Long term funding of adult social care Contents

3Options for funding social care

How much funding is needed?

47.There is widespread agreement that more funding is needed for social care. However, deciding how much should be raised and how it should be spent is less straightforward. Meeting future demand is one consideration. Others include more ambitious reforms, including ensuring funding for good quality care, introducing free personal care, a cap on care costs and raising the means test threshold (or ‘floor’). We consider what each of these reforms might entail, and their costs, in the paragraphs below.

Meeting future demand

48.The demographic trends discussed previously will continue to exert pressure on social care services in the long term with corresponding implications for funding. The Office for National Statistics’ population projections show that the number of people aged 65 or over is expected to increase from 12.2 million (18% of the population) in 2018 to 16.7 million (23%) in 2033.106 Growth in older age groups is expected to outstrip growth in younger age groups: in 2033, there are expected to be 4.4 million more people aged 65 and over in the UK population, but just 1.5 million more under-65s.

49.The Personal Social Services Research Unit (PSSRU), a research group at the London School of Economics, has produced long-term care projections specifically with a view to informing discussion about future demand for and costs of adult social care. They have created models of activity and funding based on the current system in England which are used by the Department of Health and Social Care and the Office for Budget Responsibility (OBR). Their projections show that, between 2015 and 2040, the numbers of disabled older people will rise by 67%, and the number of older people with more severe disability will rise by 69%.107 For younger adults, the PSSRU draw on projections by Emerson which show that the number of younger adults with learning disabilities receiving local authority home care or direct payments will rise by 72.5% between 2015 and 2040 and that the number in local authority funded residential care will also rise by 72.5% during that period.108

50.At the same time, chronic conditions, which place demand on both health and social care services, are on the increase. The Institute for Fiscal Studies (IFS) and the Health Foundation estimate that the number of people living with a single chronic condition has grown by 4% a year, while the number living with multiple chronic conditions grew by 8% a year between 2003–4 and 2015–16.109 They link these rises to physical inactivity, poor diet, smoking and alcohol consumption, noting that increasing obesity levels have possibly offset falling smoking rates. ‘Multi-morbidity’ is also increasing: between 2015 and 2035, the proportion of people with four or more diseases will almost double, rising from 9.8% in 2015 to 17.0% in 2035.110

51.The PSSRU’s projections of demand for and costs of social care were frequently referenced in the evidence we received, and have been used in recent studies to calculate the potential costs of different social care funding options.111 The Unit has recently updated its projections. They project that that, at constant 2015 prices and under a set of base case assumptions about trends in the drivers of long-term care demand and in the unit costs of care services, public expenditure on social services for older people is projected to rise under the current funding system from around £7.2 billion (0.45% of GDP) in 2015 to £18.7 billion (0.73% of GDP) in 2040. They also project that public expenditure on social services for younger adults will rise under the current funding system from around £8.9 billion (0.55% of GDP) in 2015 to £21.2 billion (0.83% of GDP) in 2040.112

52.Based on the PSSRU’s estimates, the IFS and the Health Foundation have estimated that maintaining social care services at 2015–16 levels would require spending to increase by a projected 3.9% a year over the next 15 years.113 In addition, the OBR has made its own assessment of the increasing need to spend on social care. They state that “if governments choose to increase spending on health and social care to accommodate long-term cost and demand pressures—a plausible interpretation of unchanged policy—then spending would rise gradually but significantly over coming decades as a share of GDP”. In its 2017 Fiscal Risks Report, the OBR estimated that spending would rise from 1.1% of GDP in 2021–22 to 2.0% of GDP in 2066–67.114

53.In addition, we note the estimate provided by John Jackson of ADASS who estimated that the need to spend on social care (older people and working age adults) could double by 2020 (local authorities’ net expenditure on social care in 2017–18 was £14.8 billion).115 He explained how he arrived at this much higher figure:

You start with the £2 billion a year that we need by 2020 […] Then I am saying the pressures every year are an extra £800 million. In the first year it is £800 million and the second year it is £1.6 billion. After 10 years that totals £8 billion extra that you need to spend a year by 2030. I am also suggesting that if you want to improve care workers’ wages—and we would strongly support that—then you need quite a significant injection of money direct to those care workers. If you were to put up wages by 29%—and I have chosen 29% because that is what the lowest paid staff in the recent NHS settlement are going to get—then that will probably cost about £3 billion a year. I have to say that this is quite rough and ready; it is not scientific. There is an argument for having a much more scientific piece of work, but I would be very surprised if they came up with a figure that was significantly different from doubling the spending on adult social care, and that is just to let the current system carry on as it is now.116

54.We note, however, the difficulties inherent in forecasting need.117 We heard that there was therefore a need for regular independent forecasts of needs and funding requirements118 and that an independent body, like the OBR, should be tasked with this function.119 We note the recommendation made by the House of Lords Committee on the Long-term Sustainability of the NHS for an independent ‘Office for Health and Care Sustainability’ to advise on all matters relating to the long-term sustainability of health and social care including demographic trends, disease profiles, workforce and skills mix and funding, looking 15–20 years ahead.120 The CMA has also recommended that an independent body should be established to advise the Government on the costs of providing different types of care and provide data to local authorities to help them plan to meet local need for care, as well as overseeing their commissioning practices.121

Funding good care

55.The estimates we received indicate likely future expenditure on care if current policies are unchanged. However, as discussed in paragraphs 21 to 29, the care currently provided is falling well short of being good care—the sector is struggling to meet need and maintain quality in the context of rising demand, constrained budgets, a fragile provider market and a workforce under pressure. The amount of funding needed to ensure that care is of better quality in the future is therefore likely to be significantly higher. In accordance with the first of our principles for future social care, articulated above, we very much agree with Professor Martin Green, Chief Executive of Care England, who said that, when determining funding for social care, “we need to start from the basis of saying what it costs to provide good quality care, which is about giving people a life”.122

56.Our witnesses described what might be considered when determining what good care consists of. Andrea Sutcliffe, Chief Inspector of Adult Social Care at the CQC, said:

[It] has to be thinking about what are the needs that people have in their local communities and in the specific services, but also how we ensure that that is a service that meets their needs and aspirations, because we do not want people to be fearful of using adult social care services. We want them to see that as a positive thing that will help them to live the life that they want to live.123

Martin Green of Care England said:

It has to be very much focused on that positive approach that enables people to be as independent as possible, and services should be focused on that and maintaining people at the highest level of independence they can possibly have. It needs to be a preventive strategy as well as a service strategy. People need lives, not a series of services.124

Anna Bird of Scope suggested that “talking in real language about what disabled people and older people want” would help to set out what was expected of social care and enable it to be funded accordingly.125 Finally, we note the suggestion made by Sarah Pickup of the LGA that the Care Act 2014 was a starting point as “a good basis for setting out what we are all aspiring to do for people […] quality, innovation and focusing on wellbeing and prevention. All those things are [its] aspirations”.126 This legislation commanded wide support, not only for its provisions but also for the extensive consultation undertaken with the sector in its preparation.127

57.Determining the costs of good care will also require consideration of the level of pay needed to maintain a quality workforce and recruit and retain care workers and social care nurses. We heard that this may necessitate benchmarking the wages paid in the care sector against those in the NHS.128 John Jackson of ADASS pointed out that, in the forthcoming NHS settlement, the wages of some of the lowest paid staff in the NHS could increase by 29%, which he calculated would cost around £3 billion a year if applied to care workers’ wages.129 We note that recruiting, training, nurturing and retaining the workforce is key to the delivery of high quality social care.

58.In summary, and based on the challenges identified in paragraphs 21 to 29, in order to fund genuinely ‘good’ care, an assessment will need to be made of the costs required to:

Reforms

59.Defining and costing good care is an essential prerequisite to funding decisions on social care. Beyond this, proposals for more fundamental reforms of the social care system aim primarily to protect people from catastrophic care costs in different ways. Introducing a cap on the total amount an individual would have to pay, in conjunction with raising the means test threshold, was proposed by the 2011 Commission on the Funding of Care and Support131 and legislated for in the Care Act 2014 (but not implemented), with a modified version of these plans proposed in the Conservative Party manifesto last year. Making certain elements of social care free at the point of delivery to people with different levels of need is another way of reducing the risk of catastrophic care costs falling on individuals—in Scotland, free personal care was introduced in 2002,132 and the Barker Commission advocated a similar approach in England in 2014.133 As the text box below shows, there has been a long history of proposals to introduce both of these types of reforms, sometimes in conjunction with each other:

Past proposals for reforming social care funding [Source—House of Commons Library]134

  • 1999, March—the Royal Commission publishes its report:
    • recommendation of free personal care (following assessment of needs) funded by general taxation;
    • recommendation of a more generous means-test of £60,000 in 1999 prices (about £95,500 in 2016 prices) in respect of people funding their care relating to living costs and housing;
    • the idea (although not recommended by the Commission) of a four-year cap on paying social care charges;
  • 2000, July—the Government published its response in which it:
    • rejected the idea of free personal care;
    • uprated the main means-test parameters to take account of inflation, but did not implement the Commission’s proposal for a significantly more generous means-test;
    • gave no response to the cap idea;
    • accepted a number of other proposals by the Commission, including free NHS nursing care for care home residents, and a three-month disregard of the value of the home for those in care homes;
  • 2000, October—the Scottish Executive rejected the proposal for free personal care;
  • 2001, January—the Scottish Executive accepted the proposal for free personal care, which was implemented in Scotland from July 2002;
  • 2006—Sir Derek Wanless’s report, commissioned by the independent King’s Fund, proposed a move to “partnership” funding for social care;
  • 2009, July—the Government published a Green Paper proposing that a “National Care Service” be established;
  • 2010, March—the Labour Government’s White Paper proposed a two-year cap on paying for social care from 2014, and free-at-the-point-of-use social care for everyone at an unspecified point after 2015, with an independent commission to be established to consider how the policy should be funded;
  • 2011, July—the Commission published its report, and its recommendations included:
    • a £35,000 lifetime cap for paying for social care for over 65s;
    • a lifetime cap of zero for anyone who either entered adulthood with an existing care and support need, or who developed an eligible need before 40 years of age;
    • a lifetime cap of zero for anyone who had been in residential care for at least two years b a more generous means-test, with a new upper limit of £100,000, but the lower limit remaining at £14,250;efore the cap was introduced;
    • a more generous means-test, with a new upper limit of £100,000, but the lower limit remaining at £14,250;
    • a standard rate for services other than social care provided in a care home (e.g. accommodation, food) “in the range of £7,000 to £10,000 a year”;
  • 2012, July–2015, February–the Government develops its response, including:
    • a £72,000 lifetime cap on social care bills for all adults over 25;
    • a zero cap for life for people turning 18 with eligible care and support needs or developing eligible needs up to the age of 25;
    • only social care costs incurred after the cap was introduced to count as progress towards the cap;
    • the amount a local authority would have paid for social care to count towards the cap, rather than the actual amount a person had paid;
    • a more generous means-test with an upper limit of £118,000 for those whose home is included in the means-test or “around” £27,000 for those whose home isn’t, and the lower limit increased to “around” £17,000;
    • a standard contribution to daily living costs of £12,000 per annum for those care home residents with capital less than the appropriate upper limit;
    • reforms to be introduced in April 2016;
  • 2015, April—a number of reforms introduced including:
    • universal deferred payment arrangements;
    • new support for carers;
    • a new national level of care and support needs to make care and support more consistent across the country;
  • 2015, July—the Government announced the postponement of the introduction of the reforms, including the cap and more generous means-test, until April 2020;
  • 2017, May—during the General Election, the Conservative Party stated it would publish a Green Paper to include proposals on social care funding reform, which will include:
    • “an absolute limit on what people need to pay”;
    • a single £100,000 limit in the means-test;
    • the value of the home to be included in the means-test for those in receipt of domiciliary care; and
    • the extension of deferred payment arrangements to those receiving domiciliary care. (Later a cap at unspecified level was added to these proposals)

Cap and floor model

60.Our written evidence revealed a variety of views on the cap and floor. Some organisations opposed it on the basis that it would mainly benefit wealthier families135; others highlighted the perceived increase in bureaucracy.136 Others felt that raising the ‘floor’ or means test was fairer than introducing a cap, pointing to the Welsh model where the means test has recently increased to £40,000, without the introduction of a cap, as the same level of assets is protected however much money you have.137 However, there was strong support from some, including Care England, a body representing care providers:

The most recent reforms of adult social care set out in the Care Act 2014 and the associated Dilnot Review encapsulated a thorough examination of how to ensure a sustainable care system and put in place the legislative framework to deliver these reforms. The government undertook a wide-ranging consultation process and worked closely with the sector in co-producing solutions to the challenges and opportunities being faced by individuals, families, carers, care staff, providers and commissioners across the system, and it feels entirely counter-intuitive to re-run this all over again and risk further escalation of a situation already at a tipping point. Rather, Care England would encourage the Government to fulfil its previous public commitments to introducing the Care Cap and Threshold and utilize the legislation that is sitting in the stocks ready to go.138

61.The King’s Fund and Health Foundation provide the following commentary on the Conservative manifesto funding options for social care their recent analysis:

The inclusion of a cap on care costs and the proposed changes to the means test are likely to mean a more generous system for some, offering protection against catastrophic care costs. This option constitutes a policy that has previously received some support from across the political spectrum. However, there is a question as to whether this alone is the best use of increased spending on social care, given the complex pattern of ‘winners’ and ‘losers’ (some of whom will make big gains)

In principle, a cap on care costs would protect people from very high costs of care. However, the extent of this protection (and naturally, the cost to the Treasury) would depend entirely on where the cap was set. Even with the introduction of a cap and a floor, many people would still be liable for relatively high costs–including all care which falls outside of needs eligibility.

There is a risk that including property in the means test for domiciliary care would reduce the incentive for people to remain in their homes (although it is difficult to predict how behaviours would change in practice). This may be seen by many as unhelpful, given that current health and care policy is aimed at supporting people to live independently, and avoiding the need for long-term care as far as possible. Implementation of this system would be aided by the fact that some of the principles set out by the Dilnot Commission, such as a cap on costs, are already provided for through the 2014 Care Act. However, communicating this system—which has added complexity—to the public is likely to be difficult, given the limited understanding of the current system. It will, in practice, also be a very different system, with vast numbers of deferred payments perhaps becoming the norm.

As this offer is more generous to potential residential care users, there is a risk that it could create additional demand for residential care versus domiciliary care, running contrary to the long-term strategic direction of most local authorities.139

62.Sir Andrew Dilnot explained why a cap would reassure people: “Until a cap is introduced, the population as a whole faces no opportunity to pool its risks, so everybody is facing what is, I think, terrifying for them”.140 The Citizens’ Assembly members, when asked about different options for a means test and cap, felt that if people were funding their own care, a cap was important, with more than three quarters voting for the most generous option of £50,000. They felt a cap would “enable people to know where they stand”, “reduce anxiety” and “encourage people to save”. They also voted for a rise in the floor:

In discussion, Assembly Members felt that the current band—£14,250 to £23,250 assets—was too low. Some Assembly Members felt that a high ‘floor’ was important to incentivise people to save and that the ‘floor’ should increase over time to take account of rising costs.

Similar sentiments with regards to both the cap and floor were expressed by the people we spoke to during our focus group at New Deanery Care Home.

63.The difficulties inherent in determining the level at which a cap should be set were highlighted in the evidence we received,141 as were the administrative costs of introducing a cap.142 Independent Age said that their research had indicated that the £72,000 cap on care (but not accommodation) costs143 would have been “of limited value […] impact[ing] only 1 in 10 of those who currently pay for their own care” and that a £100,000 all-inclusive cap would be more effective.144 We also note that the level at which the means test threshold is set can affect an individual’s incentive to save.145 Whether the value of a person’s house is drawn upon to pay for their social care is a contentious issue. The Citizens’ Assembly members were asked to vote on this issue and their strong preference was that the value of a person’s house should not be included in the calculation of assets:

In discussion, Assembly Members felt that including the ‘family home’ in asset calculations was “not fair” and penalised home owners, with suggestions that it is a “tax on a lifestyle choice” and concern that “you are encouraged to buy, but then it is taken away—why bother?”. However, there were some Assembly Members who considered including housing to be the fairer option, as “property is an asset like any other savings” and “people with more pay more”. Some Assembly Members suggested that while the main ‘family home’ should be excluded, additional homes should be included.

Assembly Members also had some pragmatic reasons for favouring excluding housing. There was a concern that the inclusion of housing assets created “perverse incentives” with “people denying themselves help” and “stopping wanting care because the house will go”. Assembly Members also suggested including housing encouraged “fiddles” where house ownership is transferred. There was also concern about the sustainability of the system, with fewer people being able to afford to buy homes today as compared to previously, and the use of equity release schemes meaning that older people may no longer own their whole home.

Free at point of use social care

64.Witnesses described the fact that NHS care is free at the point of delivery and social care is heavily means tested as ‘an historical accident’.146 As discussed previously, as well as means testing, access to publicly funded social care is also determined by eligibility criteria relating to a person’s level of need, which have been tightened in recent years. The result has been an increase in people self-funding, and in unmet need, potentially amongst those with little means, who would previously have qualified for local authority funded social care, but whose needs now fall outside eligibility criteria.

65.Many previous proposals for reform have also suggested making all, or different aspects, of social care free at the point of delivery. This includes proposals for free ‘personal care’,147 which includes personal hygiene, continence, diet, mobility, counselling, simple treatments and personal assistance, but not the cost of accommodation, food and living expenses for people in residential care.148 However, Leonard Cheshire Disability point out that ‘personal care’ is itself a restrictive definition of social care and argue in favour of lowering the eligibility criteria from ‘substantial’ to ‘moderate’:

Social care should be holistic and extend beyond ‘personal care’. There needs to be greater support for preventative measures that empower disabled people to live full and independent lives in their communities whether through volunteering, learning or employment opportunities. This will ensure a more sustainable social care system for the future … The government should lower the eligibility criteria from ‘substantial’ to ‘moderate’ to ensure all disabled people who need care receive it.149

66.Many commentators expressed the view that if we were beginning with a ‘clean sheet of paper’, it is unlikely that we would design the current system of divisions between health and social care. Caroline Abrahams of Age UK described the situation as follows:

… the first thing you have to say to people is, “You have to pay for some things and not for others.” Explaining the rationale for that—and dementia is a very good example—is really difficult, because, largely, these are historical accidents. I think most people agree that if we were starting again—if we did not have what we have now—we would have a fully joined-up system from the start and we would be funding both in the same way rather than separating them off. What has happened over time is a social construct. Some things you now have to pay for that are called social care used to be called health some years ago and are called health in some other countries. We have reached where we are through a whole range of decisions made by Governments over a long period.150

Simon Stevens, Chief Executive of NHS England, also highlighted the inconsistencies between eligibility for public funding for different aspects of health and care:

So we have very significant funding streams, each with different, arguably cross-cutting or contradictory eligibility criteria. Without in any way understating the complexity of a form of coherence or streamlining, that would appear to be important in any durable medium-term answer.151

67.Continuing Healthcare (CHC) funding provides a very clear illustration of the difficulties that emerge when there is a hard boundary between health and social care. Participants at our focus group in Braintree talked compellingly about their experiences of negotiating CHC funding, describing long waits to get decisions, and long waits for the outcomes of appeals, and the ‘gulf’ that lies between:

A gulf exists between what’s NHS and what’s not—the untold riches of CHC versus means tested social care. I would rather we were honest and say, “There’s not enough money”. My wife was finally granted CHC funding in the last two weeks of life when she was completely bedridden and unable to do anything. It’s partly that dementia is such an enormous social problem that there is simply not enough funding to treat it as a disease. If it were cancer, there would be no question about the funding for it.

Sarah Pickup of the LGA, reinforced this view, saying “it does not make sense, particularly in a care home setting, where one minute you are paying for your full care and the next you are paying for nothing”.152 The NAO recently conducted an investigation into CHC funding, prompted by a large number of public complaints. They concluded that there is significant variation across the country in both the number and proportion of people assessed as eligible for CHC, which cannot be fully explained by local demographics or other factors, suggesting that clinical commissioning groups and local authorities are interpreting the assessment framework differently. They also reported significant delays in assessments, which cause considerable distress to patients and families, as well as contributing to delays in discharging patients from hospital.153

68.These complexities and inconsistencies were amongst the reasons members of our Citizens’ Assembly gave for supporting a move to a system where all social care is free at the point of delivery. The current system was seen by members to be “complex, dysfunctional and underfunded”:

Assembly Members were particularly concerned to have “one set of rules for all” and to avoid “artificial distinctions” which result in people with some conditions (e.g. dementia) facing much higher costs than others (e.g. cancer). Assembly Members discussed whether some types of care should be moved to being free at the point of delivery; for example, making personal care free, but continuing to charge for “hotel” costs. Despite having some reservations about the cost of making social care free at the point of delivery, it was favoured because it would “be more fair”, “help with prevention” and require “less assessments” (which Assembly members saw as a costly process).

The need to address the complexities of the current system was also reflected strongly in the values and principles identified by the Citizens’ Assembly, which included ‘easily accessible’ and ‘simple and clear’:

Assembly Members felt that people accessing services “shouldn’t have to fight for care” and that the system should provide ‘solutions rather than obstacles’ … the funding solution should create ‘clarity in the system of social care’ and make it ‘more simple’. Assembly Members also suggested the need for ‘honesty and transparency’ in the system.

The Scottish social care system [Source—the King’s Fund and Health Foundation]154

Free personal care has been offered in Scotland since 2002. Under this model in Scotland, personal care is provided to anyone aged over 65 based solely on need and not their ability to pay. Personal care includes personal hygiene, continence, diet, mobility, counselling, simple treatments and personal assistance. Those at critical or substantial risk to their independence or health and wellbeing are expected to be provided with social care services within a short period of time.

The approach is different depending on whether the individual receives personal care in their own home (domiciliary care) or in a care home.

People receiving domiciliary care are not charged for any personal care services. The package offered varies on a case-by-case basis. According to free personal care data, net spending on domiciliary care services for older people in 2015/16 was £196 per week per user in 2018/19 terms: of this £161 was spent on free personal care.

For people who receive care in a residential home, the local authority contributes to the cost of their personal care (at a flat rate) directly to the care provider. As of April 2015, this contribution is £171 for personal care, plus an additional £78 per week for nursing care services if needed. This payment does not cover accommodation costs, which are subject to a means test. This is currently mandated by the Scottish government, so cannot vary across different local authorities.

The model has proved popular and durable in Scotland and is now being expanded to adults of working age. The number of people in receipt of personal care grew significantly once the policy was introduced, suggesting that the system is providing care for people whose needs were previously unmet.

The system also supports the longer-term vision for social care (and health) more broadly, by supporting older people to stay in their own homes. However, introducing free personal care also appears to have reduced the provision of care services which do not meet the narrow definition of personal care in fixed budgets, and charges have increased. The needs-based system avoids the boundary between NHS and social care that exists in England. However, because there are no graded levels of support, there is a ‘cliff edge’ for those with needs just below the threshold, and currently for those under 65 (although the system is due to be extended to people under 65). In Scotland, the introduction of free personal care also appears to have resulted in increases in charges for other types of social care, for example help with shopping or housework. The principle of a needs-based system is easy for users to understand. However, there is some complexity around the definition of ‘personal care’, with different local authorities in Scotland interpreting the legislation differently. The Scottish experience of implementing free personal care highlights a number of issues, including the administrative burden involved in determining the split between personal and non-personal tasks for all service users.

Local authorities in Scotland experienced a loss of income and an increase in costs when free personal care was introduced, and the system has become increasingly expensive over time. However, analysis suggests that—by supporting older people to live at home, helping prevent costly hospital admissions, and delaying the need for residential care—the system may have resulted in lower total government expenditure as compared with no policy being in place.

The cost of reform

69.Modelling the costs of the different reform options is complex and, at best, inexact. The King’s Fund has modelled the potential costs of reforms to social care funding for over 65s. They have estimated that a cap and floor model (with the cap set at £75,000 and the floor at £100,000) would cost an additional £5 billion per year in 2020–21 and an extra £12 billion in 2030–31, and that, at current levels of eligibility, free personal care would cost an extra £7 billion in 2021 and £14 billion by 2030–31. The most expensive option is to improve quality and eligibility back to the levels that the King’s Fund suggest were provided eight to nine years ago, which increase from £8 billion per year to £15 billion per year by 2031.155

Source - King’s Fund and Health Foundation

70.We note that some studies have estimated the potential additional costs of providing better care. The Health Economics Group at the University of East Anglia, the PSSRU and the Pensions Policy Institute modelled the costs of extending the eligibility criteria to cover those with moderate needs, subject to the means test.156 They found that this would lead to some 620,000 additional older people receiving care, projected to rise to 700,000 in 2025 and 810,000 in 2030. The net additional cost of this would be an estimated £2.8 billion in 2020, projected to rise to £3.45 billion in 2025 and £4.4 billion in 2030 (at constant 2015 prices).157 In addition, the King’s Fund has estimated that restoring the system to 2009–10 levels, when quality of care and eligibility was wider, would cost an additional £8 billion in 2020–21 and an additional £15 billion in 2030–31.158 We note that provision of better care could lead to savings elsewhere, most notably through reductions in the numbers of delayed transfers of care and emergency admissions.159

71.However, it should be noted that neither of these models takes into account the funding of care for working age adults, which currently accounts for around half of local authority spending on social care. As shown below, demographic pressures will mean spending on working age adults will need to increase as well. Although the introduction of reforms such as the cap and free personal care may not have a large impact on funding of social care for working age adults, as most working age adults who need social care have limited assets, reforms to improve the quality of social care, and / or to extend eligibility beyond those with substantial needs, would clearly also increase costs in this category.

72.The following table compiles some recent cost estimates of various reform options produced by different research bodies. However, the assumptions, methodologies and definitions used by each body vary and so the figures are not directly comparable with one another.

Future funding estimates

PSSRU160

At constant 2015 prices and under a set of base case assumptions about trends in demand and unit costs, public expenditure on care for:

  • Older people is projected to rise under the current funding system from around £7.2 billion in 2015 (0.45% GDP) to £18.7 billion (0.73%) in 2035.
  • Younger adults is projected to rise under the current funding system from around £8.9 billion (0.55%) in 2015 to £21.2 billion (0.83%) in 2035.

IFS161

Maintaining the current system of eligibility and means testing would require spending to increase by a projected 3.9% a year over the next 15 years. An increase from 1.1% of GDP in 2018–19 to 1.5% in 2033–34. (Based on PSSRU analysis)

OBR162

Spending on adult social care would rise from 1.1% of GDP in 2021–22 to 2.0% of GDP in 2066–67.

ADASS163

Initial estimates given in oral evidence by ADASS were that the need to spend on social care (older people and working age adults) could double by 2020. Local authorities net spend on social care in 2017–18 was £14.8 billion.164

Estimated extra funding required for social care reforms for older people (The King’s Fund and the Health Foundation)165

Policy

2020–21 (£bn)

2030–31 (£bn)

Maintaining current system at 2015–16 levels (no reform)

1.5

6

Restoring to 2009–10 levels

8

15

Cap (£75,000) and floor (£100,000)

5

12

Free personal care

7

14

‘Increases in public spending’ required to reform social care (University of East Anglia, the PSSRU and the Pensions Policy Institute)166

Policy

2020 (£bn)

2030 (£bn)

Care Act 2014 reforms (April 2015 prices)

Not available

1.8

Extending eligibility to high level needs, subject to means test

2.05

3.0

Extending eligibility to moderate needs, subject to means test

2.8

4.4

Conclusion

73.A significant amount of extra funding is needed to maintain provision of social care at its current level, in the order of many billions of pounds over the next ten to twenty years. However, to ensure good care and a stable and quality workforce, the level of funding required may be much higher.

74.Costings of future provision of social care need to begin with a clear articulation of what good care looks like and costs for both older adults and working age adults—simply extending the current, inadequate provision of social care to more people is not a tenable long-term position. The Care Act 2014 provides a basis for determining good care. The starting point for the reform process must be to build on this, determining—in conjunction with service users, carers, care providers and care workers—what good care entails.

75.In the long term, an independent body should be tasked with modelling the amount of funding needed by social care in the future and ensuring funding keeps pace with need, providing the Government with two yearly forecasts of needs and funding requirements. This is in line with the recommendation made by the House of Lords Committee on the Long-term Sustainability of the NHS for an independent ‘Office for Health and Care Sustainability’ to advise on all matters relating to the long-term sustainability of health and social care.

76.Many commentators expressed the view that if we were beginning with a ‘clean sheet of paper’, it is unlikely that we would design the current system of divisions between health and social care. The difficulties with Continuing Healthcare (CHC) funding—the system through which social care is paid for by the NHS for a small number of people with high health and social care needs—illustrate the problems of setting a hard boundary between health and social care. Only around half of those who apply for CHC funding eventually get it, decision making about eligibility is inconsistent across the country, and the ‘cliff edge’ between those qualify and those who do not has been an ongoing source of distress for families, as well as leading to costly and distressing appeals and legal challenges.

77.While some of the evidence we received supported the idea of a social care system free at the point of use, like the NHS, others felt that a balance of responsibility between the state and the individual was appropriate. Our Citizens’ Assembly members expressed strong support for a social care system that was free at the point of use, like the NHS. Clearly, funding a social care system entirely free at the point of use would increase costs substantially and is unlikely to be affordable immediately. However, we support the provision of social care free at the point of delivery as a long-term direction of travel. In principle, we believe that the personal care element of social care should be delivered free at the point of use to everyone who has the need for it, but that accommodation costs should continue to be paid on a means-tested basis. The aim should be to work to achieve this ideal and to see a gradual transfer of financial responsibility for social care away from the individual at the point of need, making it free at the point of delivery. This should begin by extending free personal care to those deemed to have ‘critical’ needs. However, particularly for younger adults, it is essential that social care is viewed more holistically and funding for ‘preventative’ social care for adults with moderate social care needs is reinstated.

78.In Germany, social care benefits can be claimed directly as cash benefits, which can support people to be cared for at home, by family carers, for longer. Cash benefits are a much more popular option in Germany than ‘in kind’ benefits, and the focus on family care is underpinned by a framework of support for carers. The German system is discussed in more detail in later in this Chapter. We recommend that people who receive social care should be allowed to receive direct cash payments to enable them to pay carers, including family carers, to help those families who prefer to care for loved ones themselves at home.

Options for raising extra funding

Current funding arrangements

79.Social care is currently primarily funded by local authorities through a combination of central government grant, business rates revenue and council tax. In recent years, this has been supplemented by additional ring-fenced sources of funding, including the adult social care precept (discussed at paragraph 18). An increasingly large proportion of local authority budgets is spent on social care, amounting to 37.8% (£14.8 billion) in 2018–19.167 Sarah Pickup of the LGA said that, given that “quite a lot of council tax and business rates” is currently spent on social care, these revenue streams were likely to continue to be used in this way in the future.168

80.With regards to council tax, Ms Pickup went on to say the requirement that councils must hold a local referendum in order to increase council tax “has had a really significant impact. Councils have had no levers to raise more money”.169 We note that the Resolution Foundation has recently considered how council tax reform could increase revenue for public services, stating that currently council tax is “only weakly linked to property values and has failed to capture changes in these over time. This approach is highly regressive”.170 With modelling they illustrate the potential for council tax reforms to raise additional revenues that could be used to meet health and social care costs.

81.Significant reforms to local government finance—namely increases in the level of business rates retained by local authorities and a review of the local government funding formula—are ongoing. This is an important part of the landscape for the future of social care funding, which is currently funded in part by business rates.

82.In December 2017, the Government announced that it aimed to introduce at least 75% retention of business rates in 2020–21 (currently local government retains 50%) and that, to ensure the reforms are fiscally neutral, certain central government grants to councils would be removed.171 The long-term plan is for local authorities to retain 100% business rates. Closely linked to this, the review of the needs assessment formula (the ‘Fair Funding Review’) will set new baseline funding levels (each local authority’s share of business rate revenue) at the start of 75% retention and each time the system is updated thereafter.172 Work to ensure that the formula accurately captures current spending needs, and can take into account how they change in the future, is ongoing.

83.The HCLG Committee and its predecessors have repeatedly expressed concerns about the lack of correlation between growth in business rates revenue and growth in spending needs on social care, and the same issue was raised in the evidence submitted to this inquiry. For example, ADASS said that the future funding of social care:

Cannot be seen in isolation from a wider view about local government finance. If future local authority funding is to come increasingly from business rates and council tax, as is planned, these sources will not increase sufficiently to meet higher needs and costs. There is a risk that places with the highest levels of social care need will raise the least through locally raised revenue.173

However, the Government’s work on the reforms to local government finance and on the Green Paper do not appear to be linked.174 Sarah Pickup of the LGA explained why this mattered: “[the additional funding for social care] needs to sit alongside council tax, business rates and, if we retain a means-tested system, the means tested component of that system […] whatever is designed has to fit in […] with what is there now”.175

Future revenue-raising options

84.Much of our evidence suggested the need for national revenue raising options to be considered alongside, or instead of, existing or reformed local government funding arrangements. Given the scale of the funding challenge facing social care, many submissions also argued that a combination of different revenue-raising options will need to be employed. Combining different revenue streams also has the advantage of enabling a more tailored approach, with people contributing to social care in different ways at different points in their lives. The table below sets out some indicative estimates of the revenue that could be generated by some different tax and benefit reforms. Tax revenues and estimates of future funding are highly uncertain.

Funding options

Indicative estimated revenue raised by 1% increase in key tax rates / introduction of new taxes, 2020–21 and 2030–31 [Source—The King’s Fund and the Health Foundation, May 2018] 176

Tax type

Detail

2020–21 (£bn)

2030–31 (£bn)

Income tax

Basic

3.8

5.1

Higher

1.3

1.8

Top rate

0.4

0.9

No uprating of tax thresholds (fiscal drag)

6.8

n/a

NI contributions

Extend 65+

1.0

1.0

Main rate

3.5

4.4

Higher rate

1.0

1.6

Employers contribution

4.6

6.0

VAT

Main rate

5.0

5.2

Council tax

1% uniform increase

0.5

Not available

Winter fuel payments

Abolish

2.1

Not available

Means test

1.8

Not available

Tax as income

0.1

Not available

Pensions

Double lock maximum

0

7.2

Wealth taxes

13% ‘Care duty’

4.8

Not available

Inheritance tax (10% increase)

1.5

Not available

Direct effects of illustrative changes, 2020–21 and 2021–22 [Source—HMRC, April 2018] 177

Tax type

Change

2020–21

2021–22

NI contributions

Self-employed (1% rise in both rates)

0.6

0.56

Corporation tax

Increase by 1%

2.6

2.8

Inheritance tax

Inheritance tax (1% increase)

0.13

0.145

Duties

Beer and cider duties

0.025

0.025

Wine

0.045

0.045

Spirits

0.025

0.025

Tobacco

0.005

0.005

Council tax reform options, 2015–16 [Source—Resolution Foundation, March 2018]178

New top band179

0.1

Not available

Mansion tax180

1.1

Not available

A new property tax181

8.6

Not available

Funding social care in other countries–‘social insurance systems’

85.Much of the evidence we have heard has drawn on ‘social insurance systems’ in other countries as examples that England might learn from. Germany and Japan are frequently cited examples. While it is clearly not possible or desirable to import a funding model ‘wholesale’ from another country—bearing in mind differences in culture, administrative mechanisms, other funding mechanisms, and desired policy outcomes—it is nevertheless possible to draw upon certain elements. The Japanese and German systems (details of which are given in the boxes below) have similarities in their fund-raising mechanisms, whereby an earmarked contribution is collected from earnings, earmarked specifically for social care, and benefits (in terms of access to social care) are introduced immediately. Both systems also have elements which weight contribution levels according to age. In Germany, older, retired people pay extra contributions which effectively cover the employer share that reduces the cost for employed adults; in Japan contributions begin from age 40. It should also be noted that in both of these systems, individuals may still pay a substantial contribution towards the cost of their social care.

The German social care system [source—Professor Caroline Glendinning and Matthew Wills]182

The German long-term care insurance scheme (LTCI) was introduced in 1994. The fact that the scheme is universal, and that all ages contribute, have been identified as factors in the its popularity and acceptability. Its perceived advantages include:

  • Maximum risk pooling through single, earmarked funding stream
  • Universal coverage—reduced exposure to catastrophic costs for people of all ages (although the scheme does not cover all care costs).
  • Equitable—similar benefits for similar levels of care need.
  • Sustainable—key to building and maintaining public support.
  • Encourages investment—predictable funding encourages market entry, investment in physical and human capital and quality improvement.
  • Encourages and supports home and family-based care; only 25% of beneficiaries use formal services.

The scheme is administered by individual local ‘funds’ which are accountable to federal government.

All people in employment pay in 2.55% of their income—the cost is split between employers and individuals when an individual is working, but after retirement the individual pays all, to cover the employer portion. Self-employed people also have to pay the full premium themselves. Childless people pay a slightly higher rate of 2.8%.

There is no means test, but the amount an individual receives does vary according to assessment of need. Benefits can be a cash benefit—which can be given to family carers; an ‘in kind’ benefit to be spent on home care or other types of care (like a voucher); or residential care benefits. Cash benefits are paid at a lower level than the ‘in kind’ benefit, but are much more popular. The amount an individual receives varies from £109 per month (low level needs, cash payment) to £1,763 (high level needs, residential care). There is a substantial level of private contribution to social care costs in Germany, In May 2017 the average monthly care-related co-payment was €587/£512 (the specific amount varies between care homes, but not between people with different levels of care need). The average monthly user payment for hotel costs was €681/£594 and €413/£360 for maintenance/infrastructure (December 2015 figures—these are indicative only.)

LTCI currently covers around 58% of the average costs of residential or formal domiciliary service provision (up from round 50% since the increase in benefit levels in January 2017). The shortfall is made up by user co-payments or, for those with very low incomes, means-tested social assistance. However, the significant LTCI contribution (based on level of care needs) towards the costs of formal domiciliary or residential care services means that users ‘spend down’ their savings much more slowly and will therefore be less likely to need to seek means-tested social assistance.

Dementia, cognitive impairments, and mental health conditions did not used to be covered by the scheme but it has recently been extended to cover them.

The Japanese social care system [Source—the Nuffield Trust]183

The Japanese social insurance system was introduced in 2000. The long-term care insurance (LTCI) system is administered at municipality level and funded through a combination of social insurance contributions, general taxation and user contributions (known as co-payments). Every member of the population must pay into the system from the age of 40.

People who pay premiums are split into two groups: those known as the ‘primary insured’ are over the age of 65 and their contributions are withheld from their pension payments and collected at municipality level. The ‘secondary insured’ are those between 40 and 64 years of age. For those in employment, individuals’ contributions are shared with employers. These premiums are determined and collected nationally and redistributed to municipalities. When redistributing, the municipality’s ratio of the 65–74 and 75+ age groups to the working-age population is taken into consideration to ensure that allocations reflect need.

50% of funding for social care comes from taxation—12.5% from municipality taxation; 12.5% from prefectures taxation; and 25% from state taxation. The other 50% comes from social insurance premiums—22% from the 65+ age group, 28% from the 40–64 age group. In addition to paying premiums, service users must pay a co-payment (financial contribution) when accessing services, although those on very low incomes are exempt. When the service was first introduced, this was 10% of the total cost of care, rising to up to 30% for some in more recent years. Co-payments are paid up to a ceiling.

If individuals want to access care beyond their entitlement, they must pay 100% of their costs out of pocket (Rhee and others, 2015). In reality, because provision is relatively generous, only a very small proportion of service users self-fund at all. It is estimated that eligible people take up only around half of the service amount they are entitled to because of concerns over the co-payment (Campbell and others, 2016). Since 2005, people using services have been required to pay ‘hotel costs’ (for residential care) and a contribution to meals. These contributions are means tested and capped for people on low incomes (Rhee and others, 2015).

A standardised assessment procedure is used by municipalities to group people into one of seven eligibility levels. The assigned level of need determines the monthly notional budget individuals have available to them and the services they can access. Income levels and the amount of informal care/family support available are not taken into consideration when making these needs-based assessments. Importantly, there are no cash benefits. This was decided in order to help shift the burden of caring from families—in contrast to other countries such as Germany. A care manager, in partnership with the individual, is responsible for designing, monitoring and overseeing care plans.

The introduction of LTCI has resulted in a very active competitive market, comprising thousands of mostly small providers which are a mix of for-profit and not-for-profit companies, social enterprises and charities. Within five years of its inception, the number of home care providers had more than doubled (Ministry of Health, Labour and Welfare, 2011). In order to entice new providers in to the market, they were allowed to make profit (something that had not been allowed under the previous system). However, new providers were not allowed to provide institutional care as the government wanted to incentivise community and home-based provision (Ikegami, 2007)

Citizens’ Assembly views

86.Our Citizens’ Assembly Members considered a range of options for raising additional money for adult social care through public funding:

The top option on first preferences was the social insurance model—a separate, publicly organised, compulsory payment (calculated as a percentage of income) paid by everyone from age 40 onwards. Some Assembly Members favoured the social insurance option as it would “give longer for younger people until they have to pay”, but there was concern that people “can still be struggling at 40” and that it would create “additional costs on people still with high costs (e.g. families and mortgages)”. The options involving income tax, on the other hand, were favoured because they were progressive and “based on ability to pay”.

When lower preferences were counted, four options commanded good levels of support: an earmarked increase to income tax, an increase to income tax, a social insurance scheme, and extension of National Insurance to those who work beyond state pension age (C). While members recognised that the extension of National Insurance would not generate a significant amount of funds towards adult social care (and therefore was not a solution on its own), they tended to feel that, alongside other changes, it sent an important message that older people were not exempt from paying for their generation’s social care if they were still earning.

Options related to VAT, council tax and inheritance tax, on the other hand, received very low levels of support. Both VAT and council tax were rejected due to perceptions of unfairness as they would “hurt people on low income” or “leave us with a postcode lottery”. The inheritance tax options were disliked because there would be “not enough gain to make it worthwhile”, the “very wealthy will get around it” and because it is “already so high”.

During the course of the discussion, Assembly Members suggested a number of other public funding options that could contribute to funding social care, including a “wealth tax”, “sugar / junk food tax”, “clamping down on tax avoidance”, and revisiting “overall priorities on where general taxation is spent”. Assembly Members were also interested in ways that companies could contribute through tax, including through higher National Insurance contributions or a compulsory social responsibility tax.

87.Extending National Insurance was also suggested in many of the written evidence submissions received from individuals, along with increases in general taxation, and council tax rises, especially in higher tax brackets. The Assembly members were also strongly in favour of earmarked taxation: They explained that this was because:

a) the public would “know where the money is going” and, therefore, b) that it would be more “appealing”, “sellable” and “palatable” to voters. The lack of public awareness of social care came up throughout the discussions. Assembly Members considered that having, themselves, become much better informed about funding issues, they would now be prepared to pay more.

The Assembly members did however identify some risks associated with earmarked taxation:

[Their] concerns with earmarked taxation related to it being “too prescriptive”, “less flexible” and that it “doesn’t accommodate changing needs over time”. Assembly Members also recognised that it “may not raise enough funds and need topping up”.

Some Assembly Members were also concerned that it “goes against the principle that we don’t choose what we pay for” through taxation, while others were concerned about public awareness and whether government could be trusted to use the money as intended—“There will be a scandal of misuse!”

Conclusions and recommendations

88.There is a clear need for increased funding for social care. Given the scale of the additional funding likely to be needed, a combination of different revenue-raising options will need to be employed, at both a local but also a national level. Combining different revenue streams also has the advantage of enabling a more tailored approach, with people contributing to social care in different ways at different points in their lives.

At local level:

89.There should be a continuation for the foreseeable future of the existing local government revenue streams. In 2020, these funding streams should be enhanced through 75% business rate retention. This should be used to fund social care rather than the replacement of grants the Government is proposing to introduce. While business rates revenue is poorly matched with social care funding needs, it is a source of funding expected to come to councils in 2020. We welcome the fact that the Government is currently working to review and update the formula which determines how revenue is redistributed according to need.

90.In the medium term, there should be a reform of the council tax valuations and bands to bring them up-to-date.

91.In the future, as other funding streams develop, the contribution from council tax and business rates to social care funding could reduce, allowing councils to better fund other important services.

At a national level:

92.Local government funding will only ever be one part of the solution for social care, and it is clear that extra revenue will also need to be raised nationally.

93.We heard strong support for the principle of earmarking tax—it was felt that establishing a visible fund for people to contribute to that is clearly, transparently and accountably linked to spending on social care is key to gaining public acceptance for this measure. The proposals for a long-term care insurance scheme in Germany won support from the public there for similar reasons.

94.We therefore recommend that an earmarked contribution, described as a ‘Social Care Premium’, should be introduced, to which individuals and employers should contribute. This can either be as an addition to National Insurance, or through a separate mechanism similar to the German model. The Social Care Premium could be managed by central government, and audited by the National Audit Office, or managed separately by a statutory body or not for profit insurance based funds, as is the case in Germany.

95.In addition, in order to remove the catastrophic cost of social care for some people, and to spread the burden more fairly, we also recommend that a specified additional amount of Inheritance Tax should be levied on all estates above a certain threshold and capped at a percentage of the total value, and the monies raised used to support the relevant funds as described above, until the level of the Social Care Premium meets demand unaided.


106 Office for National Statistics, ONS 2014 principal projections – UK: 2014 based (2017)

108 Emerson E, Robertson J, Coles B, Hatton C, Estimating the Need for Social Care Services for Adults with Disabilities in England 2012–2030 (2012)

109 Institute for Fiscal Studies and The Health Foundation, Securing the future: funding health and social care to the 2030s (May 2018)

111 For example, by the Care and State Pension Reform (CASPeR) project and The King’s Fund and The Health Foundation

113 Institute for Fiscal Studies and The Health Foundation, Securing the future: funding health and social care to the 2030s (May 2018)

114 Office for Budget Responsibility, Fiscal Risks Report (July 2017)

118 ADASS (FSC0116)

119 The King’s Fund (FSC0174). See also Q60

120 House of Lords Select Committee on the Long-term Sustainability of the NHS, HL Paper 151, Report of Session 2016–17, The Long-term Sustainability of the NHS and Adult Social Care (April 2017)

121 CMA (FSC0172)

127 Q21. See also ADASS (FSC0116)

131 Also referred to in this report as the ‘Dilnot Commission’.

132 See text box below for details.

133 Commission on the Future of Health and Social Care in England, A new settlement for health and social care (September 2014)

135 For example United for All Ages (FSC0010)

136 For example Professor Luke Clements (FSC0015)

137 For example Mr Trevor Durham (FSC0074)

138 Care England (FSC0048)

139 The King’s Fund and the Health Foundation, A fork in the Road - next steps for social care funding reform, (May 2018)

141 Independent Age (FSC0165) and County Councils Network (FSC0118)

142 Professor Luke Clements (FSC0015)

143 The Dilnot Commission recommended a £35,000 cap on care costs. The Government responded by committing to a £75,000 cap, which was subsequently reduced to £72,000.

144 Independent Age (FSC0165)

145 Institute and Faculty of Actuaries (FSC0126)

146 Q28 [Caroline Abrahams]

147 Personal care tasks are defined as personal hygiene tasks (shaving, cleaning teeth), eating requirements (food preparation), mobility assistance, medical treatments (administering creams and medications), and attending to general wellbeing (dressing, getting in and out of bed).

148 These costs are sometimes referred to as ‘hotel’ costs.

149 Leonard Cheshire Disability (FSC0101)

153 National Audit Office, Investigation into Continuing Healthcare Funding, (July 2017)

154 The King’s Fund and the Health Foundation, A fork in the Road - next steps for social care funding reform, (May 2018); The Health Foundation and The King’s Fund (FSC0145)

155 The King’s Fund and the Health Foundation, A fork in the Road - next steps for social care funding reform, (May 2018), p20

156 In general, only people with high levels of care needs (critical or substantial) currently receive publicly funded care.

157 Written Evidence submitted by the Health Economics Group, University of East Anglia; the Personal Social Services Research Unit, London School of Economics and Political Science; and the Pensions Policy Institute (FSC0184)

158 The King’s Fund and the Health Foundation, A fork in the Road - next steps for social care funding reform, (May 2018)

160 PSSRU ref

161 Institute for Fiscal Studies and The Health Foundation, Securing the future: funding health and social care to the 2030s, (May 2018)

164 Association of Directors of Adult Social Care, Budget Survey 2017, (June 2017)

167 Association of Directors of Adult Social Care, Budget Survey 2018 (June 2018)

170 Resolution Foundation, Home Affairs: Options for reforming property taxation, (March 2018)

171 Ministry for Communities and Local Government (MHCLG), The provisional 2018–19 local government finance settlement (December 2017)

173 ADASS (FSC0116)

176 A 1% tax rate with a £100,000 tax-free allowance per property.

177 The Health Foundation and the King’s Fund, Social care funding options: How much and where from?, (May 2018)

179 Resolution Foundation, Home Affairs: Options for reforming property taxation, (March 2018)

180 A new band in England containing the highest value half of properties in band H (£320,001 plus), with a council tax increase for these properties of 17%.

181 1% on the value of properties above £2 million and 2 per cent on the value of properties above £3 million.

182 Emerita Professor Caroline Glendinning (FSC0091); Professor Caroline Glendinning and Mathew Wills (FSC0194)




Published: 27 June 2018