Policy Exchange proposes solution to social care crisis

November 26, 2021

Social care is once more at the top of the political agenda.   Paying big bills to fund your relatives’ social care is becoming what Americans call a ‘third rail’ issue in British politics.

Policy Exchange has done a lot of work on funding social care and our conclusion is clear.  21st Century Social Care, the report I co-authored, set out a clear answer to how it should be paid for, offering what we believe is the only sustainable solution. When a person is assessed as needing complex long-term care whether at home or in a residential setting it should be provided without charge or means testing in the same way that health care is provided. This is the only way to provide families with the help they need and to end the cost shunts between two services that will never cohere where one is charged for and the other is not.  In his Foreword to our report Rt Hon Jacob Rees-Mogg MP wrote: “It is time for leaders to think differently, and radically. In another age, the original One Nation Tory, Benjamin Disraeli, sought to improve the ‘condition of the people’; in our own time, we should recognise that social care reform is one of the great challenges where the people need to see new political leadership”.  The proposals in 21st Century Social Care fit that bill.

The original Dilnot social care proposals were only a step in the right direction. They entertained a fanciful notion of stimulating a private insurance market for something that violated the conditions for successful insurance: a discrete event that is limited and comes to an end without moral hazard, adverse selection, and asymmetries of information. It was overly complicated and would be unintelligible to the public in general and not least to the social workers who would have to explain it to the families involved.

The Government’s versions of the proposals are less generous and if anything, more complicated. They will not prevent families from spending tens of thousands of pounds on care. It will not solve the political problem of long-term care. By introducing a social care levy that is a further payroll tax it will aggravate the deadweight costs of one of the most expensive taxes in terms of the economic distortion that arises from the revenue collected. The present policy arrangement is a powerful toxic cocktail of new and higher payroll taxes, higher but inadequate spending and a confused social care policy that will not resolve the underlying issues.

Politically there is an interesting, specifically Conservative Party, dimension to the issue of social care now. In the past the problem of social care was shared between Labour and the Conservative. Historically it could be traced to decisions taken by the Attlee Labour Government, namely that the NHS would be free but social care, so-called part three accommodation under the National Assistance Act 1948, would be means tested. In the 1990s when the funding of social care became an increasingly apparent and awkward problem, Labour astutely campaigned on it, promising a Royal Commission to investigate what should be done. After Labour’s election in 1997 Tony Blair set up the Sutherland Commission which reported in 1999 and made recommendations similar to Policy Exchange’s thinking. New Labour ignored them during the rest of its tenure in office.

The combination of the Conservative Manifesto in 2017, the explicit pledge to fix social care in the 2019 election along with the tax increases and higher spending will mean that social care policy and what is wrong with it will now be a Conservative problem. A problem that in many respects was once a Conservative political opportunity has been turned on its head. Social care is in many respects the unfinished business of the UK’s model of a welfare state centred on a distinct National Health Service free at the point of use. It is an opportunity to take health and the welfare state away from Labour. The public’s lack of confidence in the Conservative Party when it comes to health care is the party’s Achilles’ heel in elections. By genuinely resolving social care and completing the welfare state the Conservative Party has an opportunity to take away the principal political crutch linking Labour to the broader hinterland of the electorate.

Ahead of the 1979 election during the Winter of Discontent Mrs Thatcher pledged that she would honour the Clegg recommendations to increase public sector pay. In public spending terms it was expensive yet politically necessary. The 1983 Conservative manifesto promised that mortgage interest relief, MIRAS, would go up from £25,000 to £30,000. The Conservative Party was way ahead in the polls yet in constructing the manifesto no chances were taken. In 1979 the top marginal tax rate was cut from 83 per cent to 60 per cent and the basic rate of income tax was cut from 33 to 30 per cent. This was done despite a borrowing requirement of over 5 per cent in 1979 and 2.75 per cent in 1983. Interest rates averaged around 14 per cent and the 1983 Budget Redbook forecast the ratio of public expenditure to GDP would fall to 41.5 per cent at the end of the survey period. The UK public sector balance sheet is much less constrained than it was forty years ago and ministers in any government would be wise to make astute use of it.


Warwick Lightfoot, 26/11/2021


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