UK social care updates
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The writer is professor of public economics, European Institute, London School of Economics
The purpose of insurance is to protect a person from the risk that a bad thing might happen, which the person cannot stop happening and which, if it happens, is very expensive. Needing social care at some stage in the future is precisely such a risk.
The government is right to treat the finance of social care as an insurance issue, but should take a wider view of fairness across generations.
Private insurance deals with many risks. However, the risk that a person may need social care many decades in the future faces huge uncertainties, both about the risk and the cost of care. As a result, insurers cannot price policies accurately so private insurance for social care is expensive, if offered at all. Thus including social care in the Beveridge framework of social insurance is the right policy direction.
However, the problem with any design that pays benefits immediately to an older generation (state pensions are another example) is that the gift must be financed by younger generations, raising the question of what complementary policies could improve the balance across age groups.
There are options. The level of earnings above which national insurance contributions (NICs) are payable could be increased, benefiting lower earners generally. Albeit with additional administration, it would also be possible to exempt workers under 30 from the new health and social care levy.
To finance these changes, the base for the new contribution could be widened. Under the government’s proposals, the new charge will apply to the earnings of people past state pension age, who previously made no such contribution. The charge could be extended to cover pensions as well as earnings, possibly using the lower- and upper-earnings limits currently applied to workers. Though sounding radical, that is the arrangement in Germany, where pensioners continue to pay the premium for social care since that is a risk they continue to face.
Another way to help younger people would be to increase child benefit and/or child tax credit.
On a wider canvas, it is not only what younger people pay in tax that matters but also what society offers them, notably helping to build their skills. Two pieces of strong evidence are relevant: the major determinant of whether someone goes to university is how well they do in school; and early child development is central to performance at school and beyond.
On school performance, a range of policies from nursery education through to primary education (the literacy and numeracy hours) and secondary education (education maintenance allowance) have been hollowed out or abolished. Amplifying those or successor policies should be a central focus of levelling up.
Beyond nursery and school education, policy on tertiary education should give greater weight to the 50 per cent or so of young people who do not go to university. Current arrangements have a clear pathway from A levels to a university degree (in the jargon, from level 3 to level 6), but the arrangement is like an executive lift that doesn’t stop at levels 4 and 5, which mainly involve technical training. An improvement advocated by a House of Lords Report and endorsed by the Augar Review is a system in which people can accumulate transferable credits across further and higher education.
A granular approach to delivery of that sort needs to be supported by finance that covers tertiary education as a whole, also endorsed by the Augar Review. As part of intergenerational fairness, the government’s current consideration of that review should consider rebalancing the relative contribution of tuition fees and taxpayer support for teaching, thus reducing the size of student loans.