Analysis from the IFS has suggested that if the government’s incoming levy is to meet social care needs then its rate will need to more than double from 1.25 per cent to 3.15 per cent by the end of the decade.
The IFS said the difficulty of finding where to make cuts elsewhere and long-term pressures on social care were the very reasons the government had to come up with this levy in the first place.
It stated: “Other revenue-raising options are of course available but, regardless of the specifics, demographic pressures point to a need for future tax rises, not tax cuts.”
Last month, (September 7), prime minister Boris Johnson confirmed a 1.25 per cent hike in national insurance alongside a further 1.25 per cent rise in dividend tax to fund a cap on social care costs.
As a result of the tax hikes, Johnson has promised to cap the cost paid by any one person for social care in their lifetime.
Set at £86,000 for people entering care from October 2023, the subsidy will help those with assets under £100,000.
Steven Cameron, pensions director at Aegon, said the government will need to find the money necessary to cover whatever the future bill for social care amounts to but will need to think carefully about how to achieve this.
Cameron said: “The increase in individual and employer NI alongside the increase in taxes on dividends will go some way to support that. If the costs are substantially higher as the IFS predicts, the government will need to think carefully about how to cover these extra costs.
“There’s no fixed commitment to covering this through further increases in NI and I would expect the government to look more widely at possible funding mechanisms.”
Stephen Lowe, director at Just Group, said taxes and levies tended to grow over time and the demand for social care is only set to increase, but people will only be able to pay out so much.
Lowe said: “There is a limit on what the already squeezed taxpayers of middle Britain are likely to find acceptable. Generally, people are accepting of paying more if they think it will deliver benefits but they will want to see improvements being delivered and the odds are the cap won’t benefit themselves directly.”
Lowe said the IFS’s forecast of a rise in the levy to 3.15 per cent will not help middle income people who will still find themselves funding most of their own care costs.
Analysis from Just suggested it may take six years for a person in a care home costing £50,000 a year to breach the proposed £86,000 cap but by that time they may have spent £150,000-£300,000 or more on ‘hotel costs’ - which is food, accommodation and extra services that will not count towards the cap.
Lowe added: “While we wait for more details, it is clear that there will be a huge need for guidance and advice to help people understand the system and plan for good outcomes.”
Lords debate
The second reading of the Health and Social Care Levy Bill took place in the House of Lords this week (October 11).
Peers raised concerns that the levy and proposals would only be a short term solution and that cross-party collaboration was needed on the social care issue.
Baroness Tyler said: “Now that the government have finally published their proposals for social care, it is time to start the long-overdue cross-party talks that have been promised for years to bring on a proper, long-term, sustainable solution that ensures that everyone gets the quality care they need, which this short-term fix clearly does not.
"For me, nothing should be off the table in those long-term cross-party talks; they should certainly include looking at other sources of income and wealth.”
Meanwhile, Baroness Altmann questioned the fairness of the plans.
Altmann said: “I cannot agree that national insurance is an appropriate mechanism for care funding. There will be no contribution from pensioners’ pensions, buy-to-let landlords or capital gains. This hardly spreads the burden widely or fairly across society.”
amy.austin@ft.com
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