The government’s proposals on social care framework will be "regressive" when compared to the earlier Dilnot proposals, the Treasury Committee has warned.
In its report on the Autumn Budget and Spending Review 2021 published today (January 27), the cross-party committee of MPs explored the current tax burden, changes to the health and social care levy and the pre-briefing of budget measures to the media.
The MPs said the government’s policy proposals on social care were more generous than the existing adult social care framework in England, in terms of thresholds and the absence of any lifetime spending caps, .
However, when compared to the Dilnot Review’s recommendations, they said the proposals were less generous in how they treat the means tested contribution made by local authorities.
They said while most people will pay less as a result of the proposals overall, those who have a longer care journey and have assets of between £20,000 and £106,000 will pay far more towards their own care than they would have done under the provisions of the Care Act 2014.
Prime minister Boris Johnson set out the government's long-awaited plans for social care reform in September, announcing a 1.25 per cent 'health and social care levy' and a rise in dividend tax as central elements to cover the costs.
The prime minister promised a cap on the cost paid by any one person for social care in their lifetime, which will be set at £86,000 for people entering care from October 2023. There will be a floor of £100,000 in assets.
All individuals will now have a lifetime cap on contributions where previously there was none. In addition, many more individuals will now be eligible for means tested support.
But the MPs said: “Even if people within this cohort [those with assets between £20,000 and £106,000] do not as individuals end up needing care, they are still exposed to far greater financial risk of having to contribute £86,000 of their own money in full than would have been the case under the provisions of the Care Act 2014.
“It is regrettable that such a large cohort of people are still exposed to the possibility of incurring these high costs, which make up a large proportion of their assets. Compared to the original Dilnot proposals, this will be regressive.”
UK's tax burden
The MPs said the policy mix chosen at this budget will act as a boost to inflation, identifying in particular the increase in employer national insurance contributions in relation to care funding and wage growth.
The MPs said: “The prime minister has advocated high wage growth. Setting out an economic policy of promoting high wage growth that is not accompanied by increases in productivity will be inflationary, and risks contributing to a wage price spiral.”
Chancellor Rishi Sunak’s autumn budget has already “significantly exceeded” the inflation forecast by the Office for Budget Responsibility.
MPs said public finances were highly sensitive to increases in inflation and interest rates. The Bank of England raised interest rates to bring the rate of inflation back towards its 2 per cent target, and is likely to increase them further.
“It is therefore likely that by the next economic forecast, the chancellor may be faced with significantly higher interest costs than those included within the October economic forecast,” the report said.
The Treasury Committee warned that the overall tax burden would be higher at the next election than at the last one.
However, the committee said it was understandable that total departmental spending was rising at present, and that the UK's tax burden will rise to levels not seen during peace time, given that the country is still in the midst of a global pandemic.
But not all departmental spending choices that the chancellor made were pandemic-related, it explained.
“If the chancellor wishes to be able to cut taxes later in this Parliament while still meeting his fiscal rules, he may have to identify areas of departmental spending where he can reduce spending in real terms, even if this is in the face of increased demand.”
According to the OBR, the chancellor has a 55 to 60 per cent chance of meeting his fiscal rules.
“He has given himself less room to meet his rules than his predecessors. The headroom may prove insufficient should one of the many risks to the economy crystallise,” the MPs said.
Mel Stride, MP and chairman of the Treasury Committee, said: “With the nation recovering from the pandemic, November’s budget and spending review were especially important. The chancellor had a difficult job on his hands, balancing calls for increased spending from numerous departments with financing the government’s ‘net zero’ and ‘levelling up’ commitments, all the while getting the public finances under control.
“With inflation rising significantly, concerns about pressure on the cost of living are growing. While the prime minister’s ambition to promote high wage growth is worthy, focusing on increasing wages without improving productivity is likely to be inflationary, and risks contributing to a wage price spiral.”
sonia.rach@ft.com
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