PM confirms tax hike to fund social care reform

Manifesto-commitment-busting 1.25% increase based on National Insurance will also bankroll Covid catch-up work
Prime minister Boris Johnson set out his care reform plans to MPs yesterday

By Jim Dunton

08 Sep 2021

Prime minister Boris Johnson has confirmed the government will hike taxes to fund the long-delayed reform of England’s social care system and work to catch up on hospital backlogs caused by the response to the coronavirus pandemic.

Under plans announced yesterday, a new Health and Social Care Levy will be introduced that will be based on National Insurance contribution rates, and which will effectively increase them by 1.25%.

However, unlike National Insurance contributions the levy will apply to working people over the state retirement age. It will be accompanied by a 1.25% increase in dividend tax that will also go towards health and social care reform.

Johnson told MPs in parliament that the levy would generate £12bn a year for the next three years that would be ringfenced for health and social care. The levy will initially fund coronavirus catch-up work, but from October 2023 it will support the introduction of a new lifetime cap on social care costs, such as residential care for dementia sufferers, which are means-tested and can wipe out savings and property holdings stretching into hundreds of thousands of pounds.

The announcement – which muddies a Conservative Party 2019 general-election manifesto commitment not to raise income tax, VAT or National Insurance – came on the same day the government announced proposals for a one-year suspension of the so-called “pensions triple lock”.

According to the prime minister, the reform's centrepiece “lifetime cap” on care costs will be set at £86,000 for people in England who begin receiving care from October next year. The Department of Health and Social Care said the limit was equivalent to the cost of spending around three years in residential care.

It said that at present around one in seven people found themselves having to pay more than £100,000 to fund the cost of their care, with bills “falling indiscriminately” on some of the nation’s sickest and most vulnerable people.

The reforms also contain changes to means-testing for social care support. They will see the state cover all care costs for people with assets of £20,000 or less; those with assets valued at £20,000 to £100,000 will receive some support from the state. The current limit for state support is £23,250

Unveiling the proposals in parliament, Johnson said the proceeds of the levy would not go on “pay awards for middle management” but instead would “go straight to the front line” at a time when the nation needed to get more out of the health and social care system than ever before.

“It will enable radical innovation to improve the speed and quality of care, including better screening equipment to diagnose serious diseases, such as cancer, more quickly, designated surgical facilities so non-urgent patients are no longer competing with A&E,” he said.

Johnson told MPs that at the start of the pandemic 30,000 of the NHS’s 100,000 hospital beds were occupied by people who needed to be in a social-care setting rather than a hospital. He said  bed-blocking cost the NHS “billions every night” and stopped hospital services being accessed by people needing cancer care, hip operations, or other services.

“Too often people were in hospital beds because they or their relatives were worried about the cost of care in a residential home,” he said. “And that same fear kept many others at home without any care at all.”

He told MPs: “You can’t fix the Covid backlogs without giving the NHS the money it needs. You can’t fix the NHS without fixing social care, you can’t fix social care without removing the fear of losing everything to pay for it, and you can’t fix health and social care without long-term reform. The plan I am setting out today will fix all of these problems together.”

“This plan certainly does not ‘fix’ social care”

Health think-tank the King’s Fund said the “historic” levels of investment confirmed by Johnson were to be welcomed, but it cautioned there was a risk of over-playing the potential results that could be delivered by the reform package.

Chief executive Richard Murray said the prime minister had shown a willingness to “grasp the nettle of social care reform” in a way that predecessors and previous administrations had not.

However, he said social care would see only £5.4bn in additional funding over the coming three years, with no guarantees of sustainable funding beyond.

“The cap on care costs – which will consume nearly half the funding – will protect people from the very high costs of long stays in residential care, but setting it at £86,000 means it will help relatively few people,” Murray said.

“The changes to the means test are very welcome and will bring thousands more people into the publicly funded system.

“However, there is a real risk this will leave inadequate funding to bring about meaningful change in areas such as workforce, access and quality. While this plan certainly does not 'fix' adult social care, as the PM had promised, it is the most significant step forward for a generation.”

Murray added that putting the additional funding earmarked for the NHS to best use would depend “critically” on developing a plan to address chronic workforce shortages.

“Public expectations will rise with their taxes and the government must be honest about how long it will take to recruit and train enough staff to provide the tangible improvements to NHS care the public will expect,” he said.

Pensions triple lock becomes “double lock” for one year

As MPs were discussing Johnson’s social care announcement, the Department for  Work and Pensions tabled proposals for new legislation that would suspend one of the three “locks” used to protect the value of the state pension.

It said that following “unprecedented fluctuations to earnings” caused  by the coronavirus pandemic, the use of average-earnings growth figures for state pension uprating would be “set aside for one year”.

The triple lock guarantees that state pensions will rise each year by whichever is the higher of three measures: average earnings, inflation, or 2.5%.

However average earnings are on course to rise by 8% to 8.5%, which DWP said could increase the cost of providing state pensions by up to £5bn because of a “statistical anomaly”.

In a statement, DWP said suspending the average-earnings measure from the triple lock for one year would stop pensioners benefiting unfairly.

“Younger people have been hit hardest by the financial impacts of the pandemic, and the artificial inflation of pensioner incomes at this time would be out of kilter with the pressures being experienced by the rest of the population,” it said.

“This new legislation is a one-year response to exceptional circumstances and the government plans to return the earnings element of the triple lock next year.”

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