A social care premium could be the best solution

Kieran Neild-Ali

September 3, 2021

Social care was once a “hot potato” issue for politicians: as soon as it was mentioned, it was thrown across to the next generation to worry about. Probably because whenever a government has tried to square the issue, it has resulted in rancour and electoral disaster. Cast your mind back to 2017 when Theresa May made it a central theme of her election campaign, suggesting people should be liable for the full costs of their social care if they have assets over £100,000. It was dubbed the ‘dementia tax’ and sent the May campaign into a death spiral.

But the social care crisis is real and Boris Johnson has promised to tackle the problem. Like his predecessor, the solutions brought to the table have caused another political earthquake. The government is planning to raise National Insurance Contributions (NIC), breaking a manifesto commitment, to fund social care. This will see around 25 million working age people pay extra tax but in return the PM will promise to cap the amount an individual will ever pay in social care costs. Rumours, since denied, suggested the Health Secretary, Sajid Javid, was pushing for a 2 per cent increase insisting that the planned 1 per cent rise in NIC for employers and employees – which would raise about £10 billion – would not be enough.

Understandably, this has caused outrage amongst young people who have sacrificed their education, social lives and work prospects during the pandemic to protect the older generation from a deadly virus. In return, this government seeks to saddle them with higher taxes when and if they enter the workplace. This is on top of a stealth income tax rise with the freeze in tax thresholds announced in March by Rishi Sunak. 

Social care is a generational issue, a policy problem which affects an older age demographic, yet the burden has been placed on a young generation of working individuals. Social care is just one area where the generational divide hits hard; the triple lock – if implemented as it currently stands – would hand pensioners an 8% boost in their state pension because tens of thousands of workers lost their jobs in the early pandemic and then found other work, creating the false impression of wage growth.

Robert Buckland, Secretary of State for Justice, told GB News on Friday that ‘we will all be old’ and that we all ‘share a responsibility’ for social care. The problem with this assessment is that targeting NIC hits only the working age population, and therefore doesn’t constitute a society-wide contribution to the funding of care. It effectively means retirees are off the hook for their own care. So, if the May plan of making the elderly pay more for social care by selling their assets is unpalatable to the public, and raising taxes is equally deplorable, what option is left?

Jeremy Hunt has rightly raised the point that there is a third option, one that will appease those who are angry at the generational divide and one which will prevent the elderly selling homes — a social care premium. The scheme dubbed the ‘Social Care Premium’ was proposed via a report in 2018 by the Housing, Communities and Local Government Committee alongside the Health and Social Care Committee. It aims to ease pressure on the care industry but also on the individual, who is expected to pay for a good standard of care. The joint report recommended that a premium be paid by individuals into a dedicated not-for-profit social insurance fund that people could only use for social care. To ensure fairness between the generations, it was recommended the premium should only be paid by those aged over 40 and extended to those over the age of 65. 

Hunt argued the scheme would draw on the success of other social insurance-based health models, such as in Germany, by ending the toxic political debate over budget commitments and funding for health. It appears the model could be a panacea for the social care crisis, but it needs bi-partisan political enthusiasm. It also is a tax hike imposed by a Conservative government who claim to be the party of low tax. Boris Johnson must explore other alternatives before he commits to increasing the tax burden and further stacking the deck against young people.  


Written by Kieran Neild-Ali

Kieran Neild-Ali is Communications & Marketing Assistant at the Institute of Economic Affairs

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