Gerald Holtham and Tegid Roberts make the case for a system of enhanced social insurance, to meet the escalating costs of social care
Social care, particularly for the elderly faces a serious squeeze in Wales, not to say a crisis. Local authority spending per older person has declined over the last seven years by around 13%, according to Joseph Ogle, Research Assistant, and Michael Trickey, Programme Director, at Wales Public Services 2025. The latest figures for annual local authority spending on social services for the over-65s are just under £0.55 billion (2016-17 prices).
The proportion of elderly people in the population requiring residential care is projected to rise by 82 per cent by 2035 and the proportion requiring non-residential care to rise by 67 per cent. Expenditure overall will need to rise by 75- 80 per cent to account for that and if the recent deterioration in spending per head is to be reversed spending would need to double. That is consistent with the finding of the Health Foundation which concluded that adult social care funding in would need to rise by 4% in real terms each year for most of the next two decades. Meanwhile the Welsh budget under austerity will grow much slower than that.
Absence of adequate social care provision not only leads to suffering in itself but often shows up as a crisis in the health service because elderly people with chronic conditions end up in hospital and stay there because there is nowhere where they can be safely discharged. That creates a pressure on available beds triggering problems elsewhere in the health system. It also results in time-consuming, soul-destroying haggling over resources between health and care service personnel.
With a small sacrifice Wales can tackle this problem via a system of enhanced social insurance. A very small levy on Welsh residents could feed a dedicated social security fund that meant everyone could be promised adequate social care in old age – a promise that cannot otherwise be made or kept. It could improve the present situation where old people have to sell homes or other assets to fund residential care when they need it. And the fund would have other great benefits because it would have to be invested and could be used to boost social housing construction and the growth of promising Welsh businesses.
The levy would differ from a tax in that the receipts would not go into a general government budget. They would be hypothecated to a fund with independent trustees. A portion of those receipts would go to local authorities to expand social care provision straight away. The greater part of the receipts would be held back for future needs and meanwhile invested to grow over time and enable even greater social provision to be made in the future as the population ages.
That investment would mainly have to be in super safe assets like UK government bonds or the shares of blue-chip companies. But some could be invested in property. Funds could be made available to build social housing whose rents would pay back the money. A small part could be invested in growing Welsh businesses to help the economy as well as providing returns for the fund. A by-product of tackling the prospective social care crisis would be the build up of Wales’ own sovereign wealth fund.
If ever a policy met the objectives of the Future Generations Act, this would be it. The country would be saving to meet the old-age social care requirements of current and future generations and in the process investing in worthwhile assets and enterprises.
How might it work? There are currently some 1.4 million people working in Wales with an average income of about £29,000 a year. Income below £8000 is not liable for national insurance contributions and would not pay the levy. That still leaves annual pay of £2.8 billion (1.4 million times £20,000). If Welsh workers paid a levy of just 1 per cent, that could bring in some £280 million a year. There are different ways to carve that up. At most £80 million could go immediately to social care, leaving £200 million a year to accumulate in the fund. That would be an immediate increase of 15 per cent in social care spending for the elderly.
The £200 million could be invested to provide a return; 5 per cent should be achievable without undue risk. Meanwhile to bridge the care gap that immediate £80 million allocation would need to grow at 11 per cent a year. If the fund started in 2019, that growth would take the allocation to £400 million and would enable care spending to more than double in real terms by 2035 closing the funding gap. The money in the fund would be growing too, right up to 2035. After 5 years it could amount to over £1 billion and after 16 years it could be at £2.6 billion. The fund would need to be over £2 billion at that point to maintain the promise of care for all contributors into the indefinite future.
Of the money going in each year (growing as nominal pay does), some could be invested in rock-solid government bonds, the largest part in blue-chip, high income stocks and a a smaller part for social housing and/ or investments in Welsh growth companies. Imagine the benefit if, for example, an additional £20 million a year was being invested in social housing and nearly £10 million in venture capital in Wales. Over a decade and a half these sorts of investment could amount to £400 million.
The fund’s mandate would be set at the outset. It would have its own board of trustees and the investments put in the hands of professionals of proven competence. The fund’s existence would give people confidence that the levy was truly hypothecated to social care and could not be siphoned off for other uses.
Suppose investments are successful and the fund grows at least as fast as needed to underpin social care. To give levy payers a bit of fun the trustees could declare a dividend in the form of a premium-bond style payout to random winners. A £1 million prize once a year would create public interest without making a dent in the fund.
Now when people claim some social benefits like old age pensions they have to show a record of national insurance contributions. Inadequate contributions mean a lower pension. Under the levy scheme younger workers would be paying in for much longer than older ones in order to secure the same promise of care in old age. To make the system fairer, younger workers should therefore pay at a lower rate than older ones, who will not pay for so long. Obviously various schemes are possible. Workers under 35 would pay less than 1 per cent, those in the 35-50 range would pay around 1 per cent and workers over 50 would pay a bit more up to a limit of 2 per cent. On an income of £500 a week, just below the Wales average, the weekly payment would be between £1.75 and £7.
No one likes paying insurance premiums, even with a lottery ticket attached. Yet those seem reasonable sums for the assurance of dignity and care in old age and the knowledge that the country is benefiting from its very own community fund able to make investments that improve the economy and life in other ways.
This kind of thinking has got to be welcomed as it addresses arguably the biggest single social policy challenge of our times; more money has to come from somewhere and this seems a fair and sustainable way of doing so. However while I can see how it would boost spending on social care initially there are two issues that concern me; firstly how would you avoid the risk that Government bodies (at both WG and LA level) actually reduce their spending as the new fund starts delivering, and secondly it’s not clear from this article how this approach guarantees better care for individuals rather than just more money in the system controlled by the state? Such a novel way of raising money needs to be seen to deliver for older people to retain its credibility and that will mean demonstrably better services than many people get now rather than just a bit more of the same
We know there has been considerable migration of older people into Wales over the last decade. Under your proposal these people will not have made a contribution to the scheme, but I assume local authority spend would cover them. How would you deal with that?
Lee, The scheme would be contributory – like national insurance. Your old age pension entitlement depends on a record of NI contributions. This would work similarly. There would be a default level of support for social care of the elderly , much the same as in England. To enjoy a greater level of support a person would have to have a record of contributions. A detailed scheme of contributions and benefits is required. We have so far worked out only the contributions side.
Chris Johnes, you are right that for the scheme to enjoy support it must promise identifiably better care. At present people choose their care source and support is provided from local authorities. The Welsh government would need to guarantee a given level of support to all fund contributors who need it. That guarantee would oblige it to keep providing funds from the central budget because the fund alone would not be able to meet the guarantee. The default level of support is that available in England and clearly contributors must get something substantially better. We have not yet worked out exactly what could be promised from the size of fund projected. It may be that there would have to be tighter regulation of local authority care provision to ensure that fund contributors got much the same provision wherever in Wales they lived. However, we are not proposing nationalisation of social care provision for the elderly. However care is provided, though, extra resources will be needed to fund it.
Is it possible to get a link to the research please?
The proposal for us all to pay a small levy towards our social care needs in older age is, on the face of it a simple solution to the costs and pressures of meeting the needs of the growing older population but it will not, on its own, solve the problems we face.
Huge amounts of public money are spent every year determining if an individual’s need falls under health or social care and, for some people, this is a moveable feast depending on their state of health in a given week. Whilst health care provision carries high stakes politically, social care is only just starting to move into the political and public conscience. The fight over budget lines prevents collaborative and imaginative solution focussed approaches to the delivery of care for older people being successful.
Years of inadequate planning and commissioning and funding of social care services along with the fundamental philosophical conflict of public versus private provision has resulted in a fractured two tier service. This is directly experienced by those with independent means to purchase excellent care and support and those reliant on the state to meet their ‘substantial and critical needs.’ Stories of neglect and poor care further undermine confidence in the sector for people who are in need of care and the workforce.
A ring fenced fund which ensures that good standards of care can be afforded for all will only succeed if it is accompanied by a clear and robust strategy for providing a sustainable range of services with the flexibility to meet people’s individual needs and wishes now and in the future.
I am sure Anne Thomas is right. I do believe social insurance tackles one large problem – finance. It does not address all problems. It will be necessary too to get the supply-side of social care right.