The Long-term Sustainability of the NHS and Adult Social Care Contents

Chapter 4: Funding the NHS and adult social care

156.The issue of funding was, inevitably, a prominent theme within the evidence we received and getting this right will clearly be critical for the long-term sustainability of both the health and care systems.

157.The model of social care provision is very different from that of the NHS. Whereas NHS care is free-at-the-point-of-use, publically funded adult social care is means-tested and primarily funded through local government, through a mix of central government grants and local revenue. However, the inextricable link between the sustainability of the NHS and the adult social care system means that the financial provision for both systems cannot be considered in isolation from one another.

158.We were determined to hear and consider an extensive range of opinion about what level of funding the NHS and adult social care needs, how additional funding might be generated to help both services overcome the current financial strain, and how funding should be allocated to ensure the health and care systems remained sustainable in the long-term. This chapter sets out the range of options we heard in the evidence for how the NHS and adult social care could be placed on a more financially sustainable footing, before setting out our consideration on how health and social care funding might be better aligned to ease the pressures felt by both services.

NHS funding

159.We recognise that this is a period of extreme financial challenge for the health service and that this strain is being felt across the system. There is very real, very serious concern about the current state of NHS finances. Given the long-term focus of this inquiry, our examination of issues related to funding was not focused on the current funding envelope, but rather on whether the way in which the health service receives funding is conducive to the long-term sustainability of the system—in particular, have we got the right funding model and does the system receive funding in a way which will allow it to meet patient need over the longer-term?

NHS funding sources

160.The evidence to support the retention of general taxation as the principal method of funding the NHS was robust and consistent, leaving us in no doubt that this was the preferred approach for healthcare professionals, experts, parliamentarians and the public alike. We believe that it is also the right approach. Simon Stevens, Chief Executive of NHS England, echoed this:

“… a tax-funded National Health Service as a funding mechanism has served this country well since 1948. It has produced a steadily improving and expanding National Health Service and has done so in an equitable way that is highly valued by the people of this country.”

161.The Secretary of State for Health also confirmed his desire to see governments continue with the current model, which he described as “a sensible choice … probably the choice that is closest to what most British people want.”131

162.We fully recognise that public support for a free-at-the-point-of-use service, funded through general taxation, is dedicated and unwavering—the public is, as Ben Page, Chief Executive of Ipsos MORI explained “… completely wedded to the idea of a free, universal NHS.”132 This support was clearly communicated through the substantial level of correspondence we received at the end of our inquiry.

Alternative funding models

163.We heard a range of evidence regarding the different funding models that were employed by different health systems around the world including: general taxation (UK); social insurance through employer/employee contributions (France, Germany); compulsory social insurance (Switzerland); and voluntary insurance (USA). We also received evidence about the options for mechanisms to raise additional funding.

164.The advantages and disadvantages of moving to an alternative funding model were explored over the course of the inquiry. However, there was general agreement that this would not be a viable solution for the UK. Lord Willets informed us that, in a previous role as a policy adviser to a past government, he had considered alternative arrangements for health funding including “co-payment, private insurance—all those conventional options” but concluded that: “a nationwide risk pool to fund healthcare was a perfectly reasonable arrangement, and that the costs of moving from what we had to some other system were very high.”133

165.John Appleby, Director of Research and Chief Economist at the Nuffield Trust, also highlighted some of the issues related to alternative sources of funding for health, stating that:

“If you want to switch the proportions of funding from different sources—from public to private, from collective to more individual—that raises a whole lot of distributional and equity issues. From the evidence and from looking at other countries, there is, in a sense, a trade-off between different sources of funding.”134

166.The Department of Health was clear that it intended to continue with the current funding model—a view we wholeheartedly support. Andrew Baigent, Director of Finance at the Department of Health, explained that the Government was very clear that it saw health spending being tax-funded and was not exploring any other options at this time.135 The evidence for maintaining general taxation as the principal funding source was reinforced by the lack of any evidence that made the case conclusively for any alternative funding models. A recent OECD report, which compared healthcare systems around the world stated:

“… there is no healthcare system that performs systematically better in delivering cost-effective health care. It may thus be less the type of system that matters but rather how it is managed. Both market-based and more centralised command-and-control systems show strengths and weaknesses.”136

167.In fact, there was nothing in the evidence that suggested any one system for funding health care was systematically better than another in terms of efficiency or performance. Dr Jennifer Dixon, Chief Executive of the Health Foundation, told us about:

“ … a very good study by Mark Pearson, from the OECD, that clumped health systems into different archetypes: market-based systems, national health systems, Bismarckian systems and heterogeneous systems. When he looked at the performance of those systems, including efficiency measures, he found that no one archetype outperformed another and that there was more variation within archetypes than across them. His conclusion was that a health system that is seriously trying to improve performance should not necessarily look to any other system but should work with what it has.”137

168.We were not persuaded of any link between the way you choose to collect the money to fund a health service and performance. Instead it seemed that, as Ian Forde from the OECD, explained “much more important is how you spend the money once you have collected it, which really determines performance and sustainability.” This view was supported by Nigel Edwards, Chief Executive of the Nuffield Trust, who said: “There is no immediate link between how you collect money and how efficiently it is disbursed.”138 Similarly, John Appleby of the Nuffield Trust, explained that there are “probably 5 or 10 different factors that would explain relative performance between health systems, including their performance on productivity, but I would not lay much emphasis on the source of funding as driving that.”139

169.International evidence shows that a tax-funded, single payer model of paying for healthcare has substantial advantages in terms of universal coverage and overall efficiency. There was no evidence to suggest that alternative systems such as social insurance would deliver a more sustainable health service. Sustainability depends on the level of funding and, crucially, how those funds are used.

170.We strongly recommend that a tax-funded, free-at-the-point-of-use NHS should remain in place as the most appropriate model for delivery of sustainable health services both now and in the future.

Generating additional sources of funding

171.Despite the widespread support for maintaining the current funding model, we were also acutely aware of the concerns raised about the current financial pressures being felt by the health and care services. Many witnesses suggested that the current state of NHS finances was significantly worse than it had been in previous years. The Health Foundation highlighted that:

“The 2015 Comprehensive Spending Review confirmed that 2010/11 to 2020/21 will be the most austere decade for the NHS in its history. After accounting for inflation and population growth, spend per head for the English NHS will be similar in 2020/21 to what it was 2010/11 … rising by an average of 0.2% a year in real-terms.”140

172.This view was supported by the National Audit Office’s (NAO) report Financial Sustainability of the NHS, which gave a summary of the financial position of NHS England, clinical commissioning groups, NHS trusts and NHS foundation trusts. The key findings in the NAO’s analysis of the trends in the financial performance of NHS bodies were:

173.NHS England has suggested that the current financial envelope fell short of what was required. In evidence given to the House of Commons Health Select Committee, the Chief Executive, Simon Stevens, was asked if he felt that the “NHS has been given everything it has asked for” by the Chair, Dr Sarah Wollaston MP. Mr Stevens responded by saying:

“For years 1 and 5, yes, you could say that we were kind of in the zone, but for the next three years we did not get the funding that the NHS had requested. This is not a controversial statement. It is what I have already said to the Public Accounts Committee, so it is not a new statement. As a result, we have a bigger hill to climb. It is going to be a more challenging 2017–18 and 2019–20.”142

174.A recent report by the House of Commons Public Accounts Committee has also expressed concern over the use of capital budgets to fund day-to-day spending, which has happened for the second year in a row. The report stated that the Department of Health moved £950 million out of its separate £4.5 billion capital budget to its revenue budget in 2015–16, to fund day-to-day activities, and had confirmed that it would need to do so again to balance its budget in 2016/17 and in future years. The Committee stated that this could “result in ill-equipped and inefficient hospitals” and recommended that the Department of Health, NHS England and NHS Improvement should “call a halt to crisis driven transfers out of capital budgets.”143

175.In recognition of the significant strain on finances, both in health and across all public services, we also sought views on the viability of generating additional funding for the NHS from alternative sources, to supplement the funding generated by general taxation.

176.The possibility of introducing additional charges for some procedures as a means of generating additional revenue for the NHS was discussed by several witnesses. However, amongst the evidence we received there was little to suggest that introducing further charges into the system would have much impact on the volume of resources available for healthcare.

177.Overwhelmingly the evidence weighed against the introduction of further charging. Of greatest concern was the risk that user charges could limit access and have a negative impact on efficiency and equity. The Barker Review, which was commissioned in 2013 to consider the sustainability of the NHS and social care models, noted that the international evidence on the impact of charging—how far it controls unnecessary demand—was “frustratingly weak.” However, it cited a study in the United States in the 1960s which found that charging had a serious adverse effect on those who were both poor and suffering from poor health. The Barker Review concluded that introducing further charges into the health system “would fail the criterion of equity”.144

178.Much of the evidence reiterated this view. The Children and Young People’s Mental Health Coalition, the British Psychological Society and the Royal College of Ophthalmologists all expressed concerns that additional charges could create inequality between socio-economic groups and potentially mean that people would be unable to afford treatment.145 Ian Forde, from the OECD, was equally critical about the possibility of the introduction of additional charges:

“The evidence does not support that as a policy option. It is bad for equity, because it damages people on lower incomes, and it is bad for health, because in the long run it increases health costs because people forgo primary care and preventive care when they need it and wait till they are sicker further down the line and end up costing more money. There is good evidence that increasing dependence on out-of-pocket payments is not a good option.”146

179.While there was little support for the notion of introducing additional charges for the health service as a way to raise additional revenue, we found there were a number of serious and considered calls to examine whether some form of hypothecated tax for the NHS would help to secure more long-term financial sustainability.

180.We heard a range of views on how hypothecation might work for the NHS. These ranged from suggestions for the introduction of a ‘soft’ hypothecation, using additional revenues from a given tax to supplement NHS funding, to a ‘hard’ approach, where all of the revenue from one tax (which some witnesses proposed could be National Insurance), would be used to fund the NHS.

181.The strongest advantage of hypothecation appeared to be the greater transparency it would provide of the link between taxation and government spending, which witnesses suggested could help improve the public’s understanding of expenditure on the NHS. This could help to facilitate a better debate about how much the electorate were willing to pay for the health service.147 The key disadvantage we heard was that hypothecation could potentially undermine the ability of governments to deal with the economic cycle, restricting the flexibility they have to allocate resources as they see fit.148 This evidence is set out in more detail in Appendix 4.

182.We received some detailed analysis of how hypothecation might work for the NHS. Given the far-reaching implications of hypothecation for systems and services beyond the remit of our inquiry, we were not well-placed to make a firm conclusion on the issue. We recommend that hypothecation be given further consideration by ministers and policymakers.

183.Although many people did not want to see significant change to the model of funding through taxation, there did need to be some recognition of the need for a debate on what the NHS was able to deliver in relation to the funding it received. Dame Julie Moore, Chief Executive of University Hospitals Birmingham NHS Foundation Trust, proposed: “a public debate about what the NHS is now coping with—the increased complexity, the increased demand—and … what we are willing to pay for.”149 Similarly, Mr Chris Hopson, Chief Executive of NHS Providers, stated that:

“My view would be that we need to keep a taxpayer-funded system but increase the funding coming in, in which case we need to think much more carefully about how we build a national consensus around that increase in funding. That requires a much better quality of public debate about what the funding levels for the NHS should be and what the consequences of not increasing funding might be.”150

NHS funding levels

184.Across countries, regardless of the health care funding model, populations have increasingly chosen to spend a growing share of national wealth on health.

185.Historically public funding for health care has increased faster than economic growth, with the share of UK GDP spent on health more than doubling from 3.5% in 1949/50 to 7.4% in 2015/16. On average, spending has risen by 3.7% a year in real terms (with periods of relatively high and low growth).151 However, the period 2010 to 2020 will see a marked divergence from that trend. The Health Foundation told us that “as part of the government’s priority to close the national fiscal deficit, funding for the UK NHS is currently growing at a slower rate than GDP.”152

186.We recognise that growth in health spending has slowed across most of the OECD. Dr Jennifer Dixon told us: “Over the last 20 years, healthcare costs across OECD countries have outstripped GDP growth.”153 However, the evidence suggested that the UK has seen a sharper retrenchment in health spending than most of its peers. The OBR projects, based on current spending plans, that UK spending on health and care as a percentage of GDP is due to drop from 7.4% in 2015–2016 to 6.8% in 2020–21.154

Health spending beyond 2020

187.The Office for Budget Responsibility (OBR) produces periodic assessments of long-term fiscal sustainability based on projections of public spending and taxation revenues. The OBR’s working paper on Fiscal sustainability and public spending on health showed that: “health spending has risen as a share of GDP in most OECD countries, including the UK over the past 40 years. Consistent with the projections of various international institutions, we project that health spending in the UK will continue to rise as a share of GDP in the future.”155

188.Figure 1 outlines the OBR’s long-term projections for public spending on health based on its different assumptions for the impact of pressures on the health service.

Figure 2: Office for Budget Responsibility: Long-term projections for health spending (as a % of GDP)156

Line graph

Source: Office for Budget Responsibility, Fiscal sustainability and public spending on health (September 2016): [accessed 28 March 2017]

189.The Nuffield Trust undertook some analysis of the OBR projections and highlighted the following points:

190.The views we heard on health spending beyond 2020 were fairly consistent, with broad agreement for the need to increase health funding to more closely match growing pressures and to bring it back more in line with the historic average (on average public spending has risen by 3.7% a year in real terms, but this has not been a continued steady increase over time158). Richard Murray, Director of Policy at The King’s Fund, said:

“If you are thinking about the long term, there are not many alternatives to paying, over time, to raise the share of GDP that goes on health and social care in the light of demographic change. As you look over long periods of time across the OECD and, of course, within the United Kingdom, that is exactly what you see.”159

191.Similarly, Nigel Edwards, Chief Executive of the Nuffield Trust, stated that:

“If you add together the increasing complexity of the patients, the growth in the number of people who will die over the next five decades, the changes in the age structure and the increasing demands that will be made just because things are available, it will be very difficult to hold the line much below the historic trend, which has been about 4% growth in the UK. There may even be pressure to drive it above that.”160

192.The reduction in health spending as a share of GDP seen over this decade cannot continue beyond 2020 without seriously affecting the quality of and access to care, something which has not been made clear to the public or widely debated.

193.To truly protect the sustainability of the NHS the Government needs to set out plans to increase health funding to match growing and foreseeable financial pressures more realistically. We recommend health spending beyond 2020 should increase at least in line with the growth of GDP and do so in a predictable way in that decade.

Social care funding

194.The funding crisis in adult social care is worsening to the point of imminent breakdown. As mentioned in Chapter 1, although we were appointed with the explicit remit to examine issues pertaining to the long-term sustainability of the NHS, the sheer volume of evidence we received on the challenges facing adult social care and the impact it had on the NHS meant that our investigation widened in scope. This chapter outlines both a possible short-term and long-term solution.

The current situation

195.Pressures in social care are the greatest external threat to the long-term sustainability of the NHS; the urgent requirement to address the issues in social care is universally acknowledged, but action is needed now.

196.Social care is currently delivered through a combination of public and private providers but the publically funded care is financed from the Department of Communities and Local Government’s allocations to local authorities and locally raised finance, principally from council tax. Christina McAnea, Head of Health at UNISON, explained the impact of cuts to local government budgets for the provision of social care:

“… it is not just about funding the NHS, as you have already said, but about funding social care as well to a level that means that you can actually meet need. Over the past few years we have seen a 25% cut in the funding for social care, a 25% reduction in people receiving social care, and an even greater cut in the actual overall budget that is going to local authorities. That has had an immediate impact and an ongoing impact on NHS services.”161

197.The pressures facing social care mean that more people who would otherwise be cared for in the community, in residential homes or in their own home are now presenting in NHS settings, often at GP surgeries or at A&E departments. The adverse impact on the functioning of acute services in hospitals is increasingly serious. In some cases acute services in hospitals are becoming the choice of last resort. The cuts to one public service are placing greater pressure on another.

198.We heard that disquiet about the situation is growing. The Greater Manchester Health and Social Care Partnership which we described in Chapter 2 is delivering real benefits, but even that endeavour is suffering as a result of social care funding pressures. Sir Howard Bernstein, explained that the Partnership had written a letter to the NHS and central Government explaining the severity of the situation:

“Jon Rouse, who is the chief officer for delegation, Lord Peter Smith, who chairs the Health and Social Care Partnership, and I wrote a joint letter to the Secretary of State for Health, copied to the Chancellor and elsewhere, particularly to Simon Stevens, explaining our particular challenges in social care funding, which, unless resolved, will gnaw away at our capability to create the sustainable funding platform that we have committed ourselves to within the next five years.”162

199.There has been much commentary in the press about the exodus of care home providers and providers of other types of care from the sector. Limited public funds have meant that many have chosen to close. We heard that there is now the serious prospect of a further withdrawal of service providers from publicly-funded adult social care which is likely to damage the effectiveness and sustainability of the NHS.163 Not only will this have an adverse effect on the staff who work in the care home sector, it will place greater pressures on families who care for their elderly relatives and confine those who need round-the-clock care in unsuitable settings at a greater cost to the taxpayer.

200.The Government has continually argued that the answer to the social care funding gap lies in the ability of councils to raise the Council Tax precept (the Adult Social Care Precept). In autumn 2016, the Government granted councils the flexibility to raise the precept by up to 3% for two years which would, they argued, provide a further £208 million to spend on adult social care in 2017/18 and £444 million in 2018/19.164 The Association of Directors of Adult Social Services (ADASS) and UNISON welcomed this flexibility and the improved Better Care Fund, but argued that the Council Tax precept was worth less than the Government claimed.165 ADASS went on to argue that “those councils least able to raise tax are those with the highest levels of people with social care needs” and that the improved Better Care Fund did not fully address this as “there is no extra money arriving in 2016/17, and [it] only reaches £1.5 billion in 2019/20.”166 A number of witnesses expressed concern that this option would not produce sufficient resources to halt a further deterioration in services, especially in poorer local authority areas, and that both funding sources were too little, too late.167

201.In fact, Andrew Haldenby, Director of Reform, argued that there might well be a change of thinking in Government on this issue: “I think the fact that the current Government introduced the new precept on social care in the Autumn Statement indicates that they know that cuts in social care funding have gone too far.”168

Short-term responses

202.The evidence we received on the required short-term response to the funding crisis in adult social care was clear—the service needs more money. Whilst we acknowledge this is not a long-term solution, multiple witnesses warned that without a swift injection of public funds, the adult social care sector would be pushed to breaking point.

203.Witnesses, notably including Simon Stevens, the Chief Executive of NHS England, argued that increasing social care funding in the short term was a higher priority than providing more money for the NHS. Sir Howard Bernstein echoed this call for increased funding for adult social care169 as did Professor Keith McNeil, Chief Clinical Information Officer for Health and Social Care and Head of IT for the NHS.170

204.As part of the Spring Budget 2017, the Chancellor announced that councils would receive an extra £2 billion to fund social care over the next three years. £1 billion of this would be provided in 2017/18. The Budget also set out a commitment for the Government to publish a green paper, which would set out proposals to “put the system on a more secure and sustainable long term footing.”171

205.This funding has been welcomed by some in the sector and this lump sum could provide some short-term relief to the system. However, estimates have put the funding gap for adult social care by the end of the Parliament at more than the amount allocated by the Spring Budget. For example, analysis conducted by the Health Foundation, The King’s Fund and the Nuffield Trust, suggested that the social care funding gap could be between £2.8 billion and £3.5 billion by 2019/2020. More recently, the House of Commons Communities and Local Government Select Committee cited estimates which suggested the funding gap could be between £1.3 and £1.9 billion in 2017/18 alone.172 We remain unconvinced that the amount allocated so far for the period to 2020 is sufficient to provide a stable platform of adult social care services on which to build a longer-term funding solution.

206.The additional funding for social care announced in the 2017 Budget is welcome and means funding for social care will increase by more than 2% a year for the next three years. This is more than the increase for NHS funding. However it is clearly insufficient to make up for many years of underfunding and the rapid rise in pressures on the system.

207.In order to stem the flow of providers leaving adult social care, meet rising need and help alleviate the crisis in NHS hospitals, the Government needs to provide further funding between now and 2020. This funding should be provided nationally as further increases in council tax to fund social care do not allow funding to be aligned with need. Beyond 2020 a key principle of the long-term settlement for social care should be that funding increases reflect changing need and are, as a minimum, aligned with the rate of increase for NHS funding.

Aligning health and social care funding

208.Additional funding for the NHS or adult social care alone will not guarantee sustainability. Both systems need immediate support to tackle the current financial difficulties but will also need to be able to undertake considered, longer-term planning to ensure the services can meet the changing needs and demands of the future patient population. We heard compelling evidence to suggest that neither service will be able to do this if two key funding issues are not resolved; the misalignment between the distribution of resources to the NHS and adult social care, and the volatility of funding allocations to both services.

209.The way in which funding has been allocated to the NHS was seen as a key weakness of the UK’s system because there was considerable volatility of spending growth for health due to it being tied to tax receipts, economic performance and political priorities. Figure 3 illustrates the historic volatility in the allocation of funding for the health system and the variation in social care spending.

Figure 3: Yearly change in real terms spending on the NHS and adult social care in England, 1994–2014173

Column chart

Source: Written evidence from the Health Foundation (NHS0172) and (NHS0196)

Figure 4: Difference between percentage change in spending on the NHS and adult social care, 1994–2014

Column chart

Source: Written evidence from the Health Foundation (NHS0172) and (NHS0196)

210.The NHS appears to have gone through numerous cycles of boom-and-bust funding. Short-term financial pressures lead to short-term approaches elsewhere in the system (for example to workforce). We found agreement on this point from both the Department of Health and NHS England. Simon Stevens described how “we bounce off the backs between feast and famine, sugar high and starvation when it comes to the funding of the National Health Service.” 174 This ‘lumpiness’ was seen as detrimental to the efficient longer-term planning and use of taxpayer resources because of the uncertainty it creates. The Secretary of State for Health, acknowledged the issue, stating: “I think it has been particularly lumpy in the last six years because of the economic context we have been in, which has made it particularly challenging.”175

211.Figure 4 highlights that the allocation of resources to the NHS and the amount local authorities have available to spend on adult social care has been historically very poorly synchronised. Given that both services continue to deal with very similar demographic and disease profiles, and the interdependent nature of the relationship between the NHS and adult social care services, this seems wholly counterproductive. It creates no stability for either service and prohibits effective long-term planning.

212.Some witnesses suggested that providing more funding certainty to the health system could result in a more effective allocation of resources. Lord Macpherson of Earl’s Court highlighted previous examples to secure greater funding certainty for the health service and other policy areas:

“Since inflation was brought under control in the 1990s, there has been a tendency to move away from annual spending reviews. For example, the 2015 spending review set budgets for the five years from 2016–17 to 2020–21. And there are a number of examples of governments singling out specific programmes for greater long term certainty. In his 2002 Budget, Gordon Brown set five year spending totals for the National Health Service, when other programmes were only settled for three years. There was also—briefly—a ten year transport plan. And more recently the defence equipment budget has been set for a ten year period, with varying degrees of certainty for the outlying years.”176

213.Lord Macpherson of Earl’s Court went on to suggest that, providing it was underpinned by “end year flexibility” (the right to shift resources between financial years), he saw:

“… much to be said for agreeing funding for the NHS for a five year period at the beginning of each parliament, informed by manifesto commitments, tested by General Election debate and ideally by an independent assessment by the Office for Budgetary responsibility.”177

214.Mr Stevens appeared supportive of the notion that action should be taken to reduce the volatility of the health funding allocations, stating that: “something that smoothed the funding increases, gave longer-term predictability and, more transparently for the public, connected what was being invested with the results they were getting in the NHS would be a great addition.”178

215.Dr Sarah Wollaston MP told us that in her opinion this would be best co-ordinated in a unified policy setting in a single Government department.179 There was also an argument for a unified budget. If the Government is serious about integrating health and social care, it should start at the top. A unified policy setting could also help to ensure that the funding allocated to local authorities is more consistent, given the vital role they play in the introduction of greater place-based approaches to health and care.

216.Funding over the past 25 years has been too volatile and poorly co-ordinated between health and social care. This has resulted in poor value for money and resources being allocated in ways which are inconsistent with patient priorities and needs.

217.The budgetary responsibility for adult social care at a national level should be transferred to the Department of Health which should be renamed the ‘Department of Health and Care’. This should allow money and resources to be marshalled and used more effectively as part of an integrated approach to health and care.

218.We acknowledge the difficulties with integrating budgets at a local level but this is achievable. The Government should undertake a review and bring forward changes in order to make this happen.

219.Regardless of this further work on integrating budgets, the Government should commit to (1) securing greater consistency in the allocation of funding to health and social care at least in line with growth in GDP and (2) reducing the volatility in the overall levels of funding allocated to health and care in order to better align the funding of both services.

220.We recommend that the current Government and any successive governments should agree financial settlements for an entire Parliament to improve planning and ensure the effective use of resources. ‘Shadow’ ten year allocations should also be agreed for certain expenditures, such as medical training or significant capital investment programmes that require longer-term planning horizons.

Longer-term solutions for adult social care

221.The demographic and disease profile up to 2030 and beyond strongly suggested that the demand for adult social care (both publicly and privately funded) would continue to rise. If the funding of this sector becomes destabilised again, as has happened historically, we heard that this will place huge pressures on the NHS and threaten its sustainability.

222.The Prime Minister has acknowledged the need for a longer-term solution on a number of occasions. At Prime Minister’s Questions on 8 February 2017, she said the following:

“As I have said before, we do need to find a long-term, sustainable solution for social care in this country. I recognise the short-term pressures. That is why we have enabled local authorities to put more money into social care … But we also need to look long term.”180

223.Encouragingly, the Secretary of State for Health acknowledged that a longer-term solution for funding adult social care was required. He also spoke of the aspiration that people should save more for the costs of their own care in the longer term:

“I think there is a real commitment in the Government to address the longer-term funding issues in the social care system during this parliament. I do not think we are saying that we want to wait until post-Brexit or until another Parliament. We recognise that this is a really serious issue that needs to be looked at sooner rather than later … The reality is that putting in place longer-term incentives so that people save more for their social care costs will not make a material difference for decades, but it is still the right thing to do … We need to find a way, through evening out the variations between different areas, pressing ahead faster with health and social care integration, doing what we can to relieve the pressure being felt everywhere, but I also think this is a time when we need to put in place a long-term settlement for the social care system, absolutely.”181

224.Simon Stevens advocated a much more holistic approach to the issue, drawing together the inter-related subjects of income, housing and care. He suggested that the idea of the pensions triple lock182 should be re-imagined:

“We need to go beyond just thinking about health and social care funding and think about what is happening in the benefits system, the pension system and so forth. Obviously, we have a triple lock until 2020, which is three different ways in which people’s pensions go up. A new way of thinking about that would be a triple guarantee for old people in this country that would be a guarantee of income, housing and care. I do not think you can think about any one of those in isolation from the other two.”183

225.Lord Willetts, Chair of the Resolution Foundation, echoed this point:

“I would like to see a revised triple lock, which did not cover solely the pension and had some revised promise on the uprating of the pension, but included some commitment on the costs of social care. It would be a combination of a national insurance element plus private payment if you had significant assets on top.”184

226.The traditional response to a funding shortfall in the provision of a public service has been to raise taxes. Dr Stephen Watkins from the Medical Practitioners’ Union Section at Unite argued for the increased taxation of individuals:

“There is no doubt that the introduction of free social care, which we strongly advocate, would necessitate increased taxation and it would necessitate increased taxation of individuals. But it must be noted that people deeply resent the risk to their savings involved in the current systems of social care charges. I think it ought to be possible to persuade people that they are getting good value for money out of the taxation that is necessary to pay for the introduction of free social care. That would be our response.”185

People’s ability to pay for care

227.There was debate over whether the limited provision of social care should continue to be means-tested. Evidence suggested that a means-tested system with adequate funding was sustainable on the condition that the Dilnot Report186 proposals were swiftly implemented to provide a more realistic means-test and the capping of individuals’ care costs at a sensible level.

228.The Care and Support Commission, led by Sir Andrew Dilnot, published its report in July 2011 (the ‘Dilnot Report’). Its recommendations included the introduction of a cap on social care costs “to protect people from extreme care costs” in a range of £25,000 to £50,000, with a suggested rate of £35,000. It also proposed an increase in the upper capital limit for the means-test—below which people are eligible for local authority financial support towards their care costs—from £23,250 to £100,000. The Government accepted the recommendations, but later set the cap at £72,000 and the upper capital limit for the means test at £118,000.

229.Despite repeated assurances that Dilnot’s proposals would be implemented, including through a commitment in the Conservative Party’s 2015 manifesto,187 on 17 July 2015, some two and a half months after the General Election, the Government announced a four-year delay in the introduction of the cap on social care costs.188 In July 2015, Lord Prior of Brampton, Parliamentary Under Secretary of State for Health, cited a cost of £6 billion to implement the cap to care costs over the next 5 years as the reason behind the decision.189

230.Many witnesses were disappointed at the failure to implement the duty under Section 18(3) of the Care Act 2014 that would have capped spiralling care costs, as proposed by the Dilnot Report. Again, some suggested that the Better Care Fund was alleviating the situation but most of the evidence did not support this assertion. Sir Andrew Dilnot told us that we should: “make sure that the Government introduce a cap on social care while at the same time properly funding the means-testing system. Those things were agreed, legislated for and in the Government’s manifesto, so I am very much looking forward to seeing them done in 2020.”190

231.When asked about the future of the Dilnot proposals, Dr Sarah Wollaston MP, Chair of the House of Commons Health Select Committee, echoed Sir Andrew’s call:

“[the provisions in the Care Act 2014 were] dumped in, I thought, a disgraceful fashion. Being snuck out as a Written Statement just before parliament rose, I thought, was the wrong way to do this. Even though there had been a clear call for it in response to the introduction of the living wage, it was clearly not going to be possible for them to do both. They have kicked it down the road a bit, but it is still there because we legislated for that … They cannot keep ducking it … They need to get to grips with this. Either they need to say, ‘It’s not affordable’ and be honest with the electorate, or they need to be setting out how they are going to fund it …”191

232.Dame Kate Barker, Chair of the Commission on the Future of Health and Social Care England, argued that social care costs should not deprive people of all they have:

“We have to accept, as I say, that we probably cannot fund everything out of general taxation. People are going to have to cope with some of the ups and downs in their lives with social care, as they do with other things, but they should not have to cope with catastrophic costs, and people who do not have the resources to cope should not be left without any, as I think is happening too much today.”192

Other funding streams

233.There were a number of ideas for how new funding streams could be developed to provide funding stability for social care. These included revisiting the pensions triple lock and converting it to a triple guarantee to cover pensions and care costs; incentives to individuals to save and invest to pay for care; a compulsory personal insurance-based system starting in middle age to cover care costs (as in Japan and Germany); and improved arrangements for accessing revenue from housing assets. We did not have the time or expertise to evaluate the merits of these ideas but note that the Government is considering all options and that the answer may lie in a combination of more than one of these.

234.The insurance option arose in evidence time and time again. Professor Julien Forder, Professor of Economics of Social Policy and Director of the Personal Social Services Research Unit at the University of Kent, told us: “it is time to look more seriously at statutory insurance and some form of hypothecation. Since the royal commission in 1999, there have been many attempts to reform social care. I think now is the time to look at statutory insurance very closely.”193

235.Lord Willetts asked us to consider the systems in operation elsewhere in the world:

“Interested as I am in a fair deal between the generations, it is social care where we have a real muddle on our hands. I was on the Cabinet Committee that considered Sir Andrew Dilnot’s proposals, which of course have now been so watered down as to be barely happening. On social care, there is some scope for a combination of proper and distinctive public financing—perhaps doing as they did in Germany, with some national insurance element dedicated to covering the cost of social care—plus being explicit about private payment on top of that.”194

236.We received a great deal of evidence asking us to examine the possibility of introducing German or Japanese style systems, both of which involve compulsory long-term care insurance which is shared between an employer and employee, much like the workplace pension scheme in the UK. There have also been calls in the media to examine these type of options195 and we support these calls. The key features of the systems are shown alongside the English system in Table 1.

Table 1: Social care systems in Japan, Germany and England




How is the care funded?

National compulsory long-term care insurance (LTCI).

Roughly half of long-term care financing comes through taxation and half through premiums.

Citizens aged 40 and over pay income-related premiums along with public health insurance premiums.

Employers pay the same premium as that of their employees.

Mandatory long-term care insurance (LTCI).

There is a contribution rate of 2.35% of gross salary which is shared between employers and employees; people without children pay an additional 0.25%. The contribution rate is set to increase by 0.2% in 2017.

The NHS pays for some long-term care, such as for people with continuing medical needs, but most long-term care is provided by local authorities and the private sector.

Who is covered?

Those aged 65 and over and some disabled people aged 40–64.

Everybody with a physical or mental illness or disability (who has contributed for at least two years) can apply for benefits, (dependent on an evaluation of need and limited to a maximum amount, depending on the level of care).

Local authorities are legally obliged to assess the needs of all people who request it, but, unlike NHS services, state-funded social care is not universal.

What is covered?

The social care system covers home care, respite care, domiciliary care, disability equipment, assistive devices, and home modification.

Medical services are covered by the public health insurance system, as are palliative care and hospice care in hospitals, and medical services provided in home palliative care, while nursing services are covered by LTCI.

Beneficiaries can choose between receiving benefits in cash, which they can use to pay family carers, or even to carry out house renovations to make their accommodation accessible; or they can choose to receive in-kind service benefits, where care is provided by an agency under contract to the insurance company.

As benefits usually cover approximately 50% of institutional care costs only, people are advised to buy supplementary private LTCI.

With the exception of “reablement” services, some equipment and home modifications (in some areas), residential and home care are needs and means-tested.

Who provides the care?

The majority of home care providers are private; 64% were for-profit, 35% not-for-profit, and 0.4% public in 2013.

Both home care and institutional care are provided almost exclusively by private not-for-profit and for-profit providers.

In 2009, the private sector provided 78% of residential care places for older people and the physically disabled in the UK.

The NHS provides end-of-life palliative care at patients’ homes, in hospices (usually run by charitable organisations), in care homes, or in hospitals.

Sources: Commonwealth Fund, (2015) International Profiles of Health Care Systems (January 2016): [accessed 28 March 2017] and The King’s Fund, The social care and health systems of nine countries (2014), p 27: [accessed 28 March 2017]

237.There is a clear need to encourage people to take more financial responsibility for the care they receive and to open up new revenue streams to be able to provide this care. The option of some form of compulsory insurance scheme should be given serious consideration.

238.Steve Webb, Director of Policy, Royal London Group, also argued that a more sophisticated solution would be required which did not simply opt for increasing personal taxation through national insurance.

239.Social care should continue to be underpinned by a means-tested system. Where possible people should be encouraged to take personal responsibility for their own care. We support a funding system that enables those who can afford it to pay for the social care they need but with the costs falling on individuals capped in the manner proposed by the Dilnot Commission.

240.The Government should also implement as quickly as practicable, and no later than the first session of the next Parliament, new mechanisms which will make it easier for people to save and pay for their own care. The Government should, in the development of its forthcoming green paper on the future of social care, give serious consideration to the introduction of an insurance-based scheme which would start in middle age to cover care costs.

131 Q 302 ( Jeremy Hunt MP)

132 Q 105 (Ben Page)

133 Q 118 (Lord Willets)

134 Q 55 (John Appleby)

135 Q 2 (Andrew Baigent)

136 OECD 2010, Health care systems: Getting more value for money, OECD Economics Department Policy Notes, No. 2, p 3: [accessed 28 March 2017]

137 Q 23 (Dr Jennifer Dixon)

138 Q 23 (Nigel Edwards)

139 Q 56 (John Appleby)

140 Written evidence from the Health Foundation (NHS0172)

141 National Audit Office, Financial sustainability of the NHS (Session 2016–17, HC 785)

142 Oral evidence taken before the Health Select Committee, 18 October 2016 (Session 2015–16), Q 66 (Simon Stevens)

143 House of Commons Committee of Public Accounts, Financial sustainability of the NHS (Forty Third Report, Session 2016–17, HC 887)

144 The King’s Fund, Commission on the Future of Health and Social care in England, A new settlement for health and social care (2014), p 25: [accessed 28 March 2017]

145 Written evidence from Children and Young People’s Mental Health Coalition (NHS0058); The British Psychological Society (NHS0057) and The Royal College of Ophthalmologists (NHS0032)

146 Q 70 (Ian Forde)

147 Written evidence from Lord Macpherson of Earl’s Court (NHS0177)

148 Ibid.

149 Q 177 (Dame Julie Moore)

150 Q 97 (Chris Hopson)

151 The Health Foundation, ‘Health and social care funding explained’: [accessed 28 March 2017]

152 Written evidence from the Health Foundation (NHS0172)

153 Q 23 (Dr Jennifer Dixon)

154 Office for Budget Responsibility, Fiscal sustainability analytical paper: Fiscal sustainability and public spending on health (September 2016): [accessed 28 March 2017]

155 Ibid.

156 The OBR’s graph displays long-term projections on health spending using a number of different scenarios: FSR 2015; low productivity; constant other pressures; and declining other pressures. FSR 2015 (updated population and projections and spending plans) refers to the OBR’s updated FSR (Fiscal sustainability report) health spending projection made on the basis of new population projections and detailed spending plans set out since its last report. The low productivity scenario assumes annual health care productivity growth of 1.2%. The OBR states that in order to account for other cost pressures (non-demographic pressures, for example increasing relative health costs and technological advancements) in its long-term spending, it has also used two variants: constant other pressures, which assumes that the additional pressures remain unchanged from 2021–22 onwards. In this scenario, primary and secondary health spending projections grow by 2.7% and 1.2% a year faster than OBR’s central projection; and declining other pressures which assumes a linear convergence towards a 1% annual increase by the end of the projection period in each activity. This reflects the significant uncertainty over how pharmaceuticals, medical procedures and technology might evolve over the future. Office for Budget Responsibility, Fiscal sustainability and public spending on health (September 2016): [accessed 28 March 2017]

157 The Nuffield Trust, Is the NHS financially sustainable (21 September 2016):–01/is-the-nhs-financially-sustainable-web-final.pdf [accessed 28 March 2017]

158 The Health Foundation, ‘Health and social care funding explained’: [accessed 28 March 2017]

159 Q 23 (Richard Murray)

160 Q 23 (Nigel Edwards)

161 Q 159 (Christina McAnea)

162 Q 225 (Sir Howard Bernstein)

163 Q 99 (Sir Andrew Dilnot)

164 Department for Communities and Local Government, ‘Provisional local government finance settlement 2017 to 2018’: [accessed 28 March 2017]

165 Written evidence from the Association of Directors of Adult Social Services (NHS0072) and UNISON (NHS0081)

166 Written evidence from the Association of Directors of Adult Social Services (NHS0072)

167 Written evidence from the Association of Directors of Adult Social Services (NHS0072) and The Care and Support Alliance(NHS0097)

168 Q 79 (Andrew Haldenby)

169 Q 235 (Sir Howard Bernstein)

170 Q 242 (Professor Keith McNeil)

171 HM Treasury, Spring Budget 2017, HC 10256, (March 2017), p 48: [accessed 28 March 2017]

172 House of Commons, Communities and Local Government Committee, Adult social care: a pre-Budget report (Eighth Report of Session 2016–17, HC 47)

173 Figures 3 and 4 use 2017/18 prices and Her Majesty’s Treasury’s December 2016 GDP deflator.

174 Q 279 (Simon Stevens)

175 Q 303 (Jeremy Hunt MP)

176 Written evidence from Lord Macpherson of Earl’s Court (NHS0177)

177 Ibid.

178 Q 279 (Simon Stevens)

179 289 (Dr Sarah Wollaston MP)

180 HC Deb, 8 February 2017, cols 420 –421

181 Q 305 (Jeremy Hunt MP)

182 The triple lock is the mechanism currently used by the Government for uprating the Basic State Pension (BSP). Under the triple lock, the BSP is increased each April by either the growth in average earnings, the Consumer Price Index (CPI), or 2.5%, whichever is highest.

183 Q 281 (Simon Stevens)

184 Q 118 (Lord Willetts)

185 Q 159 (Dr Watkins)

186 Commission on Funding of Care and Support, Fairer Care Funding (July 2011): [accessed 28 March 2017]

187 The Conservative Party, The Conservative Party Manifesto (2015), p 38: [accessed 28 March 2017]

188 House of Commons Library, Social care: Announcement delaying introduction of funding reform (including the cap) and other changes until April 2020 (England), Briefing Paper, No. 7265, 6 August 2015

189 Written Statement, HLWS135, Session 2015–16

190 Q 104 (Sir Andrew Dilnot)

191 Q 292 (Dr Sarah Wollaston MP)

192 Q 104 (Dame Kate Barker)

193 Q 104 (Professor Julien Forder)

194 Q 118 (Lord Willetts)

195 Rachel Sylvester, ‘Social care crisis needs a Japanese solution’, The Times (6 February 2017) [accessed 28 March 2017]

© Parliamentary copyright 2017