The Dementia Tax Revisited: Care, The Housing Crisis & Inequality
The recent Conservative Party General Election Manifesto caused consternation among those interested in adult social care, mainly because it seemed to abandon a previous commitment to a cap on adult social care costs, replacing it with a commitment to allow people to retain at least £100K. The Manifesto also proposed to count the value of people’s homes in the calculation of their wealth, in a move immediately dubbed as a ‘dementia tax’. Following their re-election with a reduced majority, the Conservatives seem to have kicked the issue into the long grass, promising yet another consultation. Perhaps this is a good moment to look at the issues raised by the proposals, with a view to informing a solution that is genuinely sustainable.
A tale of two crises
The crisis in social care funding is actually not one crisis, but two. The first is that public spending is falling in real terms, whilst need for care is rising.
This means that the numbers of people being assessed as eligible for state-funded social care is falling. This is true for people in all ‘care groups’, but is the drop-off for people over the age of 65 is remarkable. In the 5 years following the financial crisis, there was a 1/3 reduction in the number of older people receiving support.
This reduction needs to been seen in the context of further planned cuts to the funding central government provides to local authorities, from £11.5 billion in 2015–16 to 5.4 billion in 2019–20. Two sets of proposals were designed to offset this. Firstly, the Business Rate Retention Scheme, which was predicated on the assumption that local economies would grow and Councils would be able to capitalise on this with increased revenue from business rates, which they would be allowed to keep. Secondly, the social care precept, which allowed local authorities to raise local taxes. Neither scheme has generated sufficient income to make up for the cuts, leading the Care Quality Commission to warn last year that the system was at a ‘tipping point’:
“The combination of a growing, ageing population, more people with long-term conditions and a challenging financial climate means increased need but reduced access. The result is that some people are not getting the help they need — which in turn creates problems in other parts of the health and care system, such as overstretched A&E departments or delays in people leaving hospital.”
Dave Behan, Chief Executive CQC, October 2016
The second crisis is that, for those forced to pay for their own care, the burden falls unfairly. Last year’s figures showed that client contributions accounted for £2,64bn of the £20.0bn costs of adult social care in England. According to figures produced by the Department of Health in 2015, around 1 in 10 older people face a lifetime bill of over £100,000 for social care, with an average cost of around £30k. The graph below shows what this looks like as a proportion of people’s total assets.
Depending on how much you have, care could cost you anywhere between nothing and 80% of what you own. This doesn’t punish the very poor or the very rich, but those in the middle. This seems very unfair.
Floors and ceilings
The current system forbids local authorities from paying towards residential care where people have more than £23,250 in capital assets, which usually results in people paying all the local authority’s costs until their assets are reduced to this amount. Once this happens, people pay on a sliding scale until they have £14,250, when they pay nothing. The £14,250 absolute floor is represented by the first, very short straight section of the line on the graph above. Although the workings are complicated, in principle this is just an old-fashioned means test; if you have assets above the ‘floor’, you pay.
In July 2010, Andrew Dilnot was charged with leading a Commission on Funding of Care and Support. The report recommended a lifetime cap on care costs, originally proposed to be £35K. This was effectively a ‘ceiling’ — a maximum amount people would contribute to the cost of their care over their lifetimes. If implemented, this would have significantly reduced the risk for those with the highest costs and spread the risks much more fairly.
Dilnot’s original figure was set close to the average that people paid anyway, so the cost to the state would have been relatively modest, estimated as £2.2bn in 2015–16 prices (an increase of about 14%). Perhaps unsurprisingly, the then coalition government balked at the prospect of any increase in public expenditure, and came back with a suggested cap of £72,000. Following consultations, they moved ahead towards implementation in 2015. The Care Act 2014 made the necessary legal provisions, and the 2015 Conservative Party Election Manifesto contained a commitment to implement. It was therefore quite baffling when, just days after being elected, the government abandoned this commitment (or more accurately deferred implementation until 2020).
Had the 2015 proposals been implemented, the cap would have looked like this.
You’ll notice a second solid line in dark green. This notes the impact of implementing the cap alongside an increase in the ‘minimum threshold’ (MT), or floor. The same Department of Health plans included raising the threshold from £23,250, but also making a new distinction between capital tied up in home ownership and other types of asset. The dark green line shows that changing the ‘floor’ in this way could provide further protection for people with assets in the range of around £27K — £125K, but would do nothing for those with more money.
Impact on home owners
Currently, Schedule 2 of The Care and Support (Charging and Assessment of Resources) Regulations 2014 contains a list of ‘capital to be disregarded’ in any assessment of how much people should pay towards the cost of their own care.
“In the case of an adult who is in receipt of care and support other than the provision of accommodation in a care home, the value of the adult’s main or only home.” (My bold)
The purpose of exempting people’s homes from charging arrangements goes back to the community care policy of the 1990s, which sought to reform a system that put large numbers of older people in care homes, even though it was very expensive and — perhaps more importantly — unpopular with them. At that point, residential and nursing care was funded by central government but domiciliary care (care at home) was paid for by local Councils. Consequently putting people in a home saved money for local authorities, providing a perverse incentive to limit domiciliary care. Changes following the National Health Service And Community Care Act 1990 made Councils responsible for both, and transferred some of the funding back from the Treasury. Since then domiciliary care has been much cheaper for Councils than nursing homes, because they only have to pay for the care and not the overheads associated with the building.
Since the 1990s, the amounts Councils have charged for care has increased steadily. Excluding the costs of people’s own homes from the ‘floor’ has provided an incentive for people to hang onto their own homes, making it possible for them to receive care in their own homes, saving the state large sums. This has remained the policy of successive governments from then until, apparently 2 weeks before the general election, when the Conservative Party Manifesto proposed to: “…align the future basis for means-testing for domiciliary care with that for residential care.”
“This will mean that the value of the family home will be taken into account along with other assets and income, whether care is provided at home, or in a residential or nursing care home.” p.65
A dementia tax?
The press immediately dubbed the proposals as ‘dementia tax’, but this was misleading. The pie chart below shows (in green) expenditure on groups living in homes, and (in blue) the groups living in the community that would have had their homes counted as assets for the first time under the proposed changes.
The bar chart below shows the primary support reasons for people in the blue (community) groups, who would have had to include the value of their homes under the proposed arrangements. It looks like the main losers would have been older adults needing physical care at home. This would include those who have dementia, but also people whoa are simply becoming frail, and those recovering from strokes and heart attacks, or living with cancer and other life-limiting conditions. It would also have included a small but significant group of younger people with physical and sensory impairments, many of whom are in employment and paying a mortgage. For this group, the proposed changes could have reversed the incentive to but a house, potentially costing the state more in the longer term. The second largest bar in the chart — learning disability support — would probably not have been affected, as very few people in this group directly own the properties in which they live.
What were they trying to achieve?
We will probably never know the full details of the Conservatives’ plans now, let alone the reasons for them. Tuesday’s Queens Speech seems to have laid the ground for yet another green paper. But they are worth pondering. The main intentions seem to have been to tackle the second problem — that of unequal risk for a small number of home-owners, but not the first — the overall gap in funding. To do this the proposals sought to take money from those receiving care in their own homes, and use it to create a higher floor for everyone using care services.
In some ways, this would have been surprisingly progressive. It would have ensured that a larger proportion of the poorest people would have kept a larger proportion of their assets. Bearing in mind the average price of a home is £234K and the odds of having a bill of £100K or more are only about 1 in 10, this doesn’t look to bad. It would have guaranteed that everyone could leave at least £100K to a spouse (to pay for her/his care costs in turn), or to pass on to the next generation. However, dropping the cap rescinded the prior promise to better off home owners to protect their assets. Their Manifesto makes the political basis for this clear; people should expect to pay for their own care, and for people who have large sums tied up in home ownership, it’s reasonable to require them to pay.
The ‘dementia tax’ backlash and immediate reintroduction of the ceiling demonstrated the political risks of going after the assets of the retired rich. However when it came to the vote, this group seems to have remained loyal to the Tories. Whilst Theresa May’s reputation for ‘strong and stable’ leadership took a hit, the Conservative Party actually managed small gains among the groups that would have been affected (older adults and home owners).
Interestingly, Labour’s proposals seemed much like the Dilnot ‘floor-and-ceiling’ model that would have provided similar protection for poorer people, but probably more for the better off. Labour’s commitment was to introduce:
“…a maximum limit on lifetime personal contributions to care costs,
raise the asset threshold below which people are entitled to state
support, and provide free end of life care.” p.72
Although the figures for the floor and ceiling are missing it is clear that people would have still been expected to use their own assets. The Labour plans, though, contained two other big changes. Firstly, they proposed major changes to the way that social care is organised, ending the historic division between national government (responsible for the NHS) and local government (responsible for care) by creating a National Care Service. Secondly, they argued for a new form of taxation to pay for the expansion of provision to reverse the cuts implemented after 2010.
“There are different ways the necessary monies can be raised. We
will seek consensus on a cross-party basis about how it should be funded,
with options including wealth taxes, an employer care contribution or a
new social care levy.” p.72
Labour, then, were proposing an increase in government provision as well as placing some limits on what individuals would be expected to pay themselves, although they did not commit to whether this would be funded through income taxes or taxation of wealth (including property).
Housing and Inequality
The policies of both parties seem to reflect a conundrum in modern social policy —an apparent desire to tackle social care funding, coupled with a reluctance to tax wealth, particularly in the form of property. As the chart below shows, wealth is distributed twice as unequally as income, making it a more obvious target for policy-makers seriously interested in social justice.
Wealth is also much more unequally distributed by age, with pension pots and property accounting for £8.4 trillion of the £11.1 trillion of private property.
Conversely, income is higher amongst those of working age. Median household income for working-age households was £26,400 in 2015–16 compared to £21,500 for retired households. Using property to pay for care for older people (whether as a wealth tax, or as a contribution people pay from their own wealth) would seem much fairer than an income tax, and could help to reduce the growing problems of and wealth and income inequality between the retired ‘baby boomers’ and their children.
The main barrier to this, as the ‘dementia tax’ controversy has shown, is the talismanic importance of home ownership. Throughout the 20th and 21st centuries, both the main political parties have been keen to encourage ‘aspirational’ house ownership as a way of driving economic growth, and reducing the demands on the welfare budget.
For individuals, couples and families, home ownership is now more important than ever. Its significance has been increased since the crisis of 2008–9 by changes such as:
- Reductions to the Local Housing Allowance, the Benefits Cap and the ‘Bedroom Tax’, which have all reduced the help available for renters. As a result, many people moving towards retirement will not be able to remain in the properties they currently occupy. In some cases, this will require relocation out-of-area.
- The removal of the housing costs element of Universal Credit for under-21s. This means many young people will be forced to live with their parents into their 20s.
- Increasing rents, which are expected to rise faster than house prices for the next 5 years.
Home ownership, then, is necessary not only to provide for your own care in later life, but also to ensure that you can continue to live within the same community, provide for your dependent children, and escape impoverishment at the hands of unscrupulous landlords. However, the stabilisation of mortgage multipliers at around 4.5 times basic income means that 2 people with the median household income will never be able to afford a mortgage — without a significant deposit. Providing such a deposit is yet another reason older people want to hang on to their houses, rather than use them to pay for care.
In 2013–14, the numbers of first-time buyers receiving parental help grew to more than 50% for the first time, nearly doubling in the first 5 years after the crash.
I think that a fair solution to the social care crisis will involve taking money from older people where they have it, rather from than younger people who are already worse off than their parents. Doing this in a progressive way, in a way which reduces inequalities, would probably require a tax on wealth, whether at the level of the individual care user or across the population. This wealth is usually tied up in home ownership. However, an over-reliance on home ownership as guarantee of financial and social security for families means that taxation will be politically difficult. A fair solution to the crises in social care funding will therefore require simultaneous attention to the growing social risks and structural inequality for poorer young people. Only once their children’s welfare is assured will people be prepared to surrender the means to provide it themselves.
