The problem of how to fund adult social care, is one that successive governments have attempted to solve over the last 25 years and none have succeeded. All of them, without exception, have ended up, kicking the financial can down the road.
With the financial constraints that most local authorities are under, the problem of funding can only be realistically solved by an injection of money from the government. The issue that then arises, is where can it be taken from an already stretched budget? The answer could be to make a number of targeted changes to the tax system.
Who pays for care costs at the moment?
Currently, the cost of living in a care home is around £1,500 per week on average nationally, with prices rising by up to another £500 per week in London and the Southeast. This cost must be borne by the individual resident from their own income and savings until the value of their assets falls below £23,250. For people in residential care this sum includes the capital value of their former home.
When the individual’s resources fall below these self-funding thresholds the local authority is obliged to step in and cover the cost of the care, which, including children’s social care, amounts to around two thirds of a local authority’s budget. The thresholds were last increased in 2010 and there is no upper cap on the costs that an individual can be expected to pay for their own care.
Current funding
Unless the care-home resident had the forethought and to take out a long-term insurance policy to pay for their care a few years ago, they must find the money out of their savings, which often means selling their former home. Regrettably, in recent years, long-term care insurance has ceased to become available in the UK as personal care costs are not capped and are rising faster than the current rate of inflation.
There are however some tax-free benefits that can be claimed for individuals who need care, such as attendance allowance (about £400 per month) and a nursing allowance (around £235 per week) paid by the NHS, but the local authority must pick up the bill for the bulk of the costs.
What happens to your house?
If a care-home resident has a house, the local authority will place a legal charge on the property to recover residential care charges once the property is sold, usually on the death of the resident. There is however a potential capital gains tax (CGT) problem, that could arise.
Anyone who becomes a permanent care-home resident will inevitably have to sell their former family home to pay for care, but it is important not to delay. This is because the CGT exemption for gains arising from their only or main home is fully preserved, only if the home is sold within 36 months of the owner, or one of the owners, going into residential care. A delay of more than 36 months in selling the former home could mean that CGT is payable on a large part of the gain realised on disposal.
Possible radical changes to the funding system
All governments in recent years have put forward proposals, which were all rapidly ditched when exposed to the court of public opinion. You only have to look at arguably the most credible suggestion in recent years, Theresa May’s adult social care proposals in 2017, dubbed the ‘Dementia Tax’. Whilst it was a long way from being perfect, it did at least address many of the issues, before it was shot down in flames.
My radical suggestion would be to change the whole basis of the funding of adult social care and utilise say half of the 4% National Insurance (NI) reductions by the previous Tory government over the last couple of years. This effective clawback of NI would be renamed the Social Care Levy or SCL and used in its entirety to help fund future care costs, including care in your home.
I would also expect richer retirees to contribute to the SCL pot. All retirees already pay income tax on any income above the Personal Allowance of £12,570 and I would suggest that NI be added at the same rate as the SCL for working folk, namely 2% and added to the SCL pot. To ease the pain, I would introduce this levy over a number of years, say 5 to 7.
Whilst I can see a few grumbles over these suggestions, most individuals, both working and retired, know that the current care funding model is unsustainable, especially so as we are an aging population in the UK. I genuinely believe that whilst there would be many moans and groans, most people would accept this as a fair and reasonable solution to this chronically underfunded area of care.
I would also not trust any future government with this large pot of money, instead I would ensure that any monies raised by the 2% Social Care Levy would be placed into a ring-fenced pot, similar to what happens in Germany right now. The pot could be administered by an independent commission to include all interested parties, including the trade unions and leading charities in the field, such as Age Concern.
I fully accept that the SCL will probably not cover all of the social care costs and there will have to be some additional contribution by either the recipient of the care or the government, but at least we would have made a start on the long road to fixing this seemingly intractable problem.
Accountant’s view
Well, you might not agree with my suggestions as to how we as a nation should fund adult social care, but if you think you have a better one, please send me your ideas, using the message box below and I will return to the issue in a future Blog.
