UK social care needs an overhaul — but stealth taxes are not the answer

UK social care updates

Sign up to myFT Daily Digest to be the first to know about UK social care news.

How will it all be paid for? As the tidal waves of the pandemic recede, they reveal a fiscal landscape pitted with black holes. Governments whose borrowing has reached wartime levels will have little choice but to raise taxes eventually. The only question is which taxes, and on who.

The answer, in the UK, is starting to take shape. Ministers are considering raising national insurance contributions, or NICs, to fund both the NHS and social care. Bunging the two together would be a politically cunning response to the problem, which dogs everyone who wants to improve social care: that most people think it’s “free”, like the NHS, so are outraged at being asked to pay for it. Raising national insurance in the name of the NHS is the least unpopular way to sting the public, which is why Gordon Brown did it in 2002.

It would be tragic, though, if we had to use a stealth tax to fund social care. That’s what National Insurance is, really: a tax on earnings, which raises a lot of money but is taken before you get your payslip. In addition to being less visible than income tax, the public fondly believes that NICs are ringfenced to fund pensions and the NHS, when in fact they just go into the general pool. NICs are also a tax on the young, from which the over-67s are exempt, which would create an unconscionable imbalance between the generations.

Rather than try and slip this under the radar, it would be better to grasp the nettle and tell the public the truth: that if you get dementia or Parkinson’s, the NHS isn’t coming to the rescue. That the care system is held together with love, sweat and petrol, by families and low-paid workers who can’t take it any more. That we have rising numbers of adults under 65 with learning disabilities, who now make up about a quarter of the budget, and rising numbers of elderly who are getting frailer. That we all need to save more for our old age, if we possibly can; and that the NHS and social care urgently need reform, not just more cash poured into the bottomless pit. 

That’s the kind of big conversation that Germany and Japan had in the mid-90s and early 2000s, when they laid the groundwork for the comprehensive care insurance systems they have today. Back in 1994, Germany’s care system looked about as frayed as England’s does now. Central and local government crafted a new deal to make sure that everyone got something, no one got something for nothing, and everyone — workers, employers, pensioners — put something into a compulsory fund. What clinched the deal was abolishing the unpopular means-test and charging the old more than the young. 

When I went to Japan and interviewed people about their similar model, I found that younger people had more faith in it than in their state pensions because the social care fund is so transparent.

These systems are not perfect, and are still evolving. But both countries have been able to create funds in which everyone has a stake. This is a world away from a simple hike in NICs, which would have the perverse effect of hitting the employed harder than the self-employed, who are exempt from NI, charging low earners more than they would pay through an income tax rise and letting older people off scot free.

Big numbers are being thrown around. Andrew Dilnot, the economist, has estimated that social care needs £10bn a year. The recent NHS pay rise will cost about £1.5bn, let alone the additional resources that may be needed to help tackle hospital waiting lists. This government has already announced its intention to reverse the corporation tax cuts made by its Tory predecessors, but that won’t give the chancellor the headroom he wants to let the prime minister keep spending. There is a case for a short-term increase in NICs, to help the NHS work through the backlog of the pandemic. But a hypothecated tax won’t provide long-term stability for social care. 

Social care is the iceberg of politics because few people collide with it and not everyone needs it even in their final years. But the pandemic has brought greater awareness of what care workers do. This provides an opportunity to craft a new settlement, Beveridge-style. But it would mean putting everything on the table. The Treasury should be analysing benefits in the round: including pensions, disability payments and NHS continuing healthcare. It feels perverse to retain the triple-lock on pensions, for example, while exempting older people from NICs. 

I don’t envy the politicians who have been dumped on by previous regimes’ reluctance to address the issues. Unlike pensions, social care is not universal, so you are asking people to pay for something they may never need. The political imperative is to break the impasse on funding and provide a sense of momentum towards achieving the prime minister’s pledge to fix the issue. But the long-term national interest requires a solution that is genuinely sustainable. 

Ever since this government came to power, Downing Street has been debating the proposals by Dilnot, to protect the significant minority who will need very high levels of care over many years. The idea is to cap lifetime costs before the state steps in. As in Germany, those costs would not include bed and board, so politicians are nervous that it wouldn’t be an actual limit on what you’d have to spend if you put your relative in a care home, for example. None of us know who will need help — so we must be prepared to pool the risk and share the burden with each other. But as ministers enter the last round of pass-the-parcel, they must be transparent. Stealth taxes are not the solution. 

The writer, a former head of the Number 10 Policy Unit, is a Harvard senior fellow