Gerald Holtham and Tegid Roberts make the case for a system of enhanced social insurance, to meet the escalating costs of social care
Social care, particularly for the elderly faces a serious squeeze in Wales, not to say a crisis. Local authority spending per older person has declined over the last seven years by around 13%, according to Joseph Ogle, Research Assistant, and Michael Trickey, Programme Director, at Wales Public Services 2025. The latest figures for annual local authority spending on social services for the over-65s are just under £0.55 billion (2016-17 prices).
The proportion of elderly people in the population requiring residential care is projected to rise by 82 per cent by 2035 and the proportion requiring non-residential care to rise by 67 per cent. Expenditure overall will need to rise by 75- 80 per cent to account for that and if the recent deterioration in spending per head is to be reversed spending would need to double. That is consistent with the finding of the Health Foundation which concluded that adult social care funding in would need to rise by 4% in real terms each year for most of the next two decades. Meanwhile the Welsh budget under austerity will grow much slower than that.
Absence of adequate social care provision not only leads to suffering in itself but often shows up as a crisis in the health service because elderly people with chronic conditions end up in hospital and stay there because there is nowhere where they can be safely discharged. That creates a pressure on available beds triggering problems elsewhere in the health system. It also results in time-consuming, soul-destroying haggling over resources between health and care service personnel.
With a small sacrifice Wales can tackle this problem via a system of enhanced social insurance. A very small levy on Welsh residents could feed a dedicated social security fund that meant everyone could be promised adequate social care in old age – a promise that cannot otherwise be made or kept. It could improve the present situation where old people have to sell homes or other assets to fund residential care when they need it. And the fund would have other great benefits because it would have to be invested and could be used to boost social housing construction and the growth of promising Welsh businesses.
The levy would differ from a tax in that the receipts would not go into a general government budget. They would be hypothecated to a fund with independent trustees. A portion of those receipts would go to local authorities to expand social care provision straight away. The greater part of the receipts would be held back for future needs and meanwhile invested to grow over time and enable even greater social provision to be made in the future as the population ages.
That investment would mainly have to be in super safe assets like UK government bonds or the shares of blue-chip companies. But some could be invested in property. Funds could be made available to build social housing whose rents would pay back the money. A small part could be invested in growing Welsh businesses to help the economy as well as providing returns for the fund. A by-product of tackling the prospective social care crisis would be the build up of Wales’ own sovereign wealth fund.
If ever a policy met the objectives of the Future Generations Act, this would be it. The country would be saving to meet the old-age social care requirements of current and future generations and in the process investing in worthwhile assets and enterprises.
How might it work? There are currently some 1.4 million people working in Wales with an average income of about £29,000 a year. Income below £8000 is not liable for national insurance contributions and would not pay the levy. That still leaves annual pay of £2.8 billion (1.4 million times £20,000). If Welsh workers paid a levy of just 1 per cent, that could bring in some £280 million a year. There are different ways to carve that up. At most £80 million could go immediately to social care, leaving £200 million a year to accumulate in the fund. That would be an immediate increase of 15 per cent in social care spending for the elderly.
The £200 million could be invested to provide a return; 5 per cent should be achievable without undue risk. Meanwhile to bridge the care gap that immediate £80 million allocation would need to grow at 11 per cent a year. If the fund started in 2019, that growth would take the allocation to £400 million and would enable care spending to more than double in real terms by 2035 closing the funding gap. The money in the fund would be growing too, right up to 2035. After 5 years it could amount to over £1 billion and after 16 years it could be at £2.6 billion. The fund would need to be over £2 billion at that point to maintain the promise of care for all contributors into the indefinite future.
Of the money going in each year (growing as nominal pay does), some could be invested in rock-solid government bonds, the largest part in blue-chip, high income stocks and a a smaller part for social housing and/ or investments in Welsh growth companies. Imagine the benefit if, for example, an additional £20 million a year was being invested in social housing and nearly £10 million in venture capital in Wales. Over a decade and a half these sorts of investment could amount to £400 million.
The fund’s mandate would be set at the outset. It would have its own board of trustees and the investments put in the hands of professionals of proven competence. The fund’s existence would give people confidence that the levy was truly hypothecated to social care and could not be siphoned off for other uses.
Suppose investments are successful and the fund grows at least as fast as needed to underpin social care. To give levy payers a bit of fun the trustees could declare a dividend in the form of a premium-bond style payout to random winners. A £1 million prize once a year would create public interest without making a dent in the fund.
Now when people claim some social benefits like old age pensions they have to show a record of national insurance contributions. Inadequate contributions mean a lower pension. Under the levy scheme younger workers would be paying in for much longer than older ones in order to secure the same promise of care in old age. To make the system fairer, younger workers should therefore pay at a lower rate than older ones, who will not pay for so long. Obviously various schemes are possible. Workers under 35 would pay less than 1 per cent, those in the 35-50 range would pay around 1 per cent and workers over 50 would pay a bit more up to a limit of 2 per cent. On an income of £500 a week, just below the Wales average, the weekly payment would be between £1.75 and £7.
No one likes paying insurance premiums, even with a lottery ticket attached. Yet those seem reasonable sums for the assurance of dignity and care in old age and the knowledge that the country is benefiting from its very own community fund able to make investments that improve the economy and life in other ways.