Social care: to have and have not

13 mins. to read
Social care: to have and have not

There are some social problems that over time become so intractable that they become political problems. You know that is the case when politicians start to bandy around phrases such as “measures must be taken” and “something must be done”. How to look after the old and frail, and who pays for their care and in what circumstances is an issue that has over many years worked its way up to the top of the political agenda.

The reasons for this relate to the demographic trends that I discussed last week in the context of longevity science. Dementia – principally Alzheimer’s, but also vascular dementia, (the former being a degenerative disorder of brain tissue and the latter a function of cardiovascular decline restricting blood flow to the brain) is a degenerative condition of old age.

Thus, the more elderly people there are, the more dementia patients there are. And people with dementia, unlike, say those with reduced mobility caused by for example osteoarthritis, cannot take care of themselves. Either they must be looked after in their homes by family members supported by qualified carers, or they must be taken into residential care. The longer they live, the more expensive that becomes for their families and prospectively for the state too.

If people in the UK get cancer, they are treated by the NHS (not as well as in many other European countries, based on survival metrics – but we’ll let that pass for now). However, if someone gets dementia, which is as yet incurable, they are generally condemned to pay for care out of their own pockets.

Admittedly, some respite care is available and some limited residential care at state expense – though it is generally not very congenial. The idea that the state should take care of both healthcare and long-term residential care of the infirm and those with dementia was implicit in the change in name of the department now headed by Sajid Javid, the Secretary of State for Health and Social Care.

In many countries it might have been possible for the leading political parties to formulate a bipartisan policy that would secure long-term support across the political spectrum. That is what happened with the NHS. But any new proposal on social care advanced by the Tories since they returned to power in 2010 has been decried by Labour. The Dilnot Reporti (July 2011) was backed by the coalition government but never enacted due to political opposition.

During the critical general election of June 2017, Theresa May proposed a solution to the issue of who pays for long-term care by offering an arbitrary threshold of £100,000. So, all families would have to pay for the first £100,000 of care and would only get recourse to state assistance above that level. That meant that some families might still have to sell the family home to pay the initial costs of care.

Jeremy Corbyn’s Labour party branded this proposal “the dementia tax”. That epithet proved devastatingly effective. The policy was widely seen as flawed and was one of the principal reasons why Mrs May’s Conservative party failed to secure an overall majority in the House of Commons (with grave repercussions for the course of the Brexit negotiations, as we know).

Up until now, to qualify for residential care partially paid by your local council, you would have to demonstrate a high level of need and assets of less than £23,250 (in England). And you would only get that cost fully paid if your assets were worth less than £14,250. More unjustly, self-funding, care-home residents pay over the odds in order to subsidise those who rely on local-authority support because local authorities refuse to pay the market rate. Self-payers might be charged £1,000 a week while council-paid residents might pay £650 a week. As for the care homes owned and run by local authorities – you wouldn’t want your loved one to reside in one.

Mr Johnson knew that the issue was potential political gelignite – but he also believed that the issue had to resolved “once and for all”: for so he announced on the steps of Downing Street on 24 July 2019, the day he became prime minister. No doubt a package of measures would have been announced sooner had it not been for the coronavirus pandemic. But finally, in early September, the new package was delivered – to be financed by a 1.25 percent hike in national insurance contributions – thus breaking a Tory manifesto pledge in 2019 − and a separate hike in taxes on dividends. This brought the total tax burden to its highest level in 70 years.

But then it turned out that this social-care package was folded into a pledge to cut NHS waiting times. The NHS was to receive an additional £12bn a year too, to clear the Covid backlog that has put up to 13 million people on NHS waiting lists. Only five Tory MPs voted against the tax hikes and a few dozen abstained.

The new care package was to bring in a “lifetime care cap” of £86,000. The “floor” – the level of assets below which the state would pay for all care home costs – would be £20,000. However, it then transpired that this figure did not include “hotel costs” – the cost of residential accommodation and food – but only applies to “personal care” which means nursing costs regulated by the Care Quality Commission (CQC). To be eligible for the social- care cap a person must be deemed unable to perform daily tasks such as washing and dressing. However, the exact criteria vary from one local authority to another, so there could be an element of ‘postcode lottery’ here.

Hotel costs make up the bulk of expenses when a vulnerable person enters residential care, and these can endure for years. LangBuisson, a healthcare business-intelligence provider, estimates that private payers will reach the £86,000 personal-care cap within three years in residential care and six years when cared for at home. So, many families will still have to sell the family home to fund residential care – and only about five percent of families with elderly relatives in care will benefit from the cap, which will come into force in October 2023.

The proposals submitted to parliament estimated that the state would “invest £5.4 billion in adult social care over the next three years”. Even the Lib Dems thought that Mrs May’s 2017 proposals were preferable.

This week, matters came to a head. On Monday night (22 November), when the package came to the vote in the House of Commons, the government won by just 26 votes after 19 Tory MPs rebelled and many more abstained on a key amendment which would stop means-tested support counting against the £86,000 cap.

Mr Johnson reiterated that pensioners’ homes would be protected from sale to fund care costs only if they or their spouse were living in them at the time they went into care. That was not entirely within the spirit of the 2019 manifesto pledge that “nobody should be forced to sell their home to pay for [care]”. The government is now facing calls from Tory backbenchers to publish an impact assessment of the package.

Inheritance envy

Some people regard this issue as a question of inheritance. If a middle-class homeowner sells an average house in order to fund their last years in an excellent care home, that might seem like money well spent. But it would be the middle-class inheritors of that home who lose out. Any subsidy for care-home residents which enables them to maintain the family home is then essentially a direct subsidy to the children. They will have to pay inheritance tax (IHT) if the house is worth more than £325,000 at a marginal rate of 40 percent; but they might already be well-off, with their own properties.

Ultimately, any level of cap on care costs benefits the asset-rich much more than the worse off. This is the opposite of “levelling up”. That is why many Tories now favour a form of compulsory insurance policy for those over a certain age (possibly as low as 35) – just as it is compulsory to take out motor insurance if you drive a car.

Just four percent of over-65s live in care homes, rising to 15 percent of over-85s. The average length of stay in a care home is 30 months, though a few outliers remain in care homes for 10 or even 20 years. So, the risk of needing residential care is a known quantity which the actuaries can calibrate, though the government might have to underwrite the “tail risk” posed by the outliers.

The Conservative peer Peter Lilley has even suggested that such insurance cover could be provided by the state in return for taking a modest charge on their homes in proportion to value. That might be problematic to administer.

Financial reality

While the costs of social care per se are not likely to rise beyond 2.2 percent of GDP, the fact is that the cost of welfare payments, healthcare, social care and pensions for those who have reached state retirement age (65, rising to 66 soon and then to 67) is now an increasingly crippling burden for the British state. The cost of the NHS and social care will account for 40 percent of government spending next year, according to the Resolution Foundation.

All things being equal, that is going to require more tax rises. Especially since the dependency ratio – as I mentioned last week – is in freefall: fewer workers will be working and paying taxes to fund more people in retirement, many of whom have complex healthcare and care needs. That was one reason why the Chancellor was forced to abandon the “triple lock”, at least temporarily, in his autumn Budget (another broken electoral promise) – though the inflation-protected component was retained. But hiking taxes will not solve the structural problem as demographic trends unfold, and it will put a drag on growth. Governments that preside over a consistently growing economy can borrow; those who preside over consistently zero or negative growth cannot.

Worryingly, there is no clear agenda for public-service reform. The NHS is still essentially structured on a model created in 1948. The number of unsackable administrators within it continues to proliferate (all of whom undergo almost continuous equality and diversity ‘indoctrination’). Hospital chief executives are now earning up to £300,000 per annum. A review by Lord Rose, former chief executive of Marks & Spencer, published in 2015 concluded that the NHS was “drowning in bureaucracy” and suffered from “a chronic shortage of new leaders”.

One eminent consultant surgeonii has offered the view that British vets serve our pets better than GPs serve the British public. As a dog owner I can confirm that most vets analyse blood samples in-house and produce the results in about 30 minutes. The last time I had a blood test I got the results one week later).

Under Mr Johnson’s leadership, the reflex of government has been to throw more money at underperforming departments rather than to streamline them. There is seemingly only a cigarette paper between Boris Johnson’s political economics and those of Ed Miliband, the Labour leader who was trounced by David Cameron in 2015. Both are ‘dark green’ tax-and-spend social democrats who believe that more government is always the solution, although they differ on the matter of EU membership).

Even Tony Blair was keener on reform of the NHS than Boris Johnson. Mr Blair of course was accused of vested interests, of trying “to privatise” the NHS. But his mistake was also to think that splashing cash was the sine qua non. When he upped GPs salaries many responded by working fewer hours.

In June, the OBR predicted that the nation’s debt-to-GDP ratio could reach 336 percent in 2060 as against just under 100 percent now if current trends persist. At some point, if this goes on, there will have to be a reset. State retirement age will have to rise further; other pensioner benefits will have to be trimmed (the Winter Fuel Payment now looks out of keeping with the times as we seek to reduce reliance on fossil fuels). Some NHS treatments will be subjected to surcharges – perhaps those such as cosmetic surgery, fertility treatments and obesity remedies. And why shouldn’t people pay for their food in hospitals? They have to when at home.

The only thing that can forestall the long-term deterioration of state finances is nothing less than a revolution in human health – especially that of the elderly – and of healthcare which will increasingly be delivered by digital means.

But the NHS has a lamentable record on IT. Apparently, most hospitals still use Windows Vista (released in 2007). NHSX, which delivered and managed the Test and Trace app at a cost of around £39bn (more than the annual cost of the Royal Navy) is not even audited. It possesses, reportedly, 9,000 fax machines.

The NHS, which employs more people than live in Estonia, is highly unionised and regards itself as “the envy of the world”. Parts of the NHS are a self-fulfilling job-creation scheme. However beneficent Mr Johnson’s largesse, the culture of the NHS is likely to remain robustly anti-Tory, anti-reform and anti-tech. In fact, the NHS Long Term Plan of January 2019 rolled back a number of market-based reforms.

Sooner or later, a braver and more focused government will have to grasp the nettle. The young and the young-in-spirit will be encouraged to take control of their healthcare by means of wearable technology which will be able, amongst other things, to identify early-stage tumours.

Much more will be known about the condition of each patient’s gut microbiome (an important issue at the recent MI Investing in the Age of Longevity event). Universal genome sequencing will forewarn health-care users and practitioners of genetic characteristics which are likely to have healthcare outcomes. This is particularly important in the management of Alzheimer’s, though there are obviously people (like this writer) who would rather not know.

The care-home sector

In an ideal world, the care-home sector should be a perfectly investible sector of an advanced economy, providing much-needed services to the vulnerable elderly. However, in the UK it is still a highly fragmented sector. About one third of care-home places are provided by the largest 25 players – the top five being HC-One, Barchester, Care UK, BUPA Care Homes and Four Seasons, which together have about 51,500 bedsiii. The other two thirds are provided by a plethora of mainly single-unit businesses.

It is also a sector which is subject to desperate labour shortages, partly resulting from low pay, thus limiting capacity. Private-equity firms investing in this sector have been accused of profiting from the vulnerable, especially after the collapse of Southern Cross in 2011, which was widely thought to be due to nefarious financial engineering.

Private-equity firms began to invest in care homes after a market structure emerged in the 1990s. In 2019, private players provided 84 percent of care-home beds. Currently, local authorities and the NHS cover the cost of about half of these services on a means-tested basis, while residents and their families pay the balance. As a result of the government’s current reforms there will be fewer self-funded residents and more council-funded ones. That will squeeze operators’ margins and thus disincentivise the provision of new capacity.

HC-One and Care UK are currently owned by private-equity firms. Four Seasons was owned by Terra Firma Capital which sold out to H2 Equity Partners in 2020. Barchester is majority-owned by three Irish billionaires: Dermot Desmond, John Magnier and JP McManus. BUPA is a not-for-profit private company, which is also one of the largest providers of private medical insurance.

There is nothing in the government’s package to entice new players into this critical sector.


Speaking personally and frankly, my sisters and I lost most of our inheritance by placing our mother into the best residential care home that we could find – one that was near where she had been living and staffed by some of the kindest and most caring people I have ever met. I don’t regret that at all. It was the right thing to do – and I was guided throughout by a sense of what my father would have wanted. The money was our parents’ – not ours.

It was a fine house designed by Lutyens with extravagant hedge sculptures in its terraced gardens. On a good day, one could see the Channel from my mother’s window (she occupied the same room for eight years). Even with acute vascular dementia, until the very end, my mother always made up meticulously with her favourite shade of lipstick and dressed in time for lunch at noon in the panelled dining room; lunch was signalled by the striking of a gong.

I have poignant memories of my lunches with her there.

i Chaired by Sir Andrew Dilnot, a former Director of the Institute for Fiscal Studies (IFS).

ii J Meirion Thomas, writing in The Daily Telegraph.

iii See:

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