Let’s get this clear. The policy paper “Build Back Better: Our Plan for Health and Social Care” worth £12bn a year for the next three years is primarily targeting immediate NHS needs with £10.2bn.
The remaining £1.8bn is going towards the cost of the social care cap, the increased capital limit before having to pay from capital, and helping self-funders get a better rate of cost for their care with the help of their local authority.
According to a 2017 report by the Competition and Markets Authority, self-funders pay approximately 40 per cent more than what local authorities pay for the same accommodation, which has been effectively another tax.
It is still not enough for the NHS and it does so little towards solving the day-to-day social care crisis, for which Health Foundation estimates £6bn a year is needed to tackle the shortfall in social care funding.
The national government continues to set the quality of publicly funded care as the local authority’s problem to solve through driving efficiencies on already strained budgets and council tax rises, which, in effect, shares the blame for the need to raise revenues. In three years' time the funding flips to favouring social care, but this remains to be seen given we will be in a new parliament, possibly facing different challenges.
The social care element of the paper raises the means-tested capital limits of needing to contribute to the cost of care. Currently if you have capital below £14,250 then you would not need to contribute to the cost of your eligible care should your income be insufficient.
If you have capital between £13,250 and £23,250 then you will need to make a contribution. If you have capital more than £23,250, you pay the care shortfall in full until capital drops to below £23,250.
These limits rise to £20,000 and £100,000 under the new plans, together with an overall cap of having to pay no more than £86,000 on qualifying care costs, but this does not include bed and board.
Crucially, only expenditure on eligible care will count towards the cap and this is limited to people assessed by the local authority as needing substantial care, and the clock does not start ticking until October 2023. Of those that currently meet the financial criteria for funding, more than half of the requests are turned down after an assessment of care needs.
The paper has come about because it has long been deemed unfair that those who have saved for their old age are penalised for doing so by having to pay the potentially catastrophic costs of their own care, while those who have been less prudent could be eligible for state funded care.
What is more is that those that were prudent but did not require as much care as they were potentially fearing, could still pay the price through inheritance tax.
But it is not just older people. Around half of the total expenditure on adult social care by local authorities is spent on working-age adults.
The ideas in the new policy paper are not unusual. Germany and Japan have already successfully moved to the model of a percentage-based levy on income.
In the UK, the proposed model currently relies on a general lack of understanding on how national insurance works, before becoming a separate levy from April 2023, which will also capture those working over state pension age.
From April 2022, the increase of 1.25 percentage points on both employee and employer national insurance is effectively a 2.5 percentage point increase if businesses pass the cost on. For those with little or no earned income, dividends are also caught with a 1.25 percentage point levy.
A long-standing problem
How to limit the cost of care has been a long-standing problem. Local authorities have been able to require people to sell their homes to pay for residential care since 1948. But it was not until 1997 when Tony Blair told the Labour party conference “I don’t want our children brought up in a country where the only way pensioners can get long-term care is by selling their home”, that it was back on the political agenda.
The Dilnot-based deferred payment agreement introduced in 2015 eventually solved this problem, but green paper after green paper that tried to deal with limiting the impact of potentially catastrophic costs of care actually delivered little.
Trying to tap into wealth saw the politically unacceptable death tax (Labour 2010) and Dementia tax (Conservatives 2017). And so we now find ourselves with a politically palatable state-based insurance scheme where we are led to believe more of us are in it together.
The way the policy has been introduced has been very typical of this government, rushing things through without much chance of deliberation before a vote needs to be made.
With public spending at its highest ever level in peace time, it is very difficult for the opposition, also known for spending, to credibly oppose.
The likelihood is that the proposed health and social care levy is just an appetiser, which will go up and be extended as some of the asset rich feel the guilt in the big conversation that has started.
We will continually be reminded by the government that they have been the first to significantly deal with the issue of paying for care. However, with a government known for U-turns, it is too early for us to set the proposed changes to social care in stone.
Nonetheless, the proposals are the direction of travel, so it is up to financial advisers and planners to thoroughly understand the subject matter if they want to be able to convey this fairly complex and misunderstood subject to their clients.
It is also up to insurers to discuss the possibilities for this area of advice and put something together for the new world that is adaptable to whether eligible care needs apply or not.
Mel Kenny is a chartered financial planner at Radcliffe & Newlands
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