Written evidence submitted by the Fabian Society [FSC 190]

Summary

1. This submission summarises a Fabian Society research paper commissioned by Age UK and Hanover Housing Association. It focuses only on older people’s social care.

2. Public spending on older people’s care needs to rise immediately and rapidly, whether or not new entitlements are introduced. Spending on older people’s care in England needs to rise by £7 billion between now and 2030 just to keep up with rising demand.

3. These estimates are based on existing patterns of service provision which are totally inadequate. To meet all needs today would cost an additional £7.5 billion now, even under the present means-tested system.

4. Existing unmet needs and the scale of rising demand means that even if a lot more public funding becomes available, there will be difficult trade-offs between: (1) appropriately funding the support already on offer, under current eligibility rules; (2) reducing unmet need by expanding the range of support available; (3) offering fairer funding to affluent older people; and (4) investing in the most cost-effective support.

5. There are good reasons for wanting to extend publicly-funded care to richer older people. But there are opportunity costs too and free social care for all is probably unaffordable given competing calls for public money. The Care Act’s ‘cap’ on lifetime spending should be introduced now, without ruling out other measures to further reduce means-testing in the future.

6. The government has no obvious strategy for channelling capital investment into care homes, extra care housing or supported housing despite evidence that a huge expansion in capacity is needed. Over the next decade around 11,000 care home beds and 9,000 supported housing units for rent need to be delivered each year to keep up with projections of rising need.

7. Older people’s social care should be funded in a wide variety of ways. First, rising receipts from existing taxes can pay for expenditure to rise in line with GDP. Second, broad-based progressive taxes can pay for spending to keep up with much of the rising demand (spending is this area should be no different to healthcare). Third, affluent older people should pay more taxes, especially to enhance the existing offer in a ‘something for something’ deal that improves the support available. Together these approaches could fund increases in older people’s social care of up to six per cent a year over the next decade.

8. Raising taxes on affluent older people will be controversial, so is likely to be better achieved through a number of small tax increases on income and wealth, not one highly visible ‘care tax’. These tax rises should be earmarked to earn public consent. This is separate from the question of whether health and care should have truly ringfenced funding streams – which is a larger debate with good arguments on either side.

9. Adult social care (for all age groups) should no longer be funded from general local government funds. Today it comprises 33 per cent of councils’ unrestricted budgets but by 2030 this figure could rise to 46 per cent which is clearly unsustainable. Three options should be considered instead (and they could be used side-by-side in different locations): (1) a designated grant to councils for adult social care, like the designated schools grant; (2) an integrated local budget for health and social care; (3) a single budget for all local public services, in areas with high levels of devolution and robust democratic institutions. A single budget for health and social care is probably the best option.

10. Housing benefit and disability benefits should be paid to care home residents receiving public support. This would bring £2 billion extra funding into the system if paid in addition to present public spending. And even if the money was recouped by reducing grants, the policy would create a buoyant demand-led source of funding to respond to rising needs in the future.

1.               Introduction

1.1         The Fabian Society is Britain’s oldest political think tank. Since 1884 the society has played a central role in developing political ideas and public policy on the left. Through a wide range of publications and events the society influences political and public thinking, but also provides a space for broad and open-minded debate, drawing on an unrivalled external network and its own expert research and analysis. The society is alone among think tanks in being a democratically-constituted membership organisation, with over 7,000 members.

1.2         This submission summarises the findings of a 2018 Fabian Society research paper examining the future of support and wellbeing for older people, commissioned by Age UK and Hanover Housing Association. The author is general secretary of the Fabian Society and was formerly director of policy and public affairs at Age UK. This submission and the paper on which it is based represents not the collective views of the Fabian Society but only the views of the author.

1.3         The project looked beyond just the funding of adult social care, to consider the wider agenda for improving improve older people’s care, support, independence and wellbeing. It considered what England-wide ‘offer’ politicians should make on the services and entitlements older people need to live well; what priorities they should adopt with respect to the development, reform and integration of different forms of support; and what funding solutions should be proposed to pay for comprehensive, high quality support in the context of rising demand. The research started from the perspective of older people, their carers, their homes and their communities – not service silos. It therefore considered how to improve all the support that older people and their carers receive at home and in the community: social care, supported housing, community healthcare, social security and more. Today’s policy debate is focused on local government funded social care, however the research found this comprises less than 30 per cent of the £25 billion of public spending spent on providing support to older people.

1.4         Note, our research and this submission is restricted only to older people rather than all adults.

2.               Spending must rise immediately and rapidly – whether or not new entitlements are introduced

2.1         When policy makers discuss the ‘ageing society’ or ‘demographic change’ is sounds distant and theoretical, as if it is something we can postpone worrying about until austerity is over. Nothing could be further from the truth. Health-related need in old age is rising very rapidly, right now – as this year’s NHS crisis has demonstrated. We need a new vocabulary to express this urgency.

2.2         The first call on new spending should be to adequately fund ‘business as usual’ as the number of older people with support needs grows. The temptation is always to propose new entitlements, before saying how much will be needed to pay for current provision as needs and costs rise.

2.3         The Fabian Society has reviewed a range of published estimates and projections for the rising costs of supporting older people over the next decade, on a business-as-usual basis. This is the first time projections across so many different areas of activity have been brought together in one place. We estimate that public spending on social care for older people in England needs to rise by £7 billion by 2030 to meet rising demand (calculations based on published PSSRU projections). This is only part of the need for extra funding to support frail older people. Across all forms of provision, public spending on older people with support needs in England needs to rise from £25 billion today to at least £40 billion in 2030. The service-by-service breakdown is presented in figure 1.

Figure 1: Extra spending requirements for older people area by 2030 to respond to rising levels of need (today’s prices)[*]

2.4         The scale of the spending required is illustrated vividly when put in terms of annual increases.  Between now and 2030, to keep up with projections for rising need and unit costs spending on older people’s social care needs to rise by the following amounts on average:

• 3.7 per cent a year - care home spending
• 4.4 per cent a year - assessment and other services
• 5.7 per cent a year - home care and direct payments

2.5         What’s more these figures are relatively cautious. We’ve used variants of the PSSRU projections that are based on relatively optimistic scenarios for population health: future health-related needs could be much higher if current health trends persist. This means that a significant focus on public health and preventative interventions will be needed even for spending increases on this scale to be sufficient. Additionally, the figures assume that carers continue to provide the same proportion of care and support as they do today – which will require a very large increase in the amount of care provided by older people’s partners, adult children and other relatives and friends. This might prove impossible for family and friends to supply.

2.6         These estimates are also based on existing patterns of service provision. In other words, they roll-forward the totally inadequate level of support seen today - including the huge recent cuts in the numbers receiving home care, the inadequate size of many care packages, the under-funding of care homes and the under-supply of supported housing. For example, even though these spending increases are high, they would not provide enough money for commissioners to fully meet the ambitions (and legally binding obligations) of the Care Act’s framework for assessment and eligibility. In other words, they do not take account of the extra spending that is already required now, to fully meet the needs of older people today.

2.7         To illustrate the scale of the challenge the Fabian Society assembled estimates of the extra spending required to fully meet the needs of older people requiring support today, under current financial entitlements (implying more generous eligibility thresholds, but no change to the means-test). Our conclusion is that today’s ‘under-spending’ on older people’s social care could amount to £7.5 billion:

• £5 billion – the cost of providing support to 1.2 million older people who aren’t receiving help with essential daily tasks including washing, dressing and eating.
• £1.3 billion – the cost of adequately funding council-paid care home places, to ensure sufficient quality and stop unfair cross-subsidies and top-up charges
• £1.2 billion – a cautious estimate of the money to tackle isolation, promote wellbeing and step in early to prevent needs arising[†]

2.8         To increase spending over the next decade to both address these existing shortfalls and to respond to rising demand would cost billions more than just raising spending to reflect rising demand. To fully meet the needs of people who qualify under the existing means-test implies raising public spending on older people’s social care from around £7 billion now towards £30 billion in 2030 (in today’s prices). It is hard to imagine that this sum could be found in full, but even a move towards this figure will be very challenging, given competing pressures on the public finances.

2.9         None of this analysis includes the costs of reducing the extent of means-testing, in order to improve the offer to more affluent older people; nor the costs of providing support for adults under the age of 65.

3.               An honest debate is needed about how to allocate extra money

3.1         Existing unmet need and the extraordinary pace of rising demand means that even if significantly more public funding becomes available in the future, there will still be very difficult decisions to make. For every marginal pound of public spending there is likely to be a trade-off along the following lines:

EITHER              Appropriately funding support already on offer to ensure quality and dignity for people who are entitled to help on the basis of current rules. This includes: no tightening of eligibility criteria; a skilled, fairly-rewarded workforce; provider payments that reflect realistic costs.

OR              Reducing levels of unmet need for example by improving the support available to meet intermediate levels of need, supporting carers, or helping people to use their own money to better meet their needs

OR              A fairer deal for affluent older people for example those with very high lifetime needs,  so as to pool the risk of high care costs

OR              A focus on cost-effectiveness to make choices on the basis of what will deliver outcomes most efficiently, prevent further needs from arising and minimise costs across the whole system (eg supported housing, equipment and adaptations; close-to-hospital services; wellbeing interventions and public health; new technology).

3.2         The current social care crisis demonstrates how hard these choices will be. Spending cuts have led to far fewer people receiving services; to the under-funding of domiciliary care which has led to exploitative workforce practices and inadequate packages of care; and to the setting of care home fees well below a sustainable long-term unit cost. Meanwhile community-based services aimed at supporting wellbeing and preventing isolation (which in the past were often available without a formal assessment of eligibility) are receiving less and less public support, even though they add hugely to quality of life and prevent future service needs. With so many challenges to address, it is not obvious how to divide each new pound of spending: all these calls for extra spending are pressing.

3.3         There are also good reasons for wanting to offer more public social care to wealthier older people. But the evidence presented so fare illustrates how any policy to reduce means-testing will come with significant opportunity costs. And even when it comes to providing more government support to affluent older people, there are competing priorities. These are evident from the rival conclusions of the three major reviews of care and support conducted over the last 15 years:

• The 2006 Wanless Review sought to reduce unmet need, which led it to propose public match-funding from intermediate needs onwards to promote the take-up of support.
• The 2011 Dilnot Review sought ‘horizontal’ fairness among wealthy older people, which led it to propose a cap on lifetime costs to pool the risks of prolonged needs.
• The 2014 Barker Review sought fairness between people with different health conditions and integration across health and social care, which led it to propose free social care for people once they had very high needs (with the quid pro quo of accommodation charges for care home residents entitled to NHS continuing care).

3.4         A reform to older people’s social care in England that both relaxed eligibility criteria to meet intermediate level needs and offered free universal care would cost more than £8 billion now and rise in cost to over £14 billion in 2030. In an ideal world the government might chose to raise taxes to pay for all of this, but we need to remember there will be other competing priorities for enhancing the welfare state (including adults social care for younger adults). This approach is unaffordable for the time being.

3.5         A limited entitlement, such as a lifetime cap on care costs, is preferable to making an under-funded offer of free care for all, if this were to result in insufficient funding being available for older people with low incomes. So a partial offer to affluent older people – be that on the lines proposed by Wanless, Dilnot or Barker – should be the starting point. The cheapest option is the cap on lifetime spending legislated for in the Care Act. Politicians should commit to this now, without ruling out other measures to further reduce means-testing in the future.

3.6         Looking beyond social care, it is important that future decisions on how to spend each marginal extra pound are taken across service silos. Integration between health and care is very important. For example the difference in the availability of 6 weeks of NHS re-ablement (provided widely) and long-term home care (very tightly rationed) is the result of the institutional boundary between the NHS and social care, not an evidence-based assessment of cost-effectiveness or need. Supported housing, equipment and adaptations must not be side-lined either. Housing related spending is often very cost effective because it sustains independence and prevents the need for more acute and expensive services. The recent report on older people’s housing by the House of Commons communities and local government committee is just the latest to marshal the evidence and call for more expenditure in this area. Yet today housing-related support only accounts for 12 per cent of the total identified public spending on support for older people, a percentage that will decline in the future if new spending simply follows rising acute demand. Planned choices are needed to ensure that preventative interventions (which include low-intensity community services as well as housing-related support) are not squeezed out by immediate pressures for extra high-needs support.

3.7         Similarly, careful thought needs to be given to capital investment. Recently the government has chosen to increase capital spending on adaptations through the Disabled Facilities Grant. But there is no obvious strategy for expanding the stock of care homes, extra care housing and supported housing. Published PSSRU projections suggest that around 11,000 more care home beds and 9,000 more supported housing units for rent need to be developed each year to keep up with rising levels of need among older people (though the mix between the two could be adjusted, if there were more high-support extra care developments).

3.8         The government’s de facto strategy is for investment to be self-funded through the future flow of rents and fees. However, in the case of care homes the fees paid to operators are now too low for them to fund capital investment to expand or upgrade – even though rising demand means we will need 50 per cent more beds in 2030 than in 2015. Similarly, social landlords need financial certainty to invest in supported housing including extra care schemes. Their future revenue stream is a little more certain now that the government has confirmed that housing benefit will continue to fund eligible rents and service charges for supported housing. But the financial model for extra care schemes is particularly complex as they depend on funding from housing benefit, home care, local authority grants and user charges.

3.9         Note, that money is by no means the only barrier to developing the new capacity needed. The planning system is probably a more important obstacle, especially with respect to supported and extra care housing.

4.               Lots of new sources of revenue are needed not just one

4.1         A transparent and coherent strategy for generating resources for older people’s care is required, as part of broader plans for raising the share of GDP raised in tax and spent on public services. A plan to increase spending could consist of three components:

1. Routinely raise spending in line with GDP growth – despite the demographic pressures, spending on older people’s social care has been falling as a percentage of GDP since 2010. There should be no debate about the need to raise expenditure at least in line with GDP every year. This money should come from existing taxes whose revenues should rise in line with economic growth.
2. Progressive taxation for all – the overall tax burden of the UK needs to rise in response to demographic change. Much of this new revenue should come from broad-based progressive taxes that are paid by us all, but raise the most from those with the highest incomes. Progressive taxes on income, earnings and profits are an essential act of redistribution across income groups and across the lifecycle. We take this for granted when it comes to funding the NHS and should not exclude social care from this approach.
3. An extra contribution from affluent older people – Most of the people who in 2030 will need support and care as older people are already retired. If they are to receive a better offer from the state than is available today, it is right that those older people who can afford to pay more do so (ie a ‘something for something’ deal). This is important because today older people are ‘under-taxed’ compared to people of working age; and they also have a greater capacity to absorb tax rises at present. In particular any new universal entitlements that benefits affluent older people must be paid for by them since their rationale is ‘horizontal’ distribution within the cohort of the rich/old. The choice about how generous the universal offer should be, will in part come down to how willing affluent older people are to pay more, in the context of a well-managed democratic debate.

4.2         These three approaches should be deployed in a balanced way. Ending austerity will generate funds for the first 2 per cent of annual real spending increases; higher overall taxes might provide enough to respond to rising demand and pay for spending to rise by 4 per cent per year (which is in line with the long-term trend for the NHS); and older people themselves should pay for the extra needed to improve the public offer, which might take real annual spending increases to perhaps 6 per cent for the next decade.

4.3         Raising taxes on older people is an extremely controversial issue and it would make more sense to introduce a series of small changes rather than a single highly-visible charge like Labour’s 2010 inheritance tax proposal, which was quickly dubbed a ‘death tax’. There are a wide range of options, many of which are not exclusively targeted at older people but would raise revenue from them disproportionately.

Taxes on income

• Introduce national insurance on earnings after state pension age
• Introduce national insurance on occupational pensions, perhaps at a reduced rate
• Lower national insurance for employees to eliminate the existing 4 per cent NI contribution to the NHS; and raise the basic rate of income tax by the same amount
• Reduce the income tax relief and national insurance relief on pensions for high earners and their employers
• Scrap income tax savings and investment allowances

Taxes on wealth

• Introduce a reformed property or land tax, that is proportionate to property values (with deferred payment agreements for the asset-rich/cash-poor)
• End or significantly reduce tax-free lump sums for private pensions
• Reform capital gains tax (eg stop writing off accrued gains at death)
• Reform inheritance tax (reduce exemptions/transfers, apply to lifetime gifts, turn into a receipts tax)
• Introduce a new ‘care charge’ on inheritances, with a low tax rate and low threshold

4.4         There is also the question of whether these tax rises should be specifically earmarked for care and support. The starting point should be that social care for older people is a core part of the welfare state – and the debate on its funding should not be seen as fundamentally different from those on how to pay for other vital public services. Policy makers must not fall into the trap of calling for all extra spending in this area to be funded by specific earmarked tax rises when this approach is not being pursued elsewhere.

4.5         Nevertheless, a degree of soft hypothecation is probably helpful and inevitable as a communication device to explain a ‘something for something’ deal to richer older people. It would help make the case for older people paying for a spending increase that would lead to an improved offer - ie for rises in excess of the 4 per cent a year referred to above. This call for soft hypothecation would follow in the footsteps of Gordon Brown’s 2002 increase in national insurance to pay for a one-off jump in NHS spending (this policy was introduced following the recommendations of the Fabian Society’s 2001 commission on tax and citizenship).

4.6         The case for ‘hard hypothecation’ is less clear-cut. Ring-fenced revenue creates complexity and inflexibility but it also has clear benefits. In the long-term hypothecated taxes and social insurance funds may be the best way to win public permission for spending ‘European’ levels of GDP on public services; and earmarked taxes also help create annually rising revenue streams that can help to prevent raids on the budgets of other less high-profile but equally important areas of spending. However the question of hard hypothecation is a larger debate and it should not be confined just to the issue of support and care in old age.

5.               The machinery for funding public social care should be fundamentally re-wired

5.1         The present funding crisis in adult social care is the result of the current funding model not the nature of the needs or services.  Social care is not a direct responsibility of central government unlike the NHS; and it does not have a demand-led funding system, like disability benefits and supported housing. Instead care has to compete for funding from cash-strapped local authorities. And it is largely funded by council tax and business rate payers, the vast majority of whom do not benefit directly from its services and have limited capacity to pay above-inflation tax rises.

5.2         In the past seeking to reform the funding pipework for social care might have seemed like a distraction. On this view all that mattered was to get more money to the frontline to improve entitlements and services: local government finance is a quagmire that will never be fundamentally reformed so any effort to change the institutional architecture for social care will run into the sand; better to focus on work-arounds like the Better Care Fund.

5.3         Today, however, we’ve reached the point where those arguments no longer hold water. Local government is desperate for a solution that delivers a balanced and sustainable financial model even if it means less responsibility or autonomy. And matters will only get worse over time. In 2015/16 adult social care (for all age groups) accounted for £14 billion of the £44 billion of unrestricted local government spending in England – 33 per cent. Looking to the future, if adult social care is to grow in line with rising needs - for younger disabled people and older people - then public expenditure will need to reach at least £27 billion by 2030. If council spending increases in line with projected GDP growth over the same period then adult care will amount to an estimated 46 per cent of all spending at the end of the decade. This is totally unsustainable – especially when most local government revenue comes from council tax and business rates and social care is used by under 1½ per cent of the population. 

5.4         There are three broad options for revising the funding mechanism for adult social care:

• A designated grant for adult social care, replicating the designated schools grant. The overall level and geographic distribution of funding would become the full responsibility of national government. This seems appropriate since the Care Act introduced national criteria for eligibility. But councils would retain responsibility for delivery of services and assessment of need. Spending could be expected to rise faster than under the present localised system due to the greater political scrutiny and the funding flexibility that would come with social care being a nationally-funded responsibility.

• An integrated budget for health and social care including adult social care, NHS services (and also public health). This would be a powerful driver for integration, accelerating the progress made in many localities to commission care and health together. It would help to ensure that fair and cost-effective decisions were made across existing silos. The argument against this approach is that resources might be sucked into high-cost acute healthcare, owing to the power of acute health providers in local health economies and ‘medical’ rather than ‘social’ mindset of health commissioners. There are also important concerns regarding local democratic oversight and questions about the extent to which elected councillors (or mayors) should be in control of decisions about the integrated budget.

• A single budget for local public services could be the ultimate destination in some places where local devolution is well advanced, following the model of block grants to the Scottish and Welsh governments. The most likely contender for this approach is Greater Manchester, but such radical reform is only likely in a handful of places over the next decade – especially as it would need to be accompanied by robust democratic institutions.

5.5         All three of these options have the potential to deliver more sustainable funding for social care than the current model. Indeed a ‘one size fits all’ approach is not necessarily needed. All councils could move to a designated grant and this could then be merged into larger pots in areas where there was the appetite and capacity. On balance the full integration of health and care funding probably holds the most promise, given how dysfunctional the boundary between NHS and social care services is at present.  This is particularly the case with respect to commissioning community services – such as the distinction between intermediate healthcare and domicillary care discussed earlier. Single budgets could lead to more commissioning of low-intensity services where there was a clear evidence-base to show that the investment would prevent acute need. Single budgets might also facilitate combined delivery, breaking down the established demarcation between the health and care workforce which is often arbitrary and has resulted in worse employment conditions, workforce development and professional standards in social care. The case for integrated budgets would be even stronger if there was alignment with respect to entitlements. For example the Barker Commission’s proposals would end the artificial distinction between NHS continuing care and social care for people with very high needs.

5.6         It is important to note that any move to create a ring-fenced care or health/care budget risks creating new boundaries and service silos. In particular there is a risk in creating an artificial divide between social care on one side and universal community or housing-related services on the other. For example, it would be unhelpful to have a major institutional divide between funding for home care, rehabilitation and assistive equipment (all in the health/care ‘bucket’) and home adaptations, renewals and supported housing (all local government housing functions).

6.               Social security benefits should be paid to publicly supported care home residents

6.1         Publicly-supported care home residents receive far less social security than people living in the community. At present housing benefit is available to fund supported housing and extra care housing, but not care homes. Similarly, disability benefits are not payable to people receiving public support who live in a care home – while they are for people living in supported housing and extra care housing. This stark divide seems increasingly inappropriate given that the aim of extra care models is to blur the line between care homes and supported housing.

6.2         The lack of social security in care homes is a hidden tax on social care commissioners, levied by a different arm of government. If these benefits were available to publicly-funded care home residents (and claimed in full) social security would contribute an extra £2 billion towards spending on care homes each year. By contrast in 2015 councils are estimated to have paid £3.2 billion in care home fees so this ‘missing’ contribution from social security makes up a very high share of their care home spending.  In the past the government could justify the withdrawal of social security on the grounds that the same money would reach residents via central government grants to councils. However this argument no longer applies as these grants have almost disappeared and unresticted local government expenditure is self-financing. Local authorities take on liabilities for people who were formerly funded in their homes by central government and receive no financial support in exchange. It is time for social security to take on more of the burden.

6.3         If this new social security spending was added to the existing resources available for support and care (without a parallel reduction in other revenue streams) it would significantly expand the total money available and would be a big step forward in addressing current under-funding. But even if at the outset extra social security spending only replaced social care funding pound-for-pound, the policy would still be beneficial. It would provide buoyant, demand-led revenue in the future, creating a more automatic and flexible response to rising need. Financial discipline would still be maintained however. Local commissioners with cash-limited budgets would still pay part of a care home’s fee so the system would retain incentives for controlling costs and ensuring that each placement is appropriate.

6.4         The introduction of the new ‘sheltered rent’ creates an opportunity for reform because it places an upper limit on housing benefit payments. This new upper limit could now be applied to care homes as well as supported housing and form the first part of the state’s contribution to their fees (ie a payment for care home accommodation). At the same time disability benefits could be made available as a tenure-blind universal contribution towards the costs of support and care. Together, this could reduce social care commissioners’ costs per resident by around £220 per week or £11,500 a year.

April 2018