Tax  

Social care tax could raise £15bn a year

Social care tax could raise £15bn a year

The government could raise £15bn a year if a social care tax for people over the age of 40 was introduced in the UK, according to research from Hymans Robertson.

In a 24-page report titled A better future for adult social care, the pensions consultancy stated the tax was one of six options likely to feature in the government's upcoming green paper on social care.

Jon Hatchett, partner at Hymans Robertson, explained it could be similar to the German model, where the government would introduce a tax of 2.5 per cent on income for the over-40s, split between employer and employee contributions, ring-fenced for social care.

Article continues after advert

Mr Hatchett said the model would be a "huge step forward" but warned "all potential policies need to be assessed against adequacy, sustainability and fairness in the context of likely future demographic shifts".

He added: "And however the money is raised it needs to be spent well, focussing on prevention and people-centred health and social care provision."

FTAdviser reported in June that a similar solution was proposed by the Housing, Communities and Local Government and the Health and Social Care committees, which called for the introduction of a ‘Social Care Premium’.

This would be either an additional element of National Insurance, or a premium paid into a dedicated not-for-profit social insurance fund only used for social care.

To ensure fairness between the generations, the premium should only be paid by those aged 40+ and extended to those over the age of 65, with the money being held in an "independent, dedicated and audited fund to help gain public trust and acceptance for the measure," the MPs said.

Hymans Robertson warned that the social care situation is "widely expected to get much worse", with the funding gap to deliver an adequate service projected to increase to £30bn per annum by 2031, "underscoring the need for radical change".

Mr Hatchett said: "Collectively we’ll have to pay for the care we receive somehow, either through taxes, insurance, directly, or drawing on assets or homes. 

"We support a model funded by a partnership between the individual and state, spreading risk to prevent care costs leading to financial ruin and to make sure the burden is spread fairly across generations."

Social care has been widely discussed in the UK, with former prime minister David Cameron promising to implement a cap on the cost of care of £72,500, which was supposed to come into effect in April 2016.

But in 2015 the government pushed this back to 2020, because it would have added £6bn to public sector spending at a "time of consolidation".

In December the government confirmed the proposed cap would be scrapped while a green paper on long-term reform was put together.

The publication of this paper was originally expected in the summer but has since been pushed back to the autumn, and the government has since hinted the publication could be delayed further due to "unforeseen circumstances".