Something must be done about social care costs: is pre-funding the answer?


by Rob Whiteman, CIPFA Chief Executive

How can the British people as a whole get good value from the government’s £1bn purchase of DUP support? One of the best bets would be for the government to press on with the Green Paper on how social care is funded and actually do something about an issue which successive administrations have recognised, yet shied away from tackling. There’s no shortage of advice on how to do this, notably the 2010 Dilnot Report, which proposed a cap on personal liability for social care costs, and Reform’s recent proposals in Social Care: A Pre-Funded Solution

There’s a strong consensus on what needs to change: the long-term financial unsustainability of the current approach as the numbers of older people increase, and the injustices built into arrangements for contributing to care. The two issues are not necessarily connected, but are sufficiently intertwined in practice to be best dealt with together.

Golden ratio

On funding, CIPFA has consistently maintained that spending should be based on a golden ratio of minimum GDP spend for the health and care sector as a whole to enable efficiency to be increased through longer term planning, and that the level should be set at a level which is consistent with a realistic costing of the government’s policy goals. Those goals should include reforming the system for financing social care. 

The simplest way to look at the issue of justice is to consider what types of inequity are caused by the existing set-up, and how they might be dealt with. There is actual or potential inequity in how comparable care needs are treated, in the life chances of individuals, and between generations. A sensible test of a Green Paper would be to ensure that those three types of inequity are dealt with adequately.

So far as comparable needs go, it’s a familiar criticism that your health can be a financial lottery: if you have cancer, you pay nothing, if you have Alzheimer’s disease you could lose the whole value of your house. The most radical ways to deal with this would be either to make social care free (too expensive) or else to introduce equalising hotel charges in health (too controversial). Some degree of imbalance between the payments made to meet health and social care needs is, therefore, inevitable, and the aim will be to mitigate them. Even within social care, there’s arguably an inequity, as property assets are taken into account only for residential care. The Conservative manifesto proposal addressed this through deferred charges for home care, and that makes some sense.

Dilnot and beyond

The Dilnot proposals were particularly strong in dealing with the differential impact on individuals’ life chances, even accepting that social care will have to be paid for by service users even if health care is not. Use of a cap would ensure that no individual would face the uninsurable but catastrophic impact of exceptionally high social care costs which impacts on a small minority of the population, thus reducing the sharpest results of bad luck or classification of the individual’s need as social care rather than health. Reform’s proposals are consistent with a Dilnot-style cap. However, Reform’s particular focus is on inter-generational inequity. 

The paper proposes a social insurance system as a replacement for the current ‘pay as you go’ arrangements: working-age people would compulsorily contribute a percentage of their income into a Later Life Care Fund, and these pooled savings would then be managed privately, before being used to fund the care costs of those that contributed, so generating sufficient funding and allowing the risk to be spread. The proposal avoids transferring wealth from younger, poorer generations to older, richer ones, and ensures in the long term that each generation will pay for its own social care needs. 

Reform's transition period

The practical problem with the Reform proposals is the transition period: in effect – though it may be dressed up differently – the tax system now needs to support the current generation of older people and save for future generations at the same time. It’s not far from that to the simpler alternative of increasing income tax and abandoning the triple lock on pensions, so generating the funds to implement the Dilnot proposals within, broadly, the current arrangements and with an improved reasonable balance between generations. Given taxation increases haven’t proved politically acceptable, will the pre-funded care proposal with a clearer link between the tax and its use for social care prove more palatable?

There aren’t, though, clear-cut right and wrong answers. What is clearly required is that one of the sets of options available is be chosen and implemented: doing nothing is the worst option. And the solution chosen should be tested to ensure that it is reasonably equitable between care types, between individuals with different uncontrollable life chance outcomes, and between generations.

Discover more

  • This issue will be explored in more depth at CIPFA and HFMA's Health and Social Care Conference on 21 September in London. To book on the conference visit the event page.