Antony Mason believes that this report received shamefully little media coverage
The report of the Dilnot Commission Fairer care funding: Reforming the funding of adult social care was widely trailed before publication on Monday 4 July. Then it received only moderate press coverage. And then it was buried – like almost every other news story – by the media feeding frenzy over the News of the World phone hacking scandal.
This was trading one kind of shame for another: the Commission led by the economist Andrew Dilnot deserved much greater consideration, as it has been addressing one of the biggest issues of our day, and for future generations: how are we going to fund care for the elderly as their numbers swell to unprecedented levels?
The problem
Britain’s age-structure is beginning to look like an inverted pyramid, with a growing elderly population supported by ever fewer tax-paying income-earners. There are currently 1.4 million people aged over 85; in 25 years’ time there will be 3.6 million. The cost of their care is set to escalate relentlessly, yet the Government is facing ever-diminishing resources to pay for them.
Overall costs of adult social care are forecast to rise from £14.5 billion in the current year to £22.8 billion in 15 years’ time – in other words, by about 60% within the lifetime of many of those retiring now.
To put these amounts in context, the NHS currently costs about £100 billion per annum.
Today, the burden falls heavily on the individual. The elderly can face a long old age in which they may see their assets whittled away by care costs until they reach a point – a net asset value of £23,250 – at which their local authority is legally obliged to step in. One in five pensioners ends up spending more that £100,000 on care, and every year 20,000 of them are forced to sell their homes to pay for care.
Increasing numbers of the elderly end their days with dementia, in fulltime care, and this has to be paid for from their own funds, or by their families. Yet, other diseases are paid for by the NHS. This is why private funding for care in old age has been labelled a “Dementia Tax”.
The Dilnot Commission aimed to place this scenario on a more stable and equitable footing, by proposing a means by which – through predictable and capped funding – the elderly could at least face old age without fear of unlimited financial liabilities.
The proposals
The Dilnot Report has put forward a series of proposals which are now being considered by the government.
It proposes that any adult should only have to contribute to his or her care costs up to a capped maximum: £35,000 is Dilnot’s suggestion (and no more than £50,000).
The means-tested limit for assets before state help kicks in should be raised from the current £23,250 to £100,000. In other words, if your net worth is less than £100,000 (including property), you will not have to contribute to care costs.
A cap of £35,000 would seem generous, given that care homes may cost £30,000 a year. But this £35,000 is just a guide price at the moment, and only covers care costs: pensioners in care would still have to cover the living costs (bed and board), but these too could be capped at proposed maximum of £10,000 a year.
So the costs of private provision still remain high, but at least they are capped and predictable, and with fixed and predictable limits it should be easier for pensioners to make the necessary provisions from savings, buying insurance, and borrowing against property values.
Shortfall
Under the Dilnot proposals, the Government will finance care for all those who escape charges because of the caps. It is estimated that this will cost £1.7 billion per annum at the start of the scheme, doubling to £3.6 billion by 2025 – in other words adding 16% to the £22.8 billion estimated total cost quoted above.
This is not an attractive proposition to a Government struggling to cut back on Public Sector spending in any way possible to reduce the deficit.
To pre-empt that response, the Dilnot Report suggests there could be a “specific tax increase” on pensioners: “It would seem sensible for at least a part of the burden to fall on those over state pension age. If the Government decided to raise additional revenue, we believe it would be sensible to do so through an existing tax, rather than creating a new tax.”
One such proposal is to rescind the exemption for National Insurance contributions currently given to everyone who has reached the state pension age.
Outside the report, others have suggested state funding of care could be covered by taking a fresh look at the winter fuel allowance for the over-60s, which alone costs £3 billion a year and goes to very large numbers of people who do not need it. Likewise, other universal (not means-tested) benefits granted to the elderly, notably free bus passes and TV licences, could be reviewed.
If the Government is serious about social care reform funded by changes to these cherished benefits, it is going to have start with the politics of persuasion sooner rather than later.
Intergenerational concern
Needless to say, the powerful lobby for the elderly has not welcomed the idea of its constituents being targeted through tax or changes to benefits, even if these measures are specifically designed to pay for their care.
But unless that funding gap of £1.7 billion, and rising, is covered in some way by pensioners, it will have to come from other government funds – i.e. through cuts to services in other areas, or broader taxation – which means the burden will fall on younger taxpayers, and all future generations of taxpayer.
Politics will come into play. All political parties have sworn to co-operate on this issue, but all are equally are beholden to the elderly, and not just out of a sense of civilised decency: Britain’s 11 million pensioners disproportionately turn out to vote.
On the other hand, there is greater currency for the argument that those enjoying state help should be prepared to pay for it. It has been applied to university tuition fees. Should the elderly be immune from it?
Of course in the long-term, creating a stable and predictable framework for funding old age will benefit all generations. The young should benefit from it in turn, when their time for retirement comes, provided that, collectively, they have the kind of property assets on which the Dilnot scheme relies – which is by no means a certainty, to judge from the current housing market.
But this still leaves the critical question unanswered: who pays in the medium term, to cover current underfunding, before the system is properly bedded down?
Intergenerational fairness
Essentially, we are between a rock and hard place. If we continue as we are, the majority of elderly people face the prospect of an impoverished and massively underfunded old age. On the other hand, any extra funding that the government takes on will end up on the doormat of the future tax-paying public.
The Dilnot Report has tried to steer a path between the two. The Government response has been decidedly lukewarm. So will it accept Dilnot’s figures? Predictions suggest that it may accept most of the recommendations, while trying to keep the public spending liabilities to a minimum.
The Government has promised a White Paper by next spring. This is an issue that cannot be dodged: it is a test case for intergenerational fairness and, to achieve that, compromises will have to be made on both sides.