Are you ready to pay an age tax?
Former health secretary Jeremy Hunt, who actually lives just down the road from me, has told the Prime Minister he has a “now or never” opportunity to get the public behind a new tax to fund adult social care. According to Hunt, the idea would follow the example set by Japan and Germany, where a small tax was levied on the over-40s, rising as you get older.
In my final years as a practising Financial Planner, I was an Accredited Later Life Adviser. That means I spent a lot of time advising families about how to best pay for the cost of later life care. This issue of adult social care funding isn’t going away, and successive governments have squandered opportunities to reform the system.
In this video, why proposals for an age tax to help pay for our elderly might be the best solution to an almost unsolvable problem.
Some interesting ideas coming from the MP Jeremy Hunt, who was the former Health Secretary. Broadly, he’s proposing the launch of a long-term plan designed to fund adult social care, as well as further integration of the social care system with the NHS.
Before I dive into these proposals, it’s worth spending a minute or two explaining how the system currently works. Adult social care for elderly people is a source of huge confusion; I’ve witnessed that confusion first hand when working with families to secure fundings for their elderly relatives in residential care homes. It’s no exaggeration to say that I’ve heard more misconceptions about care fees planning than any other area of financial planning.
The system is broadly split into two. On the one hand, you’ve got healthcare, delivered free at the point of use via the NHS. I think we’re all pretty familiar with this. On the other hand, you’ve got adult social care, delivered by local authorities. Social care is anything but free at the point of use. It’s a means-tested system, at least here in England, where if you have relevant assets of more than £23,250, you pay for the care yourself.
There are some exemptions from these eligible assets; for example, if one spouse or partner needs to go into residential care, and the other continues living at home, then the value of the home is excluded.
Long term care in later life is incredibly expensive. The cost varies depending on which part of the country you live in, and it’s far more expensive than average down here in the South East. But in England as a whole, the cost of residential care is an average of £655 a week, rising to £937 a week if you need nursing care too. Another factor to keep in mind when you consider the cost of care is that it tends to rise faster than average price inflation, so becomes more expensive over time.
With those points in mind, back to these ideas to fix a fairly broken system. I call it broken for a couple of reasons. Firstly, it’s increasingly affordable for the government to fund adult social care for those who can’t pay their own way. We have an ageing population in the UK, and elderly people needing residential care in their final years of life are placing a growing financial burden on local authority funding. Secondly, there’s no cap on the cost of care. If you’re a self-funder, paying for your own residential care in later life, and you live for many years in a care home, the care fees can wipe out a lifetime of savings, leaving no inheritance for your family.
This issue of care fees reform is often in the spotlight, and more so this year because of the high number of care home residents who sadly died during the Covid-19 pandemic. Adding a voice to the debate, alongside Jeremy Hunt, is Andy Burnham, a Labour politician and Mayor of Greater Manchester. Burnham says that the pandemic has demonstrated just how broken the social care system is, and that it would be immoral not to reform it now.
However, Andy Burnham is also warning that it would be a waste of money to bring in a new tax to help fund the social system unless there are first fundamental changes to how care is delivered in this country.
We’ve seen proposals for social care funding reform before. Back in 2017, former Prime Minister Theresa May wanted to introduce a £100,000 ‘floor’ on personal contributions to care costs. That unpopular policy cost her a majority in a general election. The Conservatives pledged in their latest manifesto that nobody would have to sell their home to pay for care, but those proposals have been subsequently delayed.
And back in 2011, the government commissioned an independent review of the social care system, the Dilnot review, and subsequently implemented some but not all of his proposals.
A Department of Health and Social Care spokesman says: ‘We are focused on ensuring all those who need it get the care and support to stay safe and well during the Covid-19 pandemic and throughout this winter, including through regular testing of staff and residents and free personal protective equipment.
‘We remain committed to sustainable improvement of the adult social care system and will bring forward proposals as soon as possible.’
Jeremy Hunt is chairman of the Health and Social Care Committee of MPs, so an influential voice in Parliament. He says that addressing this issue of adult social care funding now could give Boris Johnson a legacy similar to the establishment of the NHS after the second world war.
He says: ‘I think the biggest battle now is with the Treasury, because the sums of money are eye-watering.’ We were even more bankrupt as a country after the Second World War and then we had the imagination and vision to set up the NHS, and I think this is another 1948 moment.’
Now, Jeremy Hunt is calling for a new tax on middle-aged people, similar to the levies already seen in Germany and Japan. He says: ‘Both of them, interestingly, introduced a tax surcharge to people over 40, which is only a small amount extra, but as you get older you start to pay a little bit more. And neither have had public pushback for doing that,’
Other models to consider are similar to those followed in Italy and Spain, where families take on more caring responsibilities for elderly relatives. But the downside is that women are often forced to become full-time carers, instead of pursuing their careers.
These are really bold comments from Jeremy Hunt. He’s saying that ‘the way that we treat older people in this country has neither kindness nor decency at the moment’. He’s calling on the Prime Minister to take bold action, made possible by a majority in the House of Commons and public recognition of the importance of our care system, due to the pandemic.
He said: ‘I just think the year after the pandemic, if we don’t do it now, it really is now or never. Because the public have never understood better how important our care system is. I don’t think Boris needs me to tell him this, but boldness always pays off in politics. And if you wanted to send the strongest possible signal that we are a one-nation Conservative Party that cares equally for young and old, then this is the strongest possible signal.’
Coming at the issue from the other side of the political fence, Andy Burnham is saying that existing proposals place finances before delivery. He says that, in Greater Manchester, they are trying to do it the other way around. Burnham said: ‘If you think about delivery differently you will then work out what your financial gap is, what you need to put into this system.’
His suggestion is a new approach, more closely integrating social care with the NHS, as a way to cope with the pressures created by an ageing population. To some extent, we’re already seeing this approach nationwide, with the creation of Integrated Care Partnerships, with local authorities and NHS Trusts working more closely together. But there is still separation due to funding; with NHS care free at the point of use and social care subjected to means testing.
Burnham says: ‘In the century of the ageing society you cannot continue to think of social as being separate to physical and mental. You have to have a system that can see the whole person. If social care was placed within the NHS it would allow the NHS to act more preventatively than it currently does, it would allow the NHS to work more in the home and up front and less as a crisis service when everything else has failed.’
But turning back to this idea of an age tax to fund adult social care. We know already that this is something the government is considered. Back in the summer, the Guardian reported that ministers were studying a plan to bring in an age tax for the over 40s, charged via higher income tax or National Insurance contributions. Boris Johnson established a new health and social care taskforce, and the plans were also being considered by the Department of Health and Social Care.
Sources told the Guardian at the time that this age tax idea was emerging as the government’s preferred option for fulfilling their earlier pledge to “fix the crisis in social care once and for all.” Another advocate of the plan at the time was, reportedly, Health Secretary Matt Hancock.
I like this plan. Assuming the age tax was genuinely levied for the purpose of paying for social care, and not absorbed in the general taxation pot, it would, I believe, have a decent level of public support. And assuming it started small and then rose with age, that would work too.
One very simple way for the government to raise tax revenue to fund social care would be to continue levying National Insurance contributions once people have reached state pension age. Under the current system, NI contributions cease when you start to receive your state pension. By continuing to charge them, the Treasury could raise money that would pay towards the cost of the NHS and adult social care; as older people are the biggest users of these systems, those with sufficient pension income should continue to pay into the taxation system.
But I also agree with Andy Burnham, that this has to address the structural issues associated with healthcare and social care before we tackle the money side of things. There is huge inefficiency associated with this dual system, perhaps best demonstrated earlier this year when care homes struggled to get hold of the Personal Protective Equipment needed to save the lives of both residents and carers.
My greatest reluctance to the introduction of a ringfenced age tax is, where does it end? Do we start to see specific taxes for education, the police, defence? Wouldn’t it be better to charge high enough levels of income tax and National Insurance to cover all public spending priorities, instead of taxing one at a time.
What do you think about the introduction of an age tax to pay for social care? I would particularly like to hear from you if you have personal experience of a family member having to pay for care in later life; does this make you more inclined to pay a higher rate of tax so people can keep their homes and receive a decent standard of care in later life?