How to fund Britain’s social care system
British governments on the left and the right have promised for 20 years to fix the country’s broken social care system. There have been white papers, green papers, commissions and reviews, yet social care has remained unreformed and underfunded. Boris Johnson’s government is right, then, to face up to the need to raise taxes to make the sector more sustainable. But it is on the brink of choosing the wrong way to go about it.
The need for more money is clear. Under the current system, some people have to sell their homes to pay for spiralling care costs, while too many others without private means are not receiving the publicly funded care they need. Between 2015-16 and 2019-20, the number of adults receiving long-term support arranged by local authorities fell from 873,000 to 839,000 even as the population aged. Meanwhile, because local authorities with tight budgets pay private care providers as little as possible, the 1.5m people who work in social care struggle with low pay, zero-hours contracts and insufficient training. Brexit and the pandemic have exacerbated long-running recruitment problems.
In need of about £10bn a year to implement reforms, the government is considering a 1 percentage point rise in national insurance contributions (badged as a special care levy). Ministers are right to seek a sustainable funding solution, but there are three reasons why they should think again about using national insurance.
First, it would put an unfair burden on younger people, since national insurance contributions are only paid by workers under the state pension age. It is hyperbolic to say the policy would amount to the struggling, renting, student-debt-mired young having to fork out to spare the old from selling their nice houses — not least because almost half of the adult social care bill is spent on people of working age with support needs. Nonetheless, older people who can afford to pay their share of the tax bill should be expected to do so.
Second, raising national insurance contributions would be less progressive than raising income tax. National insurance is only paid on wages, whereas income tax includes other sources of income such as investments and property. National insurance also has an upper earnings limit, and the threshold at which people have to start paying it is lower than income tax.
Third, raising national insurance contributions would widen the tax disparity between employment and self-employment — a problem that is already distorting the labour market and depriving people of employment rights by providing an incentive to companies to classify staff as self-employed in a wholly bogus way.
To be fair to the government, it is not easy to raise such a large sum, and it wants to find a solution that would be not just simple to implement but also politically possible. There is a theory that national insurance is a more palatable option because people associate the tax with funding the NHS already. If ministers must insist upon this route, they should at least extend the tax to workers who are above retirement age. But the better option would be to base the levy on the income tax system, even if political practicalities mean it must be called something else. Unlike national insurance, this would spread the burden across all of those able to afford it.
We may all need people to care for us at some point in our lives. It is time to make the system more equitable and less threadbare, both for those who receive care and those who provide it. Finding a fair way to pay for it is also crucial.