Settling on the least bad option: Are policymakers finally confronting the age-old question of how to fund long-term care?

Today in its long awaited White Paper on the reform of the funding system for elderly care the Government signalled its broad support for the recommendations of the Dilnot Commission, including an upper cap on the amount that any individual pays for their long-term care. Whilst the focus was specifically on England it has long been recognised that Britain’s population is ageing, that this fundamental demographic shift has significant fiscal implications and that existing systems for the funding of long-term care are unsustainable and lack coherence. The recent House of Commons Health Committee inquiry into the funding of social care suggests policymakers are somewhat belatedly discussing ways of addressing the imminent fiscal challenges posed by the ageing of the population. However the Coalition has drawn criticism as the difficult decisions regarding how to fund the reforms advocated by the Dilnot Commission have been deferred until the next Comprehensive Spending Review, which is not due until late next year or in 2014.

The issue of social justice is central to and is often raised in these debates. The Deputy Prime Minister Nick Clegg is the most high profile of a number of government ministers who are beginning to question the viability and fairness of some universal old age benefits. In a similar vein the Minister of State for Universities and Science David Willetts has contended that Britain’s post-World War II baby boomers have had access to greater wealth and welfare provision than any other generation before or since.  He concludes that they should ‘give some of it back’ to the young generations, who face much more precarious life course trajectories. Whatever solutions are proposed or eventually enacted one thing is for sure, they will be profoundly unpopular. On the one hand older people could be made to take greater responsibility for providing for their own welfare in later life. The alternative to older people self-funding their care is for everyone to resource it through paying higher taxes or greater public spending on services for older as opposed to other cohorts of the population. The probable outcry of public opposition to either option perhaps explains why successive governments have failed to enact suitable policy responses to the costs of population ageing thus far.

The process whereby individuals are encouraged to accumulate savings (or assets) which they can draw on for their own welfare rather than relying on state support (commonly known as asset-based welfare) is and will become an increasingly central part of the refashioned and retracted welfare state. The equity stored in housing assets is inevitably seen by policymakers as one of a very limited range of solutions to the costs of population ageing, the need to increase tax revenues and make fiscal savings and as a form of wealth redistribution. However incorporating individual assets into the wider welfare system raises many as of yet unresolved issues that are of pertinence from practical and social justice perspectives. For example asset-based welfare will only function for those with sufficient assets to draw on (thus further emphasising social divides between haves and have-nots) and represents the transfer of difficult choices about the strategies used to finance wellbeing from the state onto families. Moreover, private assets are generally perceived as an individual achievement, so people may take a dim view of measures which they perceive as punishing those who have prudently accumulated housing and other assets over time.

Even if accepted as a necessary evil by the general public, there are many practical barriers to the conversion of housing assets into liquid resources for welfare with potentially serious consequences for achieving social justice.  If equity release is to perform the functions of welfare in old age then it needs to be ‘safe’ in the sense that those who go down this route are appropriately protected when entering into transactions.   This is currently not the case and there is widespread unease about equity release products.   Without the appropriate safety nets (through law and regulation) the costs of inappropriate transactions could result in a ‘leakage’ of housing wealth away from the support of older generations and into other areas of the market.  This is an important concern because the right use of housing wealth – if that is where we end up – could reduce the burden on younger generations.  Firstly, by not having to find the financial resources to provide care for older relatives, and secondly ensuring any outstanding wealth is ‘given back’ to them.

Whichever route is taken, policymakers will have to manoeuvre a bumpy road between socialising the long term care risk or banking on private solutions. Either way action needs to be taken soon, yet unfortunately today’s decision to defer these difficult choices for at least another year indicates that the Coalition, as with successive previous governments, lacks the political capital or courage to confront this longstanding funding impasse.

David McCollum and Beverley Searle

For further information please contact Dr David McCollum:

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  1. […] again (see earlier blog), the most recent announcement has revealed some elements of the funding settlement for long term […]

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