The Wire: Autumn 2020 – Could over 40s be about to start paying for the social care crisis?

(Estimated read time 4 minutes)

Could over 40s be about to start paying for the social care crisis?

In recent weeks there has been plenty of speculation about ways in which the government can increase revenue to fund the coronavirus response. 

We’ve looked elsewhere in this edition about how Capital Gains Tax may be reformed later this year, but The Guardian recently revealed how ministers were considering radical plans to tax the over-40s in order to fund social care.

Research from the Kings Fund shows that, in 2018/19, councils spent a total of £22.2 billion on social care. While expenditure has risen in recent years, the current level of expenditure is still below the 2010/11 level, and it does not reflect increases in both population and the levels of demand.

So, could over-40s be set to pay more tax to tackle the social care crisis?

Additional tax on over-40s emerging as the government’s preferred option for funding social care

Ministers are studying plans to make everyone over the age of 40 in the UK contribute to a fund to try and end the crisis in social care.

Under the initiative, over-40s would have to pay more tax or National Insurance or be forced to insure themselves against the cost of care when they are older.

The revenue generated by the additional tax would then be used to pay for the help that older people need with washing, dressing and other activities if still at home, or to cover the costs of staying in a care home.

The Guardian reports that the principle of over-40s meeting the cost of a reformed system of care for the ageing population is emerging as the government’s preferred option for fulfilling Boris Johnson’s 2019 commitment to “fix the crisis in social care once and for all”. 

While social care is a matter for the devolved administrations of the UK, the plans could also apply to Scotland, Wales and Northern Ireland if they involve the tax system.

UK to adopt the Germany or Japan model?

The system that the prime minister’s health and social care taskforce is considering is a modified version of how Japan and Germany fund social care. Both countries are widely admired for the manner in which they have created a sustainable way of financing social care to deal with the rising needs of an ageing population.

  • Germany – everyone pays something towards the cost of social care from the time they start working, and pensioners contribute too. Currently, 1.5% of every person’s salary, and a further 1.5% from employers or pension funds, are ringfenced to pay for care in later life. Once an older person in Germany has had their needs assessed, they can use the money to pay carers to help them with personal tasks at home, for care home fees, or even to give to relatives and friends for helping to look after them.
  • Japan – everyone starts contributing once they reach 40. The UK government’s preference is this model where over-40s pay into a central ‘risk pool’. Deliberations are taking place as to whether these payments would be made through a payroll tax or insurance – although insurance would have to be made compulsory to ensure people pay.

A Japanese-style model has been cautiously welcomed by campaigners. Caroline Abrahams, the charity director at Age UK, said: “Some older people may look askance at the idea of only the over-40s paying to fund a new national care system. 

“However, if that’s what our government is considering embracing here then it may be rather a good deal, since that system offers a level of provision and reassurance that we can only dream of here at the moment.”

The ex-Liberal Democrat MP Paul Burstow, who is now chair of the Social Care Institute for Excellence, agrees. He said: “Introducing an insurance contribution from the over-40s would help put social care on a firm footing for the future. This approach has already been adopted in other countries on a mandatory basis to ensure risk is fairly spread and sufficient funds are raised.” 

While there have been some positive noises about the plans, it is understood that the Treasury retains doubts about such a tax. 

One of the main concerns is that will be unpopular with an entire generation of workers who either will have paid, or may still be paying their student loans, and may have both the cost of a mortgage and raising children to meet.

Former pensions minister Sir Steve Webb also believes the rate of tax would have to keep rising to keep pace with the ageing population and the cost of providing state care was ultimately not sustainable. 

Instead, he advocates encouraging or mandating people to insure themselves against the potential costs of care in old age. 

“Those aged 55 and over could fund the purchase of the policy by dipping into their pension savings and the government would be able to incentivise the scheme by providing a tax break on the money withdrawn,” he said.

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