The Treasury appears to be reluctant to implement the changes to social care recommended by the Dilnot Commission. But it should be possible for such reforms to take place at a time of deficit reduction
Tomorrow, the Strategic Society Centre is holding a public debate in Parliament with the All-Party Parliamentary Group on Social Care. The event asks the question fundamental to the ongoing debate around how to pay for care: can the Treasury combine deficit reduction with reform of social care funding?
The fact this event is occurring at all shows how far this agenda has moved since the publication of the Dilnot Comission proposals on July 4 last year. To the surprise of some, Andrew Dilnot and his two commissioners said very little about how the Treasury should find the money to pay for public spending on care in the face of rising demand. Instead, the commission put forward a ‘spending proposal’ that would make the care system more expensive, which it called the ‘capped cost’ model.
However, in the following 12 months attention has increasingly focused on potential sources of money for the care system – the ‘funding question’ – as demonstrated by the fact that tomorrow’s event will host the director of the Institute for Fiscal Studies and the chief economist of the Nuffield Trust – both former employees at 1, Horse Guards Road.
Yet the debate happens at a time when many social care campaigners worry that the Treasury is actively managing down expectations on the one hand, and deploying arguments against reform on the other. Such concerns reached a crescendo last week with analysis from Mark Easton, the BBC’s home editor, outlining the Treasury’s concerns.
Is the Treasury right to be so resistant to reform proceeding? Let’s explore some of the arguments that are being deployed.
The first one appears to be: can we afford care funding reform at a time of public spending cuts, given it will effectively be a new transfer to asset-rich baby-boomers?
The straightforward answer is yes. Ever since I first made the argument for intergenerational fairness in care funding all the way back in February 2008, campaigners for reform have recognised that those who benefit from reform should be the ones to pay for it. It’s why I proposed a National Care Fund for wealthy boomers to pay into, and why the then Labour government touted a new inheritance tax levy to fund the care system. Indeed, the Dilnot Commission itself was very explicit in arguing that the beneficiaries of their proposals should be the ones to stump up for it.
Applying this principle, reforming care funding at a time of public spending cuts for the young will not be a free lunch for asset-rich older people (whose pensions have anyway been hammered by the financial crisis and the Bank of England’s quantitative easing). Whether it is new taxes or reduced entitlement to universal pensioner benefits, there are lots of options for making asset-rich older people pay for care funding reform, as the Centre’s recent ‘Roadmap’ report showed.
One option for providing more protection to older people from catastrophic residential care costs would simply be to slap a levy on their estates – a kind of collective, middle-class estate insurance. George Osborne surely knows this. The idea that reform can’t proceed when younger people are suffering public spending cuts is therefore patently nonsense.
A second argument the Treasury seems to be deploying can be summed up as: is the Dilnot Commission’s ‘solution’ the right one?
In part this could reflect the fact that the Dilnot Commission proposal was a ‘spending proposal’, not a ‘funding proposal’. If the Treasury had wanted the Dilnot Commission to identify and politically neutralise potential sources of revenue for the care system, they really should have told them to.
But the Treasury may also have concerns about the Dilnot Commission’s ‘capped cost’ model, even as a ‘spending proposal’. It’s true that such a model is untested, and even the insurance industry acknowledges it will not unlock the long mythical market in pre-funded care insurance.
But much more importantly, the ‘capped cost’ model won’t actually cap people’s care costs, only the amount of council support they are excluded from owing to their wealth. If and when the families of those in residential care realised this, the pressure on the Prime Minister to cap all expenditure on care could be unbearable, with the Treasury left to pick up the bill.
If this is the source of Treasury concern, there are plenty of other changes to the system that could be made, and which would still abide by the Dilnot Commission’s principle of greater protection from catastrophic costs. In fact, a paper from the Personal Social Services Research Unit last year showed how simply raising the means-test threshold for residential care would achieve much the same outcomes in terms of asset protection across the wealth distribution.
Rather than trying to manipulate the agenda through background briefings, the Treasury could simply come out and say publicly how they think the shape of the system should be reformed.
The third argument the Treasury appears to be floating is: we shouldn’t reform the system because we should focus money on the current means-tested safety-net system. This, too, is a misnomer. Nobody has ever suggested re-prioritising money out of the current baseline system to fund the costs of a better offer to wealthier households for sharing the costs of care. But the need to fix the baseline system does not negate the argument for wider reform.
So if these arguments don’t stack up, are there private worries that the Treasury has?
Perhaps the Treasury would like to see the ideas for tax and benefit switches affecting the asset-rich older cohort directed instead at deficit reduction, not funding care. But if the Treasury is afraid to move on these changes with the promise of an improved care system to hold out as an incentive to older voters, it’s illogical to think older people will accept such measures in the name of deficit reduction.
Alternatively, perhaps care funding reform feels too bold at a time of double-dip recession and unknowable economic uncertainties stemming from the eurozone. Such concerns are clearly understandable. But if this is the case, the Treasury could get on board and commit itself to reform and the shape of a new system, but on the proviso that first, various growth and fiscal benchmarks have to return to something more comfortable. In fact, the Treasury appears to be doing just this with its espousal of a Single-Tier State Pension in the next parliament.
The truth is that rather than pushing back against the care funding debate, the Treasury should be welcoming it. Clearly those inside the Treasury will not be pleased about the state of England’s social care system. They must surely want things to be better. And let’s be clear: the care funding crisis isn’t going anywhere. It’s only going to get worse, and will increasingly preoccupy Conservative council leaders across the country.
Dealing with this challenge was never going to be an easy sell to the public, but the constellation of political and stakeholder positions on this issue has never been better, and could help the Treasury in this challenge. It’s an opportunity not to be missed.
James Lloyd is director of the Strategic Society Centre