Pensions  

Dilnot calls for pensioners to pay tax for social care

Dilnot calls for pensioners to pay tax for social care

The chairman of the government's independent commission into social care has said National Insurance contributions should be extended to pensioners to fund social care.

Speaking at a hearing at the House of Lords, Sir Andrew Dilnot said there was a "massive market failure" in social care and the government should introduce a cap he recommended in 2011 and raise funds through general taxation.

The main recommendation of the Dilnot Report, commissioned by the Coalition government in 2010, was a cap on social care costs of £35,000 but its implementation has been postponed several times.

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Speaking on Tuesday (16 October) Sir Andrew said he still believed a cap should be available to everybody.

He said: "Where the money should come from is a different question. My clear view is that is perfectly appropriate that some of that money, indeed the large part of it, to come from the older population.

"The argument for a cap isn’t that the older population as whole is hard done by, far from it. The elderly population is three times well off now as it was 40 years ago, whereas the working population is only twice as well off as it was."

But he argued people shouldn’t be charged directly for the social care they receive.

"They should make some kind of contribution which means that if they are one of the unlucky ones their care would be covered."

Sir Andrew argued the funds for social care above the cap should come from general taxation.

He said: "There are some changes to the current system which would make a great deal of sense, the most obvious is the biggest tax break that many of the older people are benefiting, as they don’t pay National Insurance contributions, which seems quite wrong.

"As a result, those above retirement age are paying a tax rate 20 per cent lower and this would seem like a perfect opportunity to reform that major distortion."

Earlier this week the Institute for Fiscal Studies also recommended charging National Insurance contributions on the earnings of those over state pension age, which could raise £1bn a year, and it said there was also a case for levying a low rate on private pensions in payment to reflect the fact contributions were never paid on employer contributions.

In September the government dismissed this idea, since it would pose "a real challenge to apply National Insurance contributions to people who are in fact in drawdown in the state pension".

Sir Andrew said: "Social care should be free at the point of use for those who are too poor to support themselves, so through the means-tested system.

"For the rest of us, there is a massive market failure which means the government needs to be involved."

He said the current market "feels like you are in a shop with no prices".

Sir Andrew added: "You know how much your care costs each week or month, but you don’t know how much it will go on for, so you don’t know the final price. That means the demand curve is almost completely flat, which means the return of innovation for providers is very low."