On 16 September 2021, the House of Lords is due to consider the following question for short debate:

Baroness Greengross (Crossbench) to ask Her Majesty’s Government what plans they have to address the intergenerational impact of proposed changes to social care funding.

This article considers: if there is a problem with the current system for funding adult social care; what the Government has said on the issue; and reaction to the announcement that national insurance (NI) will be raised to pay for reforms, including concerns it will unfairly impact on young people and low earners.

Is there a problem with the funding of adult social care?

The King’s Fund has explained that unlike most of the NHS, adult social care is not free at the point of use. Instead, access is restricted to those with the highest needs and the lowest assets. It has argued that “complicated rules to determine eligibility for publicly funded services create a complex system that is difficult to understand”. In addition, it has highlighted that unlike most NHS services, social care is run by local authorities, who usually commission private sector companies or voluntary sector organisations to provide the services.

A number of organisations and individuals have argued that the current system needs reform. For example, the King’s Fund has said that the social care system is “not fit for purpose” and “is failing the people who rely on it”. Giving evidence to the House of Commons Health and Social Care Committee, Sir Andrew Dilnot, chair of the 2011 Commission on the Funding of Social Care, expressed a similar view:

We have a system that does not work, does not look after the people who need it well, does not look after those who are providing the care well and does not provide an industry that is attractive to move into.

However, calls for reform are not new. The King’s Fund has argued that there have been many failed attempts to address the problem: in the past 20 years, there have been 12 white papers, green papers and other consultations on social care in England, as well as five independent reviews and commissions.

In October 2020, the House of Commons Health and Social Care Committee’s report, ‘Social Care: Funding and Workforce’, argued that the “crisis in social care funding has been brought into sharp focus by the Covid-19 pandemic” and that the case for reform accompanied by adequate funding has “never been more urgent or more compelling”.

The committee called for “an increase in annual funding of £3.9 billion by 2023–24” to meet demographic changes and planned increases in the national living wage. However, it also argued that this was a starting point and “alone will not address shortfalls in the quality of care currently provided, reverse the decline in access or stop the market retreating to providing only for self-payers”. It said that further funding to address these issues would be needed and that the full cost of adequately funding social care has the potential to run into the tens of billions of pounds.

What has the Government said about reforming adult social care?

A plan for health and social care

In his first speech as prime minister in July 2019, Boris Johnson said that the Government would “fix the crisis in social care once and for all with a clear plan we have prepared to give every older person the dignity and security they deserve”. The Government has since repeated that it would put forward a plan:

Recent developments: a health and social care levy

On 7 September 2021, Mr Johnson made a statement to the House of Commons in which he set out a plan to address the NHS backlog caused by the Covid-19 pandemic and to fix the long-term problems with health and social care. Arguing that more funding was needed, Mr Johnson announced that from April 2022 the Government would:

Create a new UK-wide 1.25% health and social care levy on earned income, hypothecated in law to health and social care, with dividends rates increasing by the same amount. This will raise almost £36 billion over the next three years, with money from the levy going directly to health and social care across the whole of our United Kingdom.

This levy would be applied to national insurance payments. Addressing the method chosen to raise the money, Mr Johnson said that the approach was “right, reasonable and fair” and commented on the reasons why other options had not be chosen:

Some will ask why we do not increase income tax or capital gains tax instead, but income tax is not paid by businesses, so the whole burden would fall on individuals, roughly doubling the amount that a basic rate taxpayer could expect to pay, and the total revenue from capital gains tax amounts to less than £9 billion this year. Instead, our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above state pension age. So those who earn more will pay more, and because we are also increasing dividends tax rates, we will be asking better-off business owners and investors to make a fair contribution too.

He also explained that from October 2023:

No-one starting care will pay more than £86,000 over their lifetime, and no-one with assets of less than £20,000 will have to make any contribution from their savings or housing wealth—up from £14,000 today. Meanwhile, anyone with assets between £20,000 and £100,000 will be eligible for some means-tested support.

He acknowledged that the plans break a manifesto commitment, stating that it is “not something I do lightly, but a global pandemic was in no one’s manifesto”.

Further details of the levy are set out in the Government’s paper, ‘Build Back Better: Our Plan for Health and Social Care’ (7 September 2021).

On 8 September 2021, the Government introduced the Health and Social Care Levy Bill, which would provide for the levy, in the House of Commons. The bill’s explanatory notes were also published.

What has been the reaction to the Government’s announcement?

Opposition reaction

Reacting to the prime minister’s statement, Leader of the Opposition, Keir Starmer, argued that Mr Johnson is “putting a sticking plaster over gaping wounds that his party inflicted”. He said that while the pandemic undoubtedly placed the NHS under huge strain, “that is only part of the story” and that “a decade of Conservative neglect” had weakened it.

Focusing on the plans for social care, Mr Starmer highlighted that the prime minister had made a commitment that it would be paid for without raising taxes before the pandemic. He also queried if he could guarantee that under the plans no-one would have to sell their home to fund their own care. In addition, he argued that the levy is:

A tax rise on young people, supermarket workers and nurses; a tax rise that means that a landlord renting out dozens of properties will not pay a penny more, but the tenants working in full-time jobs will; and a tax rise that places another burden on businesses just as they are trying to get back on their feet.

Ian Blackford, the Scottish National Party Westminster Leader, argued against the plans, stating that they would “fall hardest on the young and the lowest paid”. Focusing on the levy’s impact in Scotland, he said:

The unfairness of this tax hike will be especially felt in Scotland. The Scottish Government are responsible for social care and already funds provision—including SNP policies such as free personal and nursing care—from existing budgets and tax receipts. We have done it. As the prime minister well knows, by raising this levy across the UK, the Tories are taxing Scottish workers twice and forcing them to pay the bill for social care in England as well as at home in Scotland. This is the prime minister’s poll tax on Scottish workers to pay for English social care.

Ways and means resolution

Following the announcement, the Government said that the House of Commons would consider a motion to approve a ways and means resolution related to the levy and published a short note on the resolution.

A vote on the motion took place on 8 September 2021; the Government won, with 319 voting in favour and 248 voting against. Opposition MPs voted against the motion alongside five Conservative MPs.

Labour tabled an amendment to the Government’s motion, which would have required the Government to produce the following by no later than 5 April 2022:

  • an assessment of the impact of the plans on jobs and business; and
  • a distributional impact assessment of these measures on different income groups and regions.

The amendment was defeated on division with 243 votes in favour, compared to 335 votes against.

What has been said about the intergenerational fairness of the levy?

Commentary on the proposals

In July 2021, prior to the announcement, there were press reports that the Government was considering an increase in NI to fund social care reforms. The speculation led to a variety of individuals and organisations raising concerns that such a policy would be unfair as it would affect certain groups more than others.

The Resolution Foundation highlighted this concern, stating that raising NI would “unjustifiably place the burden on the young and low earners”. It said that a rise in NI causes four problems:

  • First, as individuals do not have to pay NI after they reach state pension age, it argued that younger people would be left to bear more than their share. It also said that those already over that age would not be asked to contribute anything towards the costs of reform despite being the immediate beneficiaries of it.
  • Second, lower earners pay more under a NI rise than they would from an income tax rise. Therefore, some workers earning under £10,000 a year would be affected, but only those earning over £12,750 pay income tax.
  • Third, as NI is levied only from earnings and not from unearned income, those in work would have to contribute more. For example, those who get income from renting out property, owning a business or having investments would not have to contribute. Incomes from pensions would also not be covered. This could lead to a 21-year-old earning £50,000 paying £404, whereas a 66-year-old pensioner with an income of £50,000 would not have to pay anything.
  • Fourth, it would deepen the gap between employees and the self-employed. It argued that this is a problem as “the tax rise on employees would ultimately be double that for the self-employed, because employer NI isn’t paid if a worker is self-employed but for employees it will eventually get passed on in the form of lower wages”.

Concluding, the Resolution Foundation highlighted that the pandemic had affected people differently and called for a rise in income tax instead of NI. It said the pandemic has increased total household wealth for some, “with families in the middle of the wealth distribution seeing their wealth rise the most in relative terms, while those at the top enjoyed the largest absolute gains”. However, it reported that it hit young earners harder than other age groups.

Labour leader, Keir Starmer, had previously voiced his opposition to the idea, labelling it a “jobs tax”. In addition, Andy Burnham, Mayor of Greater Manchester, had questioned: “how can it be right to ask a generation already saddled with university fees and high housing costs to pick up the whole tab?”.

Professor Len Shackleton, editorial and research fellow at the Institute of Economic Affairs, agreed that a rise in NI would be unfair. He argued that it would be “yet another burden on working age people at a time when jobs are insecure, inflation is rising and wages are squeezed”. He also said that it would be unfair to not extend the NI to post-state pension age taxpayers and that while a rise in NI may “give the illusion that business will help pay”, workers ultimately pay for ‘employer’ NI through lower pay.

Paul Johnson, head of the Institute for Fiscal Studies, has also argued that “funding social care just from national insurance would be very inequitable”. He said it would be a continuation of a long-term policy of “hitting those of working age while protecting pensioners even for something designed to benefit people well over pension age”.

Writing for the Nuffield Trust, Natasha Curry and Laura Schlepper argued that, while as a solution it has its positives, it “falls down on the fairness dimension”. They argued that other countries have demonstrated that funding social care is not impossible, and pointed to Japan and Germany as systems that have shown “radical change is complex but possible”. The King’s Fund also noted that Japan and Germany have successfully implemented funding reform, reporting that they had introduced compulsory insurance for social care to complement their systems of health insurance.

Opinion polls

However, polling by Ipsos Mori found that two in three would support a one percentage point increase in NI to help pay for social care reform (64% of people) or to reduce the backlog in the NHS caused by the pandemic (65%). Around 1-in-5 opposed these proposals (18% and 19% respectively). The polling found similar levels of support from Conservative and Labour 2019 voters. It also found that, although on balance they are still in favour of the tax increase, young people are relatively less supportive: 56% of 18 to 34 year olds were in favour, compared to 73% of those aged 55 or over.

A more recent poll by YouGov, published on 7 September 2021, found more of a split on an NI increase, with 44% in favour and 43% opposed. In addition, it reported that older people are substantially more supportive, with 68% of those aged 65 and above supporting the reform, compared to only 26% of 18 to 24 year olds backing it and 47% against it.

Further comments by the prime minister

Following the prime minister’s statement on 7 September 2021, several MPs questioned him about the impact of his plans on young people. Responding to a question on the intergenerational fairness, Mr Johnson said:

What everybody in the country understands is that there is no intergenerational issue here, because in the end all families are affected by this. Everybody has older relatives whom we love, and the cost of whose care makes us anxious.

Addressing another question on the issue, Mr Johnson also highlighted that the problems with health and social care do not only affect the elderly, as “there are huge numbers of younger people in care who will benefit from what we are doing”.

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This article was first published on 2 September 2021, it was updated on 10 September 2021 following the Government’s announcement on 7 September 2021.

Cover image by Georg Arthur Pflueger from Unsplash.