The government should create some certainty about the level of finance available for social care costs, and redistribute funding away from wealthier older people
Yesterday the government released its care and support white paper and progress report on social care funding. These eagerly awaited documents set out the government’s thinking on how to address the serious need to reform the funding of social care (in practice, all care that is not provided by the NHS).
But the thinking is inadequate and insufficient. In particular, the government has not specified the level of the cap on costs that families would face for care (as the independent Dilnot Commission recommended).
Such a cap would give families certainty over their finances and enable financial services companies to come up with ways for people to save towards costs or pay for them (for example, through equity release). Without a cap, families are no further forward.
Long term social care funding is not well understood. The fact is that most people will have to pay for their own support, and residential care is very expensive. At a conference earlier this year, Reform highlighted that the average care home cost in the UK is £815 per week. On average, an elderly person in residential care will lose 80 per cent of everything they own due to the costs of care. Sadly, this is a huge shock for many families.
To protect families from facing ‘catastrophic costs’ the final report of the independent Commission on Funding of Care and Support published in July 2011 and led by Andrew Dilnot, suggested capping an individual’s lifetime contribution to care costs. It proposed a cap at a level somewhere between £25,000 and £50,000.
It also proposed keeping the current system by which people receive means-tested help from the government for care costs, but made it less onerous (by lifting the threshold for means-testing from an estate of £23,250 to an estate of £100,000).
A major barrier to the adoption of the Dilnot cap is that it would increase the cost to taxpayers. The Dilnot Commission itself estimated that the bill could be more than £1.7 billion. Therefore the Government has said that it will consult on the cap, and in the meantime encourage more families to defer payment until death (through a more expensive financial arrangement with their local authority).
But this is the wrong direction. It is an odd idea to turn a local authority into a bank or the equivalent of the Student Loans Company. Most importantly, it does not provide the certainty around total costs that a cap would deliver. The answer must be to increase the take up of financial products like equity release and immediate needs annuities, not to push local government into acting as a loan provider for the old. A market in these products cannot develop until the cap is agreed.
It is a mistake to push back decisions on capping the cost of care to the next Spending Review. The reality is that individuals will have to fund an increasing share of their own long term care. The best way to help families prepare for this is to encourage the take-up of the right financial products.
The government needed to introduce a cap and to set out ways that this could be fully funded. There is no shortage of public spending on elderly people. The funds for a cap could have been found from other budgets (such as the Winter Fuel Allowance, with an annual cost over £2 billion per year). The problem is not one of funding but a lack of political will.
Lauren Thorpe is research & corporate partnership director at the Reform think tank
In deciding the funding options for long term care home fees, the government has an opportunity to be fair. Yet again, they are failing to grasp that opportunity.
In twenty years of running a nursing home I have witnessed at close quarters how unfairly the present funding system treats people with relatively modest assets. People are generally not averse to paying for their care providing a) they have the money b) they feel they are getting value for money, c) they have some idea of the extent of their financial liability and d) they feel sure their money will not run out. The Dilnot proposals have gained wide support because they chime with this sense of fairness. The government has not been able to support Dilnot, however, because of the fear of adding to the burden of public expenditure. And yet this could be mitigated by modifying the “Limited Liability” model that underpins the Dilnot proposals in this way:
At the point of entry into care, a declaration of disclosure of assets would be made. Such a statement could be made with the same legal force as a declaration on a HMRC tax return. Depending on the size of these assets the individual would then be placed into one of a number of bands: For the purposes of illustration: £0 – £25000; £25000 – £50000; £50000 – £150000; £150000 – £250000; £250000 – £350000; (..with at most three further bands). The lowest band would (as at present) have all fees met from the outset. Individuals falling in all other bands would have to pay the care home fees in full, but importantly, this obligation would be time-limited, depending on the asset band they fell in. Thus, someone entering a care home with assets of £25000 -£50000 would have to pay fees, but for no more than, say, 6 months. The slightly better off would have to pay but for no more than 12 months. Those with £150000 – £250000 would have to pay all their fees for a maximum of, say, 2 years. Having assets of £250000 – £350000 would mean having to pay all fees for the first 3 years. Those richer than this would have the period of time for which they were responsible for fees capped at, say, 4 or 5 or 6 years.
At the relatively modest end of the wealth spectrum therefore, those with under £50000 in assets would (unlike in Dilnot) be expected to contribute for a short while. But (.. and to further demonstrate that we are all in it together…) the wealthiest people would (fairly) pay much more than the Dilnot cap of around £35-£50000.
The number of bands, the band “widths” and the time limits could be modelled by the government to ensure the public purse could meet the resulting obligations. The liability of the exchequer would thus be vastly reduced from that envisaged by Dilnot, whilst the essence of equity would remain.