Government considers over-40s social care tax

Houses of Parliament, Big Ben, London, England, uk

 The government is considering funding social care through a German-styled model, with a 2.5% levy on wages for the over 40s, a new report has claimed.

An over-40s tax could raise half the money needed to plug the £30bn-a year funding gap the UK faces by 2031, according to pensions and risk consultancy Hymans Robertson.

Its report, A better future for adult social care, said the funds would then be ring-fenced for social care and contributions would be split between employers and employees.

Both Germany and Japan are known for having effective systems in place for commissioning joined-up health and care services, the report said, which it said the UK needs to start doing in order to ensure funding gets to the right areas.

The government is due to publish its social care green paper before the new year, outlining how it plans to future-proof the social care system and put it on a sustainable financial foot.

Whichever funding model the government adopts, it must chose a ‘fair’ one that ensures the burden is spread fairly across the generations, the report urged.

It said people face ‘potentially catastrophic’ costs for their care as they grow older, with the over 65s looking at paying over £100,000 in care costs.

Last month, Health and Social Care Secretary Matt Hancock told the Sunday Telegraph that he was ‘impressed by the work of the select committees who have come up with a model that is adapted from what was introduced about 20 years ago in Germany.’

‘It appears to be working there,’ he added.

He said: ‘One of the reasons I’m attracted to the proposal is that it’s cross party. This is a problem which can only be solved by people coming together behind a solution, because as soon as it’s turned into a political football it makes it extremely difficult to make any progress at all.

‘I’m prepared to have a range of options and see if we can build a consensus around one of them rather than be dogmatic about it,’ he told the newspaper.

Hymans Robertson’s report said the government should encourage more of a funding flow from the private social care sector, adding that private capital will be ‘crucial’ to making the costs of ‘fixing’ the social care system ‘politically tolerable’.

‘The general public do not understand the system, and most have a rude awakening when they find out that many of the symptoms of growing old are not treated by the NHS,’ the report said.

It said the market could benefit from the introduction of insurance products that ‘do not fully indemnify customers’ and that past attempts to create them had largely failed and often led to higher than expected claim costs.

The report said: ‘[Customers] could pay out a fixed amount of cover, or be designed to work in unison with state benefits and provide protection up to some upper limit or cap.

‘Beyond the cap the state would pick up the bill, as proposed by Dilnot,’ it added.

Commenting on the report, Jon Hatchett, partner at Hymans Robertson, said: ‘There are no two ways about it, the system needs more money.

‘Taxation of current and future generations will be needed. It is never going to be popular. But, as importantly, funding needs to be ring-fenced and spent well.

‘There are many families, carers and individuals who are completely unaware of the state of social care in this country. When confronted with the reality they are shocked.

‘This lack of understanding makes addressing the crisis a huge challenge politically.

‘Overcoming this lack of awareness is arguably the biggest challenge we face. Otherwise all options to address the crisis will be met with fierce criticism and resistance. Politicians of all hues need to be open about the scale of the challenge with a population that doesn’t understand the severity of the situation today.

William Laing, report author and LaingBuisson data director, commented: ‘The German model for funding social care has attractions, especially if it’s used to give cash to people receiving care and they have the freedom to spend it on care from family members.

‘What’s surprising, though, is that it’s being put forward by a conservative minister. A 2.5% earnings levy (in effect a 5% increase in income tax) for over-40s could go down like a lead balloon among Tory voters.

‘Maybe it’s a case of kite flying, to see what the reaction is,’ he said.

Care England chief executive Martin Green added: ‘There is a need to find a long term funding settlement for social care. However, the government should look to a range of options that help people plan for later life and not necessarily deliver a one size fits all solution.’