This talk was given 14 September 2011
The text here may not be identical to the spoken text

Written version of a talk give to the Chartered Insurance Institute meeting on Paying for Long Term Care 



We all agree that the present system of paying for care in our old age is confusing and unfair. We all agree it should be changed. We all agree that more money is needed. We all agree that someone should pay. And we all agree that it should not be us.

Andrew Dilnot was set the task of finding a fairer way to pay for care. His report Fairer Care Funding published in July proposed shifting the balance of paying away from those with property wealth and towards taxpayers as a whole. No-one would be worse off and many would gain. But the Government has shown feeble support for his ideas and agreed only to publish its own report early next year.

The cost of making care free for all elderly people would be around £4 billion[1]. There are only two places that money for care can come from.

First, you could raise taxes. To pay the entire £4 billion a year, would require a rise of about 1p on the basic rate of income tax, currently 20p in the pound. Those who think that is impossible should remember that income tax basic rate was 22p in the pound as recently as 2007/08. Or it could be done by adding about 1% to the 20% rate of VAT – taking it up to the level rate charged in Ireland or Belgium and well below that in countries such as Greece (23%) or Norway (25%).

But it is hard to see any politician giving such a commitment when the cost is expected to rise sharply over the next few years and further rises in may be needed. And it is harder still to see The Treasury allowing them to raise a specific tax to meet a specified expense. Hypothecation – as it is called – always causes apoplexy among Treasury civil servants.

Andrew Dilnot suggested his more modest proposals – which would cost around £2bn or ½% on basic rate of income tax or on VAT – were so small they could be lost in the Treasury’s margins or error. He pointed out that £2 billion is a mere 1/400th of total government expenditure so it would not be noticed. But the guardians of the nation’s purse point out that while any particular proposal is always affordable by itself, it would inevitably lead to other similar demands and before you know where you are the country would have a debt of £950 billion. Oh. We do.

But has Dilnot got it entirely wrong to propose shifting the cost away from individuals towards taxpayers? There is another source of money that could certainly be used to pay for care for most people for at least the next generation – the estimated £2.5 trillion locked up in owner occupied housing[2]. This wealth is mainly owned by the baby boomers who bought their homes cheap and have seen them change from a place to live to a lottery win in little more than the time their children have taken to become adults.

There are very strong arguments to say that those who own this wealth should use it to pay for their own care. Take a typical couple, Joan and Michael Curwen, who live in Cornwall. Their home is worth £260,000. When they bought it in 1981 they paid £34,225[3]. Even when their children were young Joan and Michael both worked, often long hours, to make sure the mortgage was paid.

When they bought their home it was worth around six times the average wage of £5600[4]. Today the house is worth about 10 times average earnings[5] and they have made a gain of £225,775. Even if the cost of borrowing is taken into account, which roughly doubles the amount they paid, the windfall is still close on £200,000.

Joan and Michael believe they earned this money. But in reality it is simply a windfall derived from the economy they have been fortunate enough to live in. And it only seems fair that they should be expected to pay some of this windfall gain to pay for their own care.

At the moment they generally will not have to do so. If they are the first to go into care leaving their partner behind, then the value of their home will be ignored. It will also be ignored when the second goes into care if there is a relative aged 60 or more living there and, at the local authority’s discretion, if a younger person who has been a carer is living there. Figures from care specialists Laing & Buisson and the Department for Work and Pensions indicate that only about one in eight of the elderly people living in a care home have sold their home to pay the fees.

The average time in a care home is about 2.5 years[6]. The average fee is around £30,000 a year[7]. That puts the average cost of care for an individual at around £75,000 – or £150,000 for a couple. That is below the average value of a home – which is just over £160,000[8]. So a simple mechanism to take a charge against the value of a home to pay for care would see the costs covered in most cases.

Of course many older people will ask why those carefully nurtured assets should be taken when others get care free? But the people who would lose from this policy are not those in care but their heirs who would no longer inherit the windfall their parents have made from the economic times they lived through. And why should taxpayers as a whole foot the bill so that middle aged adults can inherit more?

[1] Dilnot, Fairer Care Fundinganalysis and evidence p.82

[2] Halifax press release 15/5/2010 UK Household Wealth


[4] Calculated 1981-2011 using ONS index LNMM and 2% rise in 2010 and 2011

[5] 2010 Annual Survey of Hours and Earnings, 2010 table 1.1a tab 4, Office for National Statistics website

[6] Laing & Buisson

[7] £700 a week with nursing care, £500 a week without. Laing & Busisson 2011.

[8] Land Registry House Price Index August 2011


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