But no proposals were put forward, even as the care crisis worsened, Covid-19 hit and tens of thousands of care home residents died as the NHS pushed elderly people out of hospital. Many care homes are now on the brink of bankruptcy after pandemic cost increases and staff shortages, worsened by post-Brexit immigration restrictions.
Finally, proposals have been put forward supposedly to provide bold funding reforms for social care and the NHS. A 1.25 per cent rise in national insurance, payable by employers and employees (including working pensioners for the first time) and a new tax on dividends will be hypothecated as a health and social care levy that is expected to raise £36bn in the next three years.
The government also proposes to increase the social care means-test threshold to £100,000 (from around £23,250 now) and impose an £85,000 cap on care costs.
These measures are welcome, but they merely rehash the Dilnot proposals legislated for in 2014, with a higher cap. And even this cap is misleading.
It excludes board and lodging fees, only covers council-approved rates, does not apply until the person’s needs are already substantial and does not therefore reflect the actual costs people will pay for care. Indeed, the amount spent on care before reaching the cap is likely to be well over £150,000 before any public funding begins.
These measures will not resolve the care crisis – and the money raised is not even ring–fenced for care. Government has said funds will go first into the NHS, reinforcing the second-class status of social care that has led to the crisis.
National insurance is certainly not the right way to fund this new levy. It is a regressive tax, which hits the lowest–paid hardest (the national insurance threshold is £3000 lower than the personal tax threshold) and will add costs to employers already struggling to recover from Covid disruption.
A dedicated national care insurance premium, perhaps 2.5 per cent payable on all income, including pensions and buy-to-let properties, would share the burden more fairly.
The reforms will certainly not stop people having to sell their homes to pay for care. If they must spend well over £150,000 on care before receiving any public funding, and they cannot get NHS help, many will be forced to use up most of their savings or assets to pay for their care.
The other element missing from these reforms is the introduction of new savings incentives to help families plan ahead to cover future care needs. For example, Care Isas, Care Pensions and life insurance with early payout clauses could ensure people are prepared in case they need money for care before they qualify for public funding.
With the next Budget approaching, I would urge the chancellor to introduce incentives for families to earmark some of their savings for future care needs.
More than 8m over-60s in 2018 held a total £300bn in Isas, an average of £35,000 to £40,000 each. These Isas are usually not kept for any specific purpose. The government could encourage savers to set the money aside as Care Isas – perhaps £85,000 a person in a Care Isa, which can be passed on free of inheritance tax if they do not need to spend it on care.
And tax-free pension withdrawals being permitted if the money taken out is used for care, would encourage people to keep pension money for later life, in case they need care.
Before all this money is spent on cars, cruises or other goods, there is an opportunity to introduce new incentives to encourage more people not to spend it yet
This could benefit both families and the financial services industry. As the new care cap will only start accruing when needs are substantial, people may also need to pay for care when they have moderate needs, or could invest in preventive measures to keep them safe in their homes, such as handrails, domiciliary services and alarms.
Without such incentives, future taxpayer costs will be higher, because more people will have withdrawn their savings before they need care. The result will be many people being unable to afford the care they want and need, and ongoing funding pressures on younger generations and local authorities.
A truly bold package of reforms would see new incentives for individuals to set money aside specifically for care, and a dedicated care and health levy, payable from all sources of income and capital gains, which would ensure everyone pays in something to provide more funding for care.
Let’s see if the chancellor is listening.
Baroness Ros Altmann is a former pensions minister and a later-life campaigner
