Asset-rich people should face a one-off charge of £30,000 when they turn 65 to fund a new free social care system, a think-tank has proposed
The Social Market Foundation said the levy – which could be paid immediately or deferred until death – was the only fair way to raise enough money to properly fund social care in future.
The one-time payment, made by anyone with assets worth more than £150,000, would ensure that no-one had to pay for personal care in later life.
The new charge would raise around £7 billion a year for care, the SMF calculated.
That would be enough to fund personal care for all in England and end means-testing rules that force some older people to sell their homes to pay for care.
The SMF report comes as Matt Hancock, the Health Secretary, prepares to publish a Green Paper on social care funding.
One recent poll suggests a new wealth tax is the most popular way to fund care, with 66% of people backing the idea. (See notes below for detail)
The SMF, a cross-party think-tank, made the proposal in a report that modelled eight different options for funding care, including by increasing income tax, inheritance tax, National Insurance, council tax and higher corporation tax.
Only two – a one-off charge and substantial increases in income tax – produce enough money to fund an adequate care system, the SMF modelling indicates.
The think-tank rejected an income tax increase because it would unfairly require working age people – many of whom have no assets or housing wealth – to pay more tax to fund the care of older people with valuable assets.
“We do not believe it is fair or sustainable to require younger, asset-poor workers to pay more tax to fund care for older asset-owners,” the SMF said.
The SMF also rejected a widely-cited policy option of extending National Insurance payments to the over-65s as this would only raise £0.9bn, nowhere near enough to fund a new care settlement.
The SMF calculated that around 233,000 people turning 65 each year would be required to pay the new £30,000 levy, around 41 per cent of the total number of 65-year-olds.
The report acknowledged that the prospect of a substantial charge might not be immediately popular, but pointed out that the current system of care funding exposes many asset-rich people to much higher costs.
Currently, around one in ten people pay more than £100,000 for personal care, running down the value of property and other assets to find the money.
Alternative reform proposals include a ‘cap-and-floor’ system, which involve charging people for care if their assets are over a certain value, but capping the sum that someone has to pay.
The SMF’s analysis shows that such an approach could cost asset-rich pensioners more than the £30,000 charge.
For example, under a cap-and-floor system, an individual with £150,000 in household wealth per adult would need to pay £50,000 for their care before receiving any state support with care costs.
James Kirkup, SMF Director, said that the one-off charge was the “least bad option” for solving the problem of social care funding.
“The difficult truth is that there is no easy or cost-free way to properly fund our social care needs. Someone is going to have pay. The sooner politicians level with voters about that, the better.
The fairest way to fund care is to ask those who have built up valuable assets to put some of that wealth into a system that will protect them and others from the catastrophic lottery of care costs they face today. This is fair to younger workers with low wealth and fair to older people with assets too. Under the current system, some people who have built up assets have to run down almost the entire value of their estate to fund their care. Accepting a charge on your estate after you die might not sound like the most attractive option, but it really is better and more fair than any of the alternatives.”
The policy would spur the financial services industry to offer new products allowing people to draw the money from their estate to pay the charge, the report suggested.
The SMF said the charge should be overseen by a new and independent Care Funding Committee, modelled on the Bank of England’s Monetary Policy Committee. It would assess the future funding needs of the care system and advise ministers on the level of the charge each year.
Notes:
For more information or to arrange an interview, contact the SMF on james@smf.co.uk or 0207 222 7060
The full report, entitled No Easy Options, will be published at https://www.smf.co.uk on Thursday 14th September. The Executive Summary is included at the end of this release.
Source for polling on wealth tax:
The Aegon Consumer Panel survey in August 2018 found that 66% of respondents believe a wealth tax is the fairest way to fund social care, with more people supporting the policy than any other option. Full details here:
https://www.cofunds.aegon.co.uk/content/ukcpw/customer/news/is_the_nation_readyforhighertaxestofundcare.html
Sponsorship:
The SMF report was kindly supported by Independent Age, the leading charity. The SMF retains complete editorial independence of its publications, and declares all sources of funding.
About the SMF:
The Social Market Foundation (SMF) is a non-partisan think tank. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well. We conduct research and run events looking at a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. The SMF is resolutely independent, and the range of backgrounds and opinions among our staff, trustees and advisory board reflects this.