This talk was given 15 February 2011
The text here may not be identical to the spoken text
Paying for Long Term Care - Conference organised by Reform, 15 February 2011
Paying for long-term care is easy
Iím not quite sure why a two-bit journalist is here talking to all these people who are deeply rooted in research and thought. We are supposed to be talking about the scale of the challenge but I am actually here today to tell you there isnít a challenge. Thereís no problem, the money is there, the only problem is a psychological one.
Let me go back a bit first though and talk about peopleís understanding of how the system works at the moment. Lord Warner mentioned that many people just donít understand how the present system works and thatís true of 99 per cent of my colleagues in journalism. Headlines recently, I think it was in the Daily Mail, but it was certainly in the Daily Express a year or two ago, about people having to sell their home to pay for care.
Under the present rules no one under any circumstances has to sell their home. They might choose to sell their home, they might choose to sell it because they are under a complete misapprehension about how the rules work but they donít have to sell it. Under the current system in England but also in other parts of the UK, you can make a deferred payment agreement. So if you have to go into care and there is no one else in the home, and Iíll come on to that in a minute, then you go into the home and your fees are paid for you and there is a charge taken against your property and the bill accumulates during your life interest-free, then when you finally die the bill is settled out of your estate. So you didnít have to sell your home to pay for care and as Penny mentioned, in those circumstances many of the heirs will rent out the home and make money to offset the fees, protecting their inheritance.
Now Iím sure some of you will be thinking, well my local authority has specifically said it wonít do that, it wonít join in with this scheme. It doesnít matter. There is an even older law dating back, dating back as long as me actually, the 1948 National Assistance Act which says local authorities have to provide care for people and if those people are asked to pay and they say no, it still has to provide care. In this case an almost identical system comes into effect where the bill is accumulated during their life and when they die the bill is met and it also accumulates interest free. The only essential difference between the two is how long that interest free period lasts after they die, weeks in both cases but they are different lengths. If you go into a care home and the local authority says you must pay, just say no, itís the most sensible thing you can do.
You also donít have to pay if you have a spouse living in your house or indeed a partner. You donít have to pay if you have a relative over the age of 60 living in your house. You donít have to pay if you have a younger relative who is disabled. There are also many local authorities who will make exceptions for younger people who have been living there for a long time and are your carer. There are many circumstances when you donít have to pay. The question we have to ask ourselves is, is that system really fair?
I had a neighbour, she was in her 80s when I moved to my house about ten years ago, she was a bit infirm, she had a hip operation, she had another hip operation, couldnít get about very well. Eventually she got early stages of dementia and had to go into care. Iíll call her Marjorie. She had been living in that house probably since World War II, she had inherited it from her own father and it was entirely her home. She had no children of her own and she used the money from the house to buy herself care in a home that she wanted to go into in a part of the country where she wanted to be because of friends. I think it would have been unthinkably wrong if the four or five hundred thousand pounds value of that house had not been used for her care and it gave her better care and more choice.
Now supposing she had had a partner or indeed supposing the man who came in not to look after her but to help take care of her maintenance and affairs in her life had decided he was going to live there and he was well over 60. Would that have been right that that half a million pounds or thereabouts was sitting there while all the rest of us were paying for poor old Marjorieís care? Like most people in care she lived a short time, I think she lived 15 months and the average is around two and a half years. But it seems to me that the Ė and I donít want to stray into solutions which is the next topic Ė but the scale of the challenge is not that the money isnít there to pay, itís that people probably of your age donít want your inheritance spent. Thatís the challenge.
Most of you will have parents who own their homes and would think I want to leave it to John or Mary but really is it their money? This is perhaps when I get a little controversial. The home they bought, they bought letís say in 1975. Since 1975 CPI, which is what the Government likes to use to measure prices, has gone up just under six times. So something that cost £1 then would cost £5.70, today if CPI is right, and it rose today to 4 per cent by the way in case you are not up with whatís happening. RPI, which is the measure I prefer I must say, has gone up about seven times. Something you bought for £1 in 1975 would be worth around £7.10 today, and incidentally that went up to 5.1 per cent weíre told in January. Wages have gone up by about ten times since 1975 so if you earned £1 then youíd earn £10.39 now. House prices have gone up 16 times, well over double the rate of inflation, far more than the rate of wage inflation which of course is why young people find it so hard to buy homes now. An average house costs about £160,000 now, that house would have been bought for £10,100 in 1975.
Now that gain, and people often say to me ĎOh I worked hard for that, we struggled to pay our mortgageí etc, etc, yes Iím sure you did, but it doesnít mean that you have in any sense paid for something worth £160,000. Itís a windfall gain, itís a gain created by the way society works and there is an argument that society should take its share of that windfall gain, much more than the heirs who are waiting, sitting there thinking, ĎNo, society should pay for mum to go into care for four years otherwise I wonít get the houseí. This is the psychological problem and of course it is not just the heirs, not just people in their 40s and 50s who think this, it is also the older generation and I had this struggle with my own mother about what she should do with the money that she had. ĎOh I want to leave it to you and the other childrení. We donít want it, we donít need it, spend it on yourself, spend it on having as good a life as you can.
Figures vary but there is approaching a trillion pounds sitting in valuable homes owned by people in the older generation, letís say over 60. You can get any amount of figures but there is certainly getting on for a trillion pounds. There may not be, as Lord Warner says, in the fashionable sense a Ďsilver bulletí, but there is a pile of gold there to solve this problem and I think that we should be looking at the value of homes and Iíd go even more than that, Iíd say I donít care if you have got a partner living in the house or a relative aged over 60 or a carer, I would still take the value of that home as itís taken now, by putting a charge against it, letting the debt accumulate because at £160,000 the average house, flat, dwelling is more than enough to pay for two peopleís care for life and that is what I think the money should be used for and that would solve the problem.
Now we talked earlier, or it was mentioned earlier, about insurance and I think the insurance solution is not going to be part of this. Insurance is for things like burglary or car crashes, where there is a very small chance of an enormous bill. One in five of us will probably go into a care home, maybe one in four, no one really knows. Thatís not the kind of chance insurers insure against, that becomes more of an investment and nobody is going to put money into an investment if they have only got a one in five chance of getting anything back at the end of it, itís just not going to happen.
So while youíve got free care for people who donít have resources, donít have a house thatís empty and other people have to pay, then thatís not going to work. So really you have to have a system, and I know Lord Warner said there was no appetite for compulsion, there is no solution but compulsion. Take the value of homes and then the problem that we are all so worried about will disappear.