Saving social care: a fair funding settlement for the future
Institute for Public Policy Research, November 2017
from the IPPR, produced in collaboration with Independent Age, assesses some of the options available for a long-term sustainable solution to the issue of social care funding. It looks at potential sources of revenue against three criteria; will they provide sufficient funds; are they fair; and are they politically feasible. It concludes that changes to benefits like Winter Fuel Payments are unlikely to raise enough money to fill the gap, whereas increases to taxes such as National Insurance are more progressive, with more people willing to consider them as an option.
The paper begins by assessing the current state of social care, how it is funded and how cuts to local authority budgets have impacted it over the last few years. They note that pressures on social care are likely to rise fast, estimating this increase at 4.3 per cent per annum. By contrast, funding is only likely to increase by 1.6 per cent per annum between now and 2020/21. The result is a funding gap of £2.7 billion per year by 2020/21 and £9.5 billion by 2030/31.
The report goes on to look at three potential sources of additional funding for social care:
- Raising more revenue from private sources, either through private insurance or out-of-pocket expenditure. They state that this is unlikely to meet the criteria of sufficiency, fairness and public acceptability and note that it is unlikely to protect the most vulnerable pensioners.
- Redirecting existing government expenditure on old-age. The paper considers the impacts of means testing winter fuel payments, or restricting them to those aged 75 or over, and removing the triple-lock on pensions. Changes to winter fuel payments could save around £1.8 billion per year, but this would not be sufficient to fill the funding gap and would be a regressive option. Linking pensions back to price indexation only has the potential to save £12.8 billion, would be progressive and could address concerns about intergenerational inequality.
- Raising new revenue. The authors consider the impact of raising national insurance contributions (a one per cent increase in the employee main rate could raise £4 billion and in the employer rate £5.4 billion in 2016/17). They also look at wealth taxes, including an increase in inheritance tax, noting that this approach is progressive and could raise significant sums of money.
The paper finally considers the political implications of these options, noting the long history of failed attempts to address the issue of social care funding. Looking at polling and focus group data they conclude that the public want more from the social care system and recognise that this needs to be funded, however many “fundamentally challenge the terms of the debate regarding how this gap should be filled”. The authors views this as an expression of “a lack of trust between the public and their elected representatives”. The public may be willing to pay more tax or forego benefits to fund care but are wary of the impact on those on low and middle incomes. They also want a fair deal across the generations. They conclude that there will need to be “cross-party consensus and an extensive public awareness campaign to win the argument”.