Damian Green’s proposal for ‘fixing the care crisis’ – a point of view
May 3, 2019 | BLOG
By: Les Mayhew
Damian Green’s paper on ‘Fixing the Care Crisis’ is a welcome contribution to the seemingly never-ending debate on how to fund social care. Many of the ideas within the paper are not new, for example what he calls the ‘care supplement’ echoes ideas that we at Cass Business School have set out in several previous publications with our ILC research partners– especially involving the use of housing wealth to pay for insurance or care annuities (see list below). The key new idea his paper brings to the table is that of a universal entitlement covering basic care needs – and here he draws a parallel with the universal state pension to which everybody is entitled provided they meet the eligibility criteria.
The idea is worth examining for several reasons. First and foremost, it gets rid of the means test in which a person’s contribution to the cost of care depends on their income and wealth. The means test brings unwelcome uncertainty and complexity to the care system. It is a distraction because it is both a barrier to saving for care and an invitation to game the present system – for example, by squirreling assets away from the local authority. But another problem is that it delays transfer in to care – sometimes for months. In addition, it penalises people that have saved for their care by reducing their means- tested entitlement pound for pound in certain circumstances.
However Damian Green’s proposal doesn’t address all the issues. The creation of an ‘all singing and dancing’ system was never going to be easy. Individual needs vary enormously; there are wide geographical variations in the cost and quality of care, and also ability to pay. A universal basic offer would give people greater certainty and remove some of these barriers to planning for future care needs but it can never provide a full answer. Entitlement must be sensitive to need – perhaps more like child benefit than the state pension in which each extra ‘child’ (i.e. need) produces higher entitlement. But dealing with cost variations across the country will be difficult in a cash-based system rather than one which offers a defined care package.
The proposal still leaves local authorities with the job of making care assessments but it would relieve them of certain of the administratively intensive financial duties. However, there would be reduced scope to set their own budgets to deal with other pressing local needs. The advantages of maintaining organisational distinction between the care provision and the NHS is well argued, but more consideration must be given to the lack of information sharing. Something akin to medical records but with controlled accessed by qualified care workers and GPs, could bring with it significant efficiencies, including a better use of hospital beds.
Incentivising people to plan for their care at around age 60 is not a new idea new but it is good to see it included here. However, insurance models are based on a rather risky assumption that people would be willing to pay up front insurance premiums of, say, £10-£20k for something they hope never to need. This kind of product has been tried before and abandoned, because the truth is that people with spare cash on retirement would rather spend it on something else. Paying by regular monthly payments is an alternative but the issue here is whether people on low retirement incomes could afford them since it could affect their ability to pay for daily essentials.
For the significant percentage of the population that own their own homes a product that is paid for from housing wealth seems much more attractive, especially if premium payment is deferred until death or transfer into a care home. A Demos report in 2014 made a similar proposal. This kind of contract might also help in estate planning in which some of the wealth would disappear anyway in death duties. For the rest of the population, experience suggests that saving for care is deeply unattractive especially if there are more enjoyable ways to spend money. However there might be ways to make it more appealing – for example through a personal care savings bonds, run along the lines of the hugely popular premium bond, combining a modest rate of interest with the fun of winning cash prizes.
Whilst it is not possible at this stage to evaluate the consequential costs of Damian Green’s proposal, it does merit further consideration. The ‘mixed economy’ of income streams and providers seems to fit well with the grain of human behaviour and with tried and tested universal benefits such as the state pension. The idea of paying extra national insurance from around age 50 is also mentioned in the report. This idea has been used in Japan for years, using a mix of local and national funding coupled with a system of universal care assessment.
One caveat is that economic inactivity increases after around age 55, thereby reducing the tax base. It is also worth adding that no national insurance is due on people age 65 plus which can be seen as being slightly ironic. In other words it would not make much sense to increase NI on this age group whilst leaving the 65+ workers exempt. Finally, don’t forget that the transitional costs of moving to a new system will also result in higher costs up front – not a trivial issue! In conclusion we should embrace this paper as being a helpful contribution to the debate on how, as a society, we pay for social and long term care. But a huge amount of work is needed before it is fully fledged.
Prof. Les Mayhew
ILC Advisor, Professor of Statistics, Cass Business School, City University, London
Les Mayhew is a member of the ILC’s Academic Advisory Board. He is Professor of Statistics at Cass Business School, City University, London in the Faculty of Actuarial Science and Insurance, and Managing Director of Mayhew Harper Associates Ltd. He is a former senior civil servant with nearly 20 years of experience in the Department of Health and Social Security, Department of Social Security, HM Treasury and Office for National Statistics, where he was also a director.
He is an Associate Research Scholar at the International Institute for Applied Systems Analysis (IIASA), Vienna, and an Honorary Fellow of the Institute of Actuaries and a member of the Royal Economic Society. He specialises in demographic ageing, inequalities, health and social care, and pensions. In 2004, he co-authored a book entitled the ‘Economic Impacts of Population Ageing in Japan’ and in 2010 wrote a commissioned report for the Prime Minister’s Strategy Unit entitled ‘The Economic Value of Healthy Ageing, and is author of the Dependency Trap – Are we fit enough to face the future published in 2018.