responsible Solution and suggested that the actual premium payable by any individual should be set at a percentage of the value of the person’s home—never their mortgage—at the time they take out the policy. People would be given the opportunity to take out a policy within a couple of years of reaching state pension age and would not have to pay any cash, since the premium would just be a charge on their home, and the premiums would be set at actuaries to meet the average costs.

Why has this proposal not been considered before? I suspect it is because those on the right find the very idea of setting up a state body to provide pensions—taking on a responsibility normally the duty of the private sector—anathema. Certainly, when I offered the proposal to a right-wing think tank, it turned it down with horror, expressing amazement that I, the author of the Government’s privatisation policy, should be the advocate of this. But of course, having thought long and hard about privatisation, I realised that some things are suitable for the private sector and some are not. We should be open-minded about this.

What will the likely take-up be? I do not know. The important thing, however, is that everyone has the option to protect themselves and their homes against the need to sell them and use up the entire proceeds to pay for care in old age. Some may decide that they are quite content to take the risk that they will be in the happy three-quarters of the population who never go into residential care or need social care. But if they take that risk, they will not be able to complain if it turns out that they need to sell their house to pay for some or all of their social care in old age.

I have brought this Bill forward to promote and provoke debate. I am sure that, like all Private Members’ Bills, it has flaws. I hope that Members may find and expose any flaws that it has; if they are remediable, I will address them. If they find fatal flaws, so much the better—we can put the idea to one side. On the other hand, if it garners some support, I hope that the Government will consider it before opting for proposals that, if we are to believe the Daily Telegraph, could land them in exactly the same sort of problems as other Governments who have touched this live rail in the past. I beg to move.

--- Later in debate ---

[Lord Lilley (Con)]

My Lords, I am grateful to all noble Lords who have contributed to this debate—those who disagree with the Bill, those who agree with it, and those who feel that it merits further debate. Two central criticisms were made. First, a number of noble Lords said that it does not address the main issue. With respect, that is precisely what it does. It says that the main issue is the underfunding of the existing social care system for those who do not have the means to pay for themselves, but we must not pre-empt the money needed to bring about proper funding of that by diverting much of it to subsidising those who wish to leave their homes to their heirs and beneficiaries. I hope people realise that resources are finite. If we spend money on those who can afford to contribute to their own care, we have less to spend on those who cannot.

Secondly, there were those who, as a matter of principle, believe in universal state provision. I respect that point of view, but they should recognise that no Labour Government since 1948 has introduced that, and that if it were possible to have done so before the pandemic, it is much less possible now that we have £2 trillion of debt and a massive deficit. They should also recognise that that is not what Labour offered at the last election; it offered the £100,000 cap on contributions. Setting a cap, which was also endorsed by the Liberal Party, brings me to my final point. They are saying that we should give the greatest benefit to those in Mayfair and the least to those in Middlesbrough. If that is their idea of fairness, priorities and a comprehensive solution, it is not mine. I beg to move.

Bill read a second time and committed to a Committee of the Whole House.