AN OPEN letter to the Prime Minister argued for reform of social care funding yesterday. But we have been here before. Fifteen years ago the Joseph Rowntree Foundation (JRF) published the results of their Inquiry into the Costs of Continuing Care. The 1997 Labour government made reforming the funding of care a priority. A Royal Commission reported in 1999 and it took until 2009 for the government to set out options for fundamental reform. Now it is 2012 and we are still waiting for a final approach to funding these services.
These delays are a problem. Someone who was 40 when the JRF’s inquiry was first published would now be 55 and have little chance of significantly building up assets for retirement. This is not only bad for the individuals affected but it also causes problems for England as a whole. Population ageing means that the longer it takes us to make a change the larger the number of people caught between two systems. Delay makes change more costly.
Costs must be reduced as the longer-term outlook for the government’s accounts is bleak. The fiscal time-bomb of population ageing is already exploding, with the baby-boomer generation retiring and the proportion of the population of working age falling. As a result the cost of health and care is projected to increase by £40bn (in today’s money) by 2041 and the cost of pensions is projected to increase by £32bn. This is money that the government simply does not have.
It is easy to see why politicians want to delay reform. Many people believe that the state will cover the cost of care as it does with the “free at point of use” NHS. Yet the reality is different and many people only discover they need to pay for care when they or a family member enter it. It is a rare politician who will acknowledge that families have to pay for care and, indeed, that for the future system of care to be affordable contributions will have to increase.
The obvious source for contributions is the equity in assets like housing. Yet too often discussions on elderly care reforms are concerned with protecting children’s inheritances. So England persists with a system that is patently unfair, where too many people only find out they are required to pay for care in a moment of crisis. The political consensus favours people being caught short rather than admitting to the reality of hard choices.
So what should be done? Some answers can be found in the report of last year’s Commission on Funding of Care and Support. This commission, chaired by Andrew Dilnot, rightly emphasised that people should make provision for their own long term care. Yet while many of the ideas raised by this commission were right, the price tag (£1.7bn) of its proposals was wrong. In an environment where budgets are being cut and population ageing is driving up costs, proposals for large increases in spending tend to end up in the long grass. As Liam Byrne, the former Labour Treasury minister, famously wrote, “there’s no money left.”
Perhaps the best idea of the commission was to cap how much people are required to pay towards the costs of their care. Although the proposed level (£35,000) was too low, a cap would provide greater clarity over entitlements and expectations. It would mean that people could pay for the bulk of the costs of the care that they need but would be protected when these costs rise to catastrophic levels. The certainty a cap provides would encourage people to look to vehicles like insurance, annuities and equity release to help manage these costs and make the market more attractive for private providers.
Greater certainty could also encourage an honest conversation on the real costs of an ageing population and how we are going to deal with them.
Everyone knows we are getting older but few people seem to grasp the fundamental challenge this poses for the welfare state. The welfare state was designed for a young and growing population. Like a pyramid scheme, entitlements to retired and other families in need would be paid for by a younger generation of workers. This younger generation would, in turn, receive benefits in later life funded by the next generation of younger workers. Population ageing turns this model on its head.
Politicians have been paralysed by the scale of the challenge of funding long-term care. But they should focus on the opportunities. If they grasp the nettle now then by the end of this year we could be in a much better place, with a better educated population, families preparing for their own futures, higher levels of saving and insurance and, eventually, lower burdens on the taxpayer.
Dr Patrick Nolan is the chief economist for the independent public policy think tank Reform.