e-mail Paul Lewis on paul@paullewis.co.ukWho should pay for our care in old age? We all agree that the present system is confusing and unfair. We all agree it should be changed. We all agree that more money is needed. And we all agree that someone should pay. But that is where the agreement breaks down. Who should pay for our care in old age?
Should it come from taxes – after all those who need care in old age have paid enough during their lives – or should those with valuable assets locked up in their property have to use that to pay for their care when they need it?
In 2010 the Government asked economist Andrew Dilnot to find a fairer way to pay for care. And his report Fairer Care Funding was published this summer. His recommendations were only for England. Scotland, Wales and Northern Ireland have their own slightly different systems.
Dilnot came up with a compromise. A bit less from the assets of the person in care and bit more from tax. He would do that through two major changes in the present England rules. First, he would allow the person in care to get some help with assets up to £100,000 instead of the present limit of £23,250 at which fees have to be paid in full. Second, there should be a cap on how much an individual, however wealthy, paid towards their care. At the moment there is no cap – someone with large assets can spend almost all of them before the state steps in. Dilnot recommended a cap of between £25,000 and £50,000 and suggested £35,000 as about right.
Assets Limit
At the moment someone who owns capital of more than £23,250 get no help towards
their fees. They have to pay them from those resources until they fall below
that figure. They can claim some help through Attendance Allowance of up to
£73.60 a week and will get half the standard winter fuel payment. They can also
keep all their income from pensions. The value of a home is counted as part of
their resources if it is empty but not if a partner lives there. It is also
ignored if lived in by a relative aged 60 or more or disabled lives there. Once
assets fall to £23,250 a contribution is required towards the fees starting at
£1 a week when assets are £14,251 with another £1 a week for each £250 above
that. So the maximum contribution payable is £36 a week. Dilnot would raise that
upper limit from £23,250 to £100,000 but const would still start at £14,251,
raising the maximum possible contribution from £36 a week to £343. If assets
exceeded £100,000 all the fees would have to be paid by the resident.
Cap
Dilnot
also proposed that once someone had paid a certain amount for their care then
the state would pick up the bill whatever their wealth. He suggested a cap of
£35,000 to include all the amounts contributed towards care either in one’s own
home or in a care home. So if you pay £12,000 a year for your care you would
reach the cap in less than three years and after that all care would be free
whatever assets you have. But this cap only applies to the cost of the care. The
board and lodging element of the care home fee is not included. Dilnot reckoned
that should also be capped at £10,000 a year. He says most people have that
amount available from their own resources or from pensions. Those who do not
would get it paid by the state as they do now.
The amount of £35,000 is not the amount the individual has spent. Rather it is the value of the care they have bought at standard local authority rates. To put it simply, if care in a care home was available to local authorities at £500 a week then £35,000 would buy 70 weeks of care. If someone is paying for their own care but chooses a home which charges them £700 a week, they will have spent £35,000 after 50 weeks. But they will not have reached the cap. They will only reach that after they have paid for 70 weeks of care. So they will have to find £49,000 before they can demand the state pays the whole bill.
The cap would be increased each year in line with the rise in the state pension. So generally the cap would rise by earnings which normally (though not at the moment) rise by more than the Consumer Prices Index. At present levels of inflation the cap would go up by around £1500 each year.
Couples
Under the current rules when the first of a couple goes into care they will
usually pay nothing as the value of the home they left behind will be ignored as
long as their partner is living there. Although Dilnot is proposing that the
£35,000 limit on care is for each individual he is not suggesting that the first
to go into care should have to pay anything out of their share of the value of
the home. He believes that extra subsidy for a couple is fair because they are
far less likely to go into a care home than a single person.
Paying for it
No-one would be left worse off by these changes and some would gain. Dilnot
estimates the cost at around £1.7 billion a year rising to £2.5 billion a year
fairly quickly. That would add around a quarter to the current cost of care for
older people which is around £8 billion a year. That extra will have to be paid
for by raising taxes or making cuts elsewhere. Alternatively Dilnot suggests it
is only one four hundredth of total Government spending and could be ignored. If
taxes were raised that would put about ½p in the £ on income tax or about ½% on
VAT.
However, if the cost of care homes was made free for everyone we would have to raise the basic rate of income tax by around 2p to a new level of 22p in the pound or raise the level of VAT by around 2% to 22%.
The alternative is to make people who own their own home use more of its value to pay for their care. An estimated 19,000 people each year do sell the empty home they have left to pay for their care and many more end up paying after their death using some of the value of their estate. Many older people ask why should those carefully nurtured assets be taken when others get care free?
On the other side it is argued that a lot of what they own is just a windfall gain caused by the price of property rising far more quickly than prices or wages. And the people who will really gain from Dilnot’s plans are the children of those with wealth locked up in their homes who would inherit more if their aged parents had to spend less on their care.
With the arguments so difficult – and so polarised – the danger is that this Government will fail as the last one did to make any major change. And that would be the worst outcome of all.
More information
Hold onto your home –
no-one has to sell home to pay for care costs
Dilnot Commission www.dilnotcommission.dh.gov.uk
e-mail Paul Lewis on paul@paullewis.co.uk