Resolving the UK’s Long-Term Care Problem: An Opportunity for the Conservative Party

March 13, 2017

The Government’s decision to announce additional spending for personal care is welcome, as is the news that a green paper will be issued on this topic. The challenges of long-term care and its funding present the modern Conservative Party with an opportunity. Since the 1940s, Britain has had a welfare state that offers a comprehensive safety net. Since its construction, however, a significant and perverse lacuna has remained in its scope. Long-term social care is strictly means tested, unlike the health care provided by the NHS that is free at the point of use.

A fundamental incoherence that dates back to the 1940s

‘Free at the point of use’ means that all dimensions of medical care — from the most trivial, to the most serious and catastrophic — are provided without charge to people on the basis of their need. But social care — from the provision of a home help, to long-term residential care — is charged for until a person’s cash runs out, and they fall back on to the social system’s means-tested support. The position is perverse: minor medical conditions are treated freely, while serious social-care needs — such as managing incontinence following a stroke, or the care of a person with dementia — are charged for until the person in question’s assets are almost exhausted.

Social care is provided by some 152 local councils, which are obliged to charge under the National Assistance Act 1948. The policy guidance given to local social services departments between 1997 and 2010 was progressively prescriptive about charging ‘self-funders’, and aiming to recover the full costs of care from people whose assets fell within the means test. Many authorities expect self-funders to organise their own care. Yet, for most families, navigating the complex arrangements for care — whether it is at home, or in a residential setting — is difficult. On occasion, people admitted to hospitals following a stroke, who are going to be self-funders, are told that they have to organise their own care. Arranging a departure from a ward in a general hospital in those circumstances is difficult, slow, and inevitably delayed.

Community Care and the long-term squeeze on council budgets

For more than twenty years, the financial provision for social care has been squeezed. This is the effect of the implementation of Sir Roy Griffiths’s report on long-term care, following the National Health Service and Community Care Act 1990. There was a transfer of funding from the housing-benefit budget to local government, rightly intended to end the perverse incentive that resulted in social-services departments placing people with few care needs in residential care in the private and voluntary sectors paid for by central government, rather than providing care for them in their own homes in the community (a cost that fell on the local council budget). For the first time, the 1990 act extended the regime of inspection of care homes in the private and charitable sector to local-authority run homes. At that point, many council-run care homes were not up to inspection standards. Straightaway, councils faced regulations that raised the costs of their homes, and the introduction of a cap on their budget to provide social care for older people. A perverse incentive was ended, and tight budget constraint was applied to social care costs.

In the years that followed, the implantation of care in the community, through the provision of local authority grants, did not keep pace in a realistic manner with social need in the country. There was simply insufficient money scored for this spending in the SSAs — the Standard Spending Assessments — that shaped local-authority spending until the early twenty-first century. The position was not improved in the New Labour era. A royal commission was set up under Sir Stewart Sutherland, which sensibly recommended that nursing home care and personal care should be available without fee, but this was ignored by the Labour ministers who initiated it. Instead, Labour ministers and their Conservative opponents explored intellectually skittish proposals to resolve the problems through the use of private-sector insurance markets. Between 1994 and 2010, real spending on social care increased by 70 per cent, in contrast to the 110 per cent increase in NHS funding.

The limits of private insurance markets

Private insurance markets cannot provide social care at an affordable cost to households. Leaving aside the externalities that limit the scope of private insurance markets — such as asymmetries of information, adverse selection and moral hazard — insurance can deal efficiently only with discrete temporary events, not protracted chronic conditions. Most people will probably not need protracted long-term residential care: only one person in ten has more than about £100,000 spent on their care. Yet for some people, old age will involve a protracted and expensive period of care. Over half of people needing care have no assets and are financed by the state, but for many people, care costs threaten to exhaust the bulk of their accumulated assets.

Local council monopoly purchasing power, and the distorted market in social care

Given that local authorities’ residential care homes were not up to inspection standards, and usually had a much higher cost base than privately run homes, the traditional council care home was progressively shut, and councils have been bought places in the private and voluntary sectors. In effect, a discrete and highly distorted care market sector was created. Local authorities used their bulk-purchase buying power to drive the costs of their placements below the economic cost of providing them. The care providers responded to this monopoly purchasing power by applying greater charges to self funders, who now effectively subsidise publicly-provided care bought by local authorities.

Biting the bullet and re-ordering public spending priorities

The resolution of this dog’s breakfast is the recognition that the state will have to spend more on social care. It should be funded out of general taxation as part of normal public expenditure, rather than through a convoluted, hypothecated, and potentially contentious financing measure. Part of that cost will be the ending of the means testing of the care that creates the fundamental incoherence between the NHS medical care and local authority social care provision. Until this incoherence is resolved, little fundamental progress will be made in resolving the matter of whether social care and medical care can be brought together within the health service, as they are in Northern Ireland, so responsibility is divided between the NHS and councils in the rest of the UK.

Social care of the elderly needs to be given greater priority within UK public expenditure. Apart from the incoherence between the means-testing arrangements for health and social care, more money needs to be placed into a care system where regulation has increased the costs of provision. Policy has been at war with itself: standards of regulation and inspection have been raised, funding of care has been subjected to an unrealistically tight budget constraint, and the number of people needing care has increased.

The costs are affordable at around at 2 per cent of GDP in relation to present public spending of about 1 per cent of GDP. Health currently absorbs 7.3 per cent of GDP, and the state pension accounts for 5.2 per cent of national income. This all comes down to a matter of reordering priorities within public expenditure, and would be more than covered by redirecting the UK’s net contribution to the EU budget. The present Conservative government has the opportunity to undertake a fundamental reform of the welfare state, which would complete its range of provision, and ensure that it cohered in a practical manner that helps families.

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