Friday 26 July 2019 4:15 am

The new PM had better deliver on his promise to fix social care

Kate Andrews is associate director at the Institute of Economic Affairs.

Talk about bold promises.

On the steps on Downing Street, preparing to enter Number 10, the new Prime Minister pledged to “fix the crisis in social care once and for all with a clear plan we have prepared”.

Similar to the National Health Service, social care is an area that MPs often struggle to address. 

In the case of the NHS, it’s considered politically unwise to criticise it, no matter how bad the headlines (or patient outcomes) become. 

When it comes to social care, the public are desperate for reform, as people witness their loved ones struggling to afford exorbitant costs, and sometimes receiving substandard care in their most vulnerable stage of life. 

In the past two years alone, the Daily Mail’s social care campaign estimates that families have spent £15bn to support relatives with dementia. But politicians try not touch this issue, because they’re unsure of how to fix it. 

Perhaps this helps explain why the green paper on social care, promised in 2017, has been delayed six times.

Rapidly changing demographics are putting unprecedented pressure on the social care system. Old age care is considerably more expensive than other forms of care over one’s life – while healthcare costs remain relatively stable for one’s first five decades, they on average double over the next two decades, and double again the following decade.

The combination of rising life expectancy and low birth rates distorts the population demographics that the social care system was built on. The ratio of people of retirement age to people of working age is currently 28 to 100, but it is estimated to rise to 47 to 100 in the next 40 years. 

Almost all projections estimate that the social care system will need a boost of cash to maintain quality of care, and more still to improve it. But as spending on healthcare continues to rise (from five per cent of GDP in 1990 to nearly 10 per cent today), the question is: who is going to contribute the extra funds, and how long can an ever-increasing social care bill be sustained?

There are no easy solutions. But there are examples of more sustainable systems around the world, which focus on pre-funding to avoid demographic distortions and spending shocks.

The UK’s current “pay as you go” model makes it particularly difficult to build up reserves. All expenditure is paid out of current revenue, so any shocks to the system must be mitigated with this year’s taxes. There are no savings to cushion the costs. 

Instead, Dr Kristian Niemeitz’s IEA report, “A Piggy Bank for Healthcare”, makes the case for old age reserves funds. These would build up over one’s working life (comparable to a pension fund), and could then be drawn upon in retirement. Such a design reduces the risks generally associated with an ageing population, because the reserves would grow parallel to however many people move into old age.

Singapore and Germany demonstrate how different types of pre-funded systems could function; the former mandating compulsory savings for medical expenses, the latter offering an insurance branch that is pre-funded, which has accumulated a reserve of nearly €21,000 per client. 

If all revenue were cut off in Germany today, it is estimated that the system could prevail for eight years thanks to its reserves.

Obviously these are not overnight fixes. Short-term solutions are critical for filling the multi-billion pound hole in funding, which cannot reasonably be paid now by those nearing the end of their lives. But changes must be delivered in the green paper, when it finally is released, to prepare the younger generations for the system they’ll almost certainly need to contribute to down the road, to ensure their own eventual care.

For Boris Johnson to not only address social care but to pledge to fix it “once and for all” is the domestic equivalent of his “do or die” comments on the European Union. He has made an unequivocal promise to Britons, which cannot be reneged on. 

Let’s hope that he achieves both.

Main image credit: Getty

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