Paying for Social Care

The current crisis in the NHS should be persuading us to re-consider the idea of a 10 per cent retirement levy to pay for social care. Everyone knows that bed- blocking is at the root of the over-crowding in our hospitals and the long waits for ambulances and in accident and emergency departments. But “delayed discharge” cannot be solved without more resources in home care and nursing homes. Massively more resources.

The lack of political courage over this issue is shameful, from all parties. Back in 2011, the Dilmot Report called for something to be done. Since then, Andy Burnham’s attempt to introduce a 10 per cent retirement levy was abandoned, even by his own Labour Party. It was ignored by the Coalition. Theresa May and Boris Johnson made various suggestions but quickly backed away from them. And Rishi Sunak thinks that by spooning out a little more money for the NHS will solve the problem.

The issue is much bigger than that, with Britain’s population aging as fast as it is. Age UK reckons we need £10bn a year extra to fund a National Care Service similar to the NHS. To raise that kind of money, we need a radical solution. An obvious source of money is a tax on wealth, and most pensioners have plenty of it.

So the idea is to impose a 10 per cent one-off levy on every citizen’s wealth at the age of 65 or at the point of retirement, whichever is sooner. And by “wealth” I mean the value of any property owned, any pension pot or savings and investments. So if 500,000 people were to reach retirement each year in Britain and the average citizen had £100,000 of wealth, the £10,000 they would pay in levy would raise £5bn a year, the sort of money we are requiring, above and beyond what we already spend on social care.

In return, the social care costs of every citizen would be met by the National Care Service, whenever they needed it. It was estimated by the Dilmot Report that 4 per cent of us by the age of 65 would need a nursing home and 15 per cent by the age of 85. The weekly cost of a place in a nursing home is around £1,500. Even minimal care at home costs an average of £200 a week. Just like the NHS, a properly funded care system is an insurance against misfortune. Most people enjoy a trouble-free retirement but many do not. And it’s usually no fault of their own.

Such a system is not only a comfort to us all in our old age, it is a sign of a civilised society that it looks after its frailer members. And it has the added advantage of freeing up the NHS to do the jobs it was designed for, to cure us of our illnesses and mend us when he have accidents.

Radical ideas like this are just what the Liberal Democrats should be developing and advocating, freed, as we are, from the temptations of winning power for ourselves and having to please all of the people, all of the time. We are the party that can make democracy actually work.

I have taken the step of drawing up a formal motion on a 10 per cent retirement levy to put to our Scottish Conference in the autumn. And it will be interesting to see whether there are other brave members prepared to support it. And whether it could be applied in Scotland first. There is nothing in the list of “reserved” powers to Westminster that I can see prevents it. But no doubt some small-state Tory will take that point to the Supreme Court.

* John Knox is a member of Edinburgh South Liberal Democrats, a retired journalist and a recent council candidate.

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  • How would the 10% be paid if the person’s ‘wealth’ was in their home? The only way to take equity out of a home currently is equity release, which is a lifetime mortgage – a debt that accrues interest.
    A pension pot of £100k, at current rates, would get you an income of £8k a year (on top of state pension). It, like other investments, is subject to the markets. There were funds during the Liz Truss weeks that lost 40%. If
    How would you ‘sell’ the idea that people who had put money away every month during the working lives would have to pay 10% of it back, when people who’d chosen not to pay into a pension wouldn’t? Wouldn’t this discourage people from saving for a pension in the first place?

  • cut me off mid-edit!
    ….that lost 40%. If you taxed someone £10k and a week later their investments plummeted 40%, would it be ‘tough luck?’
    Would you take the 10% before or after they turned the funds into an annuity? Tax the £100k, or the £8k every year?

  • Steve Trevethan 15th Jan '23 - 6:03pm

    Thank you for an important article!
    Let’s hope it gets a decent hearing for itself.
    Anything which might move our leadership away from its apparent current policy of “Organised Timidity” is to be welcomed!

  • Mel Borthwaite 15th Jan '23 - 7:19pm

    I wonder if there is an equality issue here. Women on average get more years living on a state retirement pension than men since they get the pension at the same age but on average live longer. In addition to this we know that woman, on average, are more likely to need care home provision than men. We also know that men, on average, are more likely to have worked full-time, for longer, and therefore have larger pensions. Therefore suggesting the same percentage levy for both sexes at age 65 will raise more income from men which will then be used, disproportionately, to benefit women. Is an Equality Impact Assessment not required in situations such as this?

  • Trevor Andrews 16th Jan '23 - 9:07am

    I agree with Casie on the the practical aspects of a normal pensioner raising the levy costs. Also Mel on gender equality.

    So I would just add another location equality. Property values and incomes vary across the country and some will be paying more than others. You sell your two up two down house in London to pay the levy (£50,000 circa) and then move to the country to buy something you can afford where services may not be as good.

    There must be a better, easier and fairer way.

  • Carolyn Ramsbottom 16th Jan '23 - 10:09am

    So how would this work John? My house is worth around £160,000 but my only income is the state pension. So do you expect someone like me to go into debt to raise the £16,000. I have a small amount of savings, but under your idea what incentive would anyone have to save anything if they knew it was going to be taken away on retirement.

  • David Garlick 16th Jan '23 - 10:22am

    An interesting idea but..
    I can see the accountants/lawyers rubbing their hands with anticipation of many, many clients seeking to reduce their wealth pre 65yoa.
    People who need care should pay for it on the basis of their ability to pay (see the above re accountants) and the best way of raising the money is through working time taxation which is based on ability to pay in line with earnings as is NI another way to do it.
    The solutions are there already we don’t need another. We do need the courage to implement it, selling it as the way to improve the NHS and then over delivering on under promise.

  • Simon McGrath 16th Jan '23 - 10:32am

    How did this work out for Theresa May when she proposed the ‘dementia tax’ in 2017 ?

  • Nonconformistradical 16th Jan '23 - 10:36am

    @David Garlick
    “the best way of raising the money is through working time taxation which is based on ability to pay in line with earnings as is NI another way to do it.”

    From which it appears you’d let retired people, irrespective of financial situation, get away without contributing?

    It seems to me that the situation has changed dramatically since the NHS was first created. It is expected to do a very great deal more for medical situations now. The issue of providing care for large numbers of people hadn’t really arisen given shorter life expectancies. The care element relates mostly (not entirely) to retired people doesn’t it?

    I’m struggling to see why better off retired people shouldn’t contribute – via normal taxation of their income, whatever its source. And why not simplify things by incorporating the personal element of NI contributions into taxation? (I haven’t thought through what to do about the employer part of NI).

  • Mel Borthwaite 16th Jan '23 - 11:11am

    As a question of principle, why should the state (ie all taxpayers) be expected to pay residential costs of people who have sufficient assets to pay the costs themselves? I like the Scottish arrangement where the personal and nursing costs of someone going into a Care Home are met by the state but the individuals are expected to pay their residential costs if their assets are above around £30,000. I know some will argue that the families of the old people concerned will object to their potential inheritance being sold off to pay for residential costs of Care Homes, but why should other people be expected to pay through taxation or a ‘wealth levy’ just to ensure that some people are able to inherit property from their elderly relatives?

  • I’d rather not be freed from the temptations of power and come up with something that would get more support than this is likely to get.

  • >I’m struggling to see why better off retired people shouldn’t contribute – via normal taxation of their income,
    Income from pensions IS taxed – at 20 per cent if your income is £12,571-£50,270 (higher rate tax above that).
    Maybe if that tax were ring fenced for social care, rather than going into the general Treasury pot?

  • Peter Davies 16th Jan '23 - 6:30pm

    “why should other people be expected to pay through taxation or a ‘wealth levy’ just to ensure that some people are able to inherit property from their elderly relatives?”

    The problem with the current system is its unpredictability. Some inherit all the wealth their parents accumulate while others get none because it has all been spent on care. Universal social care paid for by taxation of income from wealth (including capital gains) as well as inheritance tax would take a great deal of the luck out of it.

  • Nonconformistradical 16th Jan '23 - 7:49pm

    Yes – income from pensions etc. is taxed. But there is no NI charge. So pensioners would pay less to the government than someone still working and with the same amount of income.

    So incorporate NI charges into normal taxation so everyone pays it via (or on top of) their taxable income (whatever the source of that income).

  • Peter Martin 17th Jan '23 - 9:13am

    A wealth tax is a favourite of the political left but I’m not sure they’ve, or should I say we’ve, given it enough thought.

    The problem is that it, in most cases, doesn’t raise any extra spending money per se. For example if an elderly person owns £50k of Premium bonds the government will have accepted £50k in cash in return for the issue of £50k of bonds. Imposing a wealth tax of 10% will cause the bond holding to drop to £45k with the Government paying out £5k in cash which it immediately gets back as a tax payment. So what’s the point? The net effect on the economy in terms of the management if aggregate demand is zero.

    It’s a different matter when the elderly person dies. Then the £50k in bonds will pass to the person’s heir and is much more likely to be spent; and, which could add to inflationary pressures in the economy. This is the time to apply the tax. Taxation isn’t about raising money for Government to spend. It is imposed to give a value to the currency and regulate aggregate demand.

  • Laurence Cox 17th Jan '23 - 12:13pm

    Rather than introducing new taxes as the author suggests, why not just make income tax properly progressive by raising the additional rate (paid on income above £125,140 p.a.) from 45p to 60p. Earners in the income range £100,000-125,140 already pay an effective 60p in the £ in income tax rate through withdrawal of the personal allowance so we know this will not have a major effect on behaviour, and because it is a tax on income already received we know that people will be able to pay it, unlike the proposed 10% wealth tax which could have major social effects on pensioners who are wealth rich, but income poor.

    This wealth tax could very easily be portrayed by our political opponents as forcing poorer pensioners to sell their homes to pay the tax; not a vote-winner for us.

  • @Martin – “Is it possible to distinguish between social care and health care?”
    Yes, we do now and we should continue to do so!

    However, in typical conservative British fashion, we’ve created a couple of silo’d empires that don’t always join up and step together, particularly when it comes to hospital discharge of service users, such as elderly people, who until they were admitted to hospital were independently living at home and thus not in the system.

    For a successful Hospital discharge two factors have to align: firstly health care: the patient is medically fit and no longer needs the in-patient services of the hospital; secondly social care: they have somewhere to go to which has the necessary facilities and support services to enable them to live.

    From my experience in recent years, there is a need, for “convalescence homes”/”cruises” where people are able to regain health before being thrown back into their own home, thus helping to avoid the stupidity of the NHS attempting to discharge someone to their home which either isn’t adapted for their new level of mobility or is lacking in the support services (eg. shopping) necessary for that person to live in their home.

    I think also by keeping Social Care separate, we enable the debate about care in the community and the role played by family, neighbours and support groups. Remember the most cost-effective social care is that provided by family and friends.

  • Joseph Gerald Bourke 17th Jan '23 - 2:29pm

    The most effective way to Finance adult social care is a residential land value tax A Residential Land Value Tax approach to Funding Adult Social Care

    Experience with deferral of domestic rate assessments on property in Northern Ireland indicates that family beneficiaries of inherited property tend to pay annual assessments themselves as they arise, rather than letting a deferred tax debt build up until the property is sold from the estate.
    The effect is such that seniors social care becomes largely funded by the children of the elderly persons receiving the care as that care is delivered while the prospective beneficiaries of the property preserve the capital value of their inheritance intact.

  • After seeing today’s Guardian horror story about a group of ‘care’ homes, and knowing of some locally that have closed at short notice as the owners decided it was more profitable to turn the buildings into flats, I think funding isn’t the only issue that needs reform here.

  • Peter Hirst 18th Jan '23 - 4:47pm

    Paying for social care is something that should concern us all. A hypothecated tax similar to NI seems simple and fair. It is a form of insurance as none of us can be certain we won’t need it except the very wealthy. Also lack of funding might cause some of us to alter our family dynamics in a deleterious way for some. We should aim for more equality in old age as a substitute for less of it in our working lives.

  • Peter Davies 18th Jan '23 - 6:27pm

    NI is not a hypothecated tax. That’s a good thing. Hypothecated taxes don’t work.

  • For those interested in exploring the provision of joined up Health Care and Social Care further, this link is to a website devoted to what is happening in Northamptonshire:

    Interesting this handy guide to the new Integrated Care System terminology doesn’t seem to have been transferred across from the old website to the new.

  • This idea is potentially unworkable for the reasons laid out above. Namely taxing a finite pension pot which has to last an indeterminate time and levying a tax on an illiquid asset (a residential property) are both problematic. It will be wildly unpopular , especially after the press expresses it as ” The Liberal Democrats want to take your house and your pension.”

    It will, I suggest, be particularly unpopular in the Blue wall, especially if expressed as most pensioners have plenty of wealth.

  • Peter Martin 22nd Jan '23 - 11:24am

    “Experience…. indicates that family beneficiaries of inherited property tend to pay annual assessments themselves as they arise…… largely funded by the children of the elderly persons receiving the care …the prospective beneficiaries of the property preserve the capital value of their inheritance intact.”

    If the ‘prospective beneficiaries’ knew who they were in advance it wouldn’t make any arithmetical difference whether they paid as they went, or waited for their inheritance. Except, it may be quite difficult for many to find the payments necessary. In reality no-one knows what may, or may not, be written in any will. What if some are only paying on condition they are included in the inheritance? If they aren’t included they might well feel extremely disgruntled. It could lead to all kinds of legal challenges about the validity of any will, with accusations of coercion and malpractice

    It sounds like a legal minefield that we would do well to avoid. Setting up a transparent system to define how financial assets are to be used well in advance of any death would seem a sensible way of avoiding many family conflicts. We also need to recognise that social care is expensive and there may well be insufficient capital in many estates. There will be more than enough in others so some equalisation will be required.

    Short of some system of compulsory euthanasia, someone will end up having to pay for social care. This seems to be a better alternative that burdening the younger generations will ever increasing tax bills.

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