General election 2017 – Paying for social care: Dementia tax, death tax or just plain tax?
How we pay for social care is now emerging as one of the key issues in the general election campaign, with the pressure to find a solution made ever more urgent by our rapidly-ageing population.
Unlike healthcare, which is free at the point of need, social care is rationed. Local authorities provide free social care only to those who meet two qualifying criteria. Firstly a stringent assessment of care needs with the threshold to qualify rising as funding is squeezed. Secondly, assuming you are assessed as needing support, a means test which takes account of income and savings before a decision is made to provide free care. If you do not meet these two criteria then you pay for your own social care, or struggle on without.
What is social care? Social care refers to support with daily tasks such as washing, going to the toilet, dressing or preparing food, which some or all of us will need as we get older and less able to look after ourselves. The vast majority of social care is provided at home and is for acute need that goes beyond what can be met by family, friends or neighbours
Why are people dubbing the Conservatives manifesto proposals a dementia tax?
The Conservatives are proposing that entitlement for social care at home will now also take account of the value of people’s homes. Previously this provision only applied to residential care. As a result potentially hundreds of thousands of people who already receive local authority social care at home because they have low incomes (or who would in the future have done so) will lose that entitlement if they own their own home.
Dementia is one of the most expensive and long-lasting end of life conditions. It therefore exemplifies the current inequity in social care funding: that what you pay for care in the final years of life is a lottery that depends on the condition you have. In the case of dementia the costs, if you don’t qualify for local authority care, are potentially astronomical – hence the “dementia tax” tag.
In fact the Conservative proposals are not introducing a “dementia tax” – that already existed for those with income/saving above around £23,000 who would fail the local authority means test. The Conservative proposals are just vastly extending its reach to people on low incomes who own their own homes, who will now need to agree a mechanism for their local authority to recover care costs from the sale of their house after they and their spouse die. The intention was to mitigate its impact by also using the manifesto to announce that £100,000 of everyone’s estate would be protected. This is of course of no comfort to those who previously qualified for free social care in their homes. For better off pensioners however, particularly those who need residential care, there is a significant gain from the new £100,000 threshold, as previously only £23,250 of their assets were protected.
Case Study: Linda is 74 and lives in a two-bedroom semi-detached house in Guildford. When her husband left her and remarried she gave up her right to his pension as part of a settlement allowing her to keep the house that she and her daughter were living in. She did not pay into an occupational pension so receives the basic state pension plus attendance allowance. Two years ago she had a stroke and has difficulty walking and cannot use her right arm. Since then, she has had care visits twice a day provided by the local authority. Her daughter organises her shopping and her attendance allowance is spent on a cleaner, occasional gardening and repairs and essential taxi trips to the doctor or to do business at her bank. Because she owns her house, which is worth £300,000, she will now have to pay for her care visits out of the equity, as she already finds it hard to manage. She worries about how this will work after her death and desperately wants to have enough left to help her grandson get established in his own home.
What about the “Dilnot cap” on social care?
The Conservatives’ 2015 manifesto promised to protect people who have to pay for their care against potentially astronomical costs by “capping” their liability – known as the Dilnot cap because it was proposed by Sir Andrew Dilnot’s review of social care costs. This is the flip of a dementia tax. Instead of saying that you pay for all of your care from your housing wealth apart from the last £100,000, which, depending what your house is worth, could amount to vast amounts of money, the Dilnot cap says you pay everything up to a maximum threshold - £72,000 was the agreed level in 2015. Not only does this introduce greater equity into social care funding, while still requiring those with wealth to make a significant contribution, it also means that people can plan for their future needs with certainty about the costs and much less anxiety about what they and their families will become liable for.
The Labour party has signalled that it remains committed to some form of Dilnot cap alongside its manifesto proposals for wider reform of the care system to guarantee the quality of local authority provision and oversee the introduction of free end of life care. After the publication of their manifesto, the Conservative party indicated that they were also in favour of a cap on care costs alongside the £100,000 underpinning floor. Neither party has been specific about the level of the cap that they are considering.
Case study: Graham is 78, has dementia and has so far been looked after by his wife Susan, who is 80 and suffers from diabetes. They claim attendance allowance and have good occupational pensions which they use to pay for some extra daily support. However Graham's needs are becoming much more challenging and their children are now looking at options for residential care, which starts at around £40,000 a year. Graham and Susan live in a three bedroom detached house in Cambridge worth £500,000. Unless a cap on care costs is put in place in a reasonable timescale their children feel that the prospect of losing nearly all of the assets that their parents had built up over their lifetime is casting a shadow over their final years. They take small comfort in the fact that they will not have to sell the house to release the money until after their parents’ death.
What happened to the “death tax”?
The death tax refers to a proposal to make everyone who can afford it contribute towards the costs of social care. This would not be linked to what your care costs turned out to be – instead it would be like taking out an insurance policy. This would in effect make social care like healthcare – a system of “pooled risk”. It’s what we do when we insure our cars, our houses or our pets. Some people pay in and get nothing and some people get out more than they pay in if they suffer a loss. So in the case of house insurance, for examaple, because nobody knows whose house is going to burn down everyone buys into it to avoid being the one made destitute by a calamity.
Applying this principle to care costs, one proposal was to make everyone pay an insurance premium for social care, in the form of a lump sum paid at retirement or potentially deducted from people’s estates before inheritance (with protections for those with no assets). Immediately slated as a death tax when a figure of around £30,000 was proposed by the last Labour government, this became politically unacceptable for any party to pursue. If taken after death, it also has the big disadvantage of being a payment that falls due after your final care bill is known. It would be like asking you to pay an insurance premium on your house at the end of the year, when you now know that you weren’t burgled and it didn’t burn down.
A potentially more acceptable form of collective insurance would be to establish a social insurance fund that people pay into during their lifetime according to means, comparable to national insurance. This would be an equitable way of pooling risk, and one that many other counties such as Germany and Japan have already implemented. It’s big political disadvantage, especially to those on the right of the political spectrum? It’s a tax.
The Labour party manifesto has grasped the tax nettle. They are not at present proposing a generalised social care levy, although that is potentially on the table, but are focused on increasing the resources going into current provision of care. Their commitments on social care and other spending are currently largely driven by their proposals to raise tax on higher earners and businesses. The Liberal Democrats are rather more targeted, proposing a 1p increase in basic tax to fund increased funding on health and social care.
Case study: Kathleen is 90, widowed, and lives on her own in a two-bedroom bungalow on the outskirts of Manchester. She is frail and has limited mobility. She receives the state pension, attendance allowance and a small occupational pension from her late husband. She qualifies for free local authority care and as her bungalow is worth less than £100,000 she will not be affected by the new proposals. However her care visits are becoming increasingly rushed and limited in the support she gets and she also now finds it very difficult to get to the toilet or kitchen in the long periods inbetween visits. She spends long stretches sitting down and is often weak from the waits between meals. She recently had a fall when she tried to get up out of her chair and spent several days in hospital waiting for a re-assessment of her needs, even though she felt ready to come home. She feels she could still manage at home if she had a little more support during the day, but is worried about ending up back in hospital.
All parties recognise that there is a crisis in social care funding. All understand that we have a Jekyll and Hyde welfare system in which health care is provided free at the point of need and social care is rationed and means tested. You can die cheaply if you have an illness that puts you in hospital or expensively if you have a condition such as dementia which is not recognised as a medical need. No-one argues with the urgent need to integrate health and social care to deliver sensible decision-making and rational allocation of resources– this is in every manifesto.
What we now need is a cross-party commission to look at finding a long-term solution to how social care is funded. Only by locking all parties in will it be possible to resolve this crisis because whatever happens – including nothing – it will have to be paid for somehow – and that always means winners and losers. Working out the best and fairest way to do this, therefore, needs to be non-politicised.