The ‘problem’ of better off people having to sell their homes to go into a care home has been around for two decades. Arguably, the issue raised its head when the Conservative government – and many councils - deregulated care and took it out of the direct control of local authorities. This dramatically improved care for the less-well-off and, as such, those who had to pay for their own care began to sense an injustice.
Indeed, as with all parts of the welfare system, there is an injustice. Those who save to accumulate assets during their lifetime may lose those assets whereas those who are imprudent or who prefer to consume more are provided for by the state. This problem is not unique to the provision of long-term care. It runs right throughout our welfare system.
However, there is no general injustice in requiring individuals to finance their own long-term care when they are older. Beveridge certainly never envisaged that the state would pay for personal or long-term care. Those who claim that they have paid national insurance contributions for decades and now do not get anything back from the state in terms of financed care misunderstood what the state was promising to provide in return for national insurance contributions. In fact, there are only five ways to pay for/providing long-term care:
- Via the taxpayer.
- From income and general saving (such as pension income).
- Provision by relatives and friends.
- Using the value of a house or other assets.
- Insurance products.
Traditionally, in fact, families would have looked after their relatives in old age. Indeed, around 70-80 per cent of all care is still provided by family, friends or neighbours. High-need care tends to be provided in a more formal setting, however, and this is very expensive. One of the reasons for this change is the much higher level of employment amongst women.
And this raises the issue that no politician seems to wish to address. Is there any reason why taxpayers in general should bear the cost of personal care for those who can afford it in order to protect an inheritance for a family whose members wish to continue to work rather than care for their elderly? Surely the principle should be that family members look after other family members (through providing the finance or the care) if they are able to do so. These end of life issues are very difficult – and expensive – but they are not made any easier – or cheaper – through taxpayer funding. Insurance products are available but nearly all families, in fact, choose to take the risk of having to bear the full cost of care without insurance. It is this decision that then leaves (more or less) the full value of the house at risk to meet care costs.
Ever since 1993, governments have tried to address this issue. The Major government developed proposals but kicked them into the long grass. The Blair government used ‘kicking into the long grass’ as its strategy. After a terrible Royal Commission report (with an excellent minority support signed by Labour peer Lord David Lipsey) there was no interest in taking action. Every solution investigated was worse than the problem.
Indeed, I believe that the current government’s solution will lead to serious problems. Specifically, these are:
- Given that care costs will be capped, there will be less incentive for family and relatives to provide care. Readers might find it unpalatable to consider that decisions by relatives regarding whether to provide care are affected by financial incentives, but they are. This is almost certainly one reason why care costs in Scotland have risen by 150 per cent since free personal care was provided.
- It seems likely that a cap on care home fees will be proposed. This could be disastrous, especially as the government is causing their cost base to rise as a result of regulation. The likely result is a financial crisis in the industry and/or much lower standards and a lower reputation for the industry.
- Given that the government is going to have a cap on care costs, presumably the amount people spend will have to be carefully recorded and ‘care’ defined by complex regulations. Furthermore, given that both care homes and families will have an incentive to define as much possible of the cost of care in the capped category, the government will presumably end up regulating care charges.
- The cost of this – which has no doubt been under-estimated - will be financed by tax increases. One of those increases will be in inheritance tax and it is likely that national insurance contributions that were previously used to fund private retirement saving (through contracting-out of state pensions) will be used instead. So, once more, we have a back-end loaded spending commitment that will rise over time being financed by a raid on assets (inheritance tax) and saving (national insurance rebates that would have been saved in pension funds). The long-term fiscal headwinds get stronger and stronger as the government mortgages the future to buy off current voters and discourages saving.
I don’t want to give the impression that the problems faced by many families are not serious. Care is hugely expensive. However, we cannot resolve that problem by passing more of the burden onto the taxpayer – we will, however, create several more problems. Have we not learned from the increasing state finance and regulation of child care in recent years? The Secretary of State for Health has said that we will be the only western country where nobody has to sell their house to access care. Soon, no doubt, our care financing system will be described by the government as the ‘envy of the world’.