Social care funding: a crisis deferred?
Expanding a government policy that allows people to use the value of their home to pay for social care without having to sell the property could unlock money at a time of growing demand
Crisis is an overused word in Westminster, but England’s social care system has a good claim to be in one. Cuts to government spending – down 7.5% in real terms since 2010 – are partly to blame. Recognising the need to reverse this trend, the chancellor Philip Hammond unveiled a £2bn package to help local authorities pay for care and support in the Budget.
Given the pace at which England’s population is ageing, this cash injection will not be sufficient to put social care on a sustainable footing. The government is now considering a fundamental overhaul, with a social insurance scheme thought to be an option. This is a good idea, but it will take years to implement.
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There is much to be done in the meantime. An estimated 63,000 people will be responsible for privately funding their residential care this year. These individuals have significant housing wealth at their disposal, but many are unable to access this capital.
Politicians have long been squeamish about the use of housing to pay for care. As far back as the 1997 general election campaign, Tony Blair and John Major said people should not have to do so. The question isn’t, however, whether housing is used to pay for care, but how.
Until recently, some care home residents could only cover their fees by selling their house upfront. This was a significant weakness in the government’s framework of means-tested social care support. It forced people into a complex financial decision at a time of maximum vulnerability. More than this, it lost them money. Expedited transactions typically result in a 25% markdown in a property’s value.
Since April 2015, however, people going into a care home can be assessed for a ‘deferred payment’. Under this Department of Health scheme, local authorities cover the care home fees of a participant in exchange for a claim on their housing wealth, which is typically realised after death. This is a government-backed equity release scheme in all but name.
The problem is that, in its current form, the policy doesn’t go far enough. While Andrew Dilnot – the policy’s architect – wanted the deferred payment scheme to be universal, eligibility has been restricted to people with savings less than £23,250. Analysis by Reform indicates that this restriction is the principal reason why uptake of deferred payments has been so disappointing.
It is now time to relax this means test. A typical care home stint costs £76,300. Under the current system, someone with £100,000 in savings and £250,000 in housing wealth will be forced to exhaust nearly all their savings before access to the wealth stored in their home is granted. Far better to give people the opportunity to fund care as they see fit. Under a deferred payment, the participant’s savings could be left untouched, with the £76,300 financed out of their housing wealth.
Widening the scope of deferred payments would unlock the considerable housing wealth held by many entering care, and offer reassurance in a moment of crisis. It would also be revenue neutral in the long-run run. Loans made by local authorities are eventually recouped, and to date, the default rate has been negligible.
Social care is the one policy area where the prime minister has admitted her government’s thinking is inadequate. A better deferred payment scheme can make an immediate difference.
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