The heaviest users of the NHS are children and older people though it is mainly those of working age who staff and fund it. In the early days of the NHS its expenditure on older people was restricted by the limited range and effectiveness of treatment available and the relatively low life expectancy following retirement. For a while therefore it was feasible to rely on a funding formula based on general taxation (especially with the prevailing steep tax bands and death duties).

Over the succeeding decades the steady rise in life expectancy and the dramatic expansion of the range and cost of medical and surgical interventions applicable for older, and even very elderly, people upset that balance. The extra demand built in a 1-2% per annum multiplier to NHS expenditure which general taxation (even before the recession) was unlikely to match. That mis-match will increase as the large baby boomer generation moves from productive membership of the workforce into retirement.

It has become increasingly obvious that the only sustainable formula for plugging this gap is for each cohort of older people to pay its excess cost. A levy on pensioner income (which falls, often severely, in retirement) clearly wouldn’t work. On the other hand most of this country’s net personal wealth (several trillion pounds) is held by those currently over 50 (ie the baby boomers and existing pensioners). Diversion of a modest proportion of that aggregate capital would be a simple and sustainable way to plug the “care funding” gap. Although a large number of pensioners have little if any capital this is amply offset by those at the upper end of a widening wealth gap. For most in the middle the main asset is their home though this is usually tied up till close to or after their death.

To match the widely accepted formula for NHS funding (contributing by ability to pay to ensure free provision at the time of need) the fairest arrangement would be to identify and subsequently collect a flat percentage of every pensioner’s capital assets, possibly subject to a starting threshold of £10-20,000. To underline that this would be an insurance against the health costs of old age the logical point for assessing and invoicing the premium would be 65, or the prevailing statutory retirement age. To get the scheme up and working reasonably quickly it would need to include those already past that age and their levy would need be based on wealth at the time of its inception (or legislation). This sort of arrangement was one of the options proposed in the 2010 White Paper on social care, with a levy of 10% of one’s capital asset the favoured option. To use the same approach to plug the gap in health care funding, removing the artificial boundary with social care and running both by the same rules it would be realistic to raise that figure to 15%.

There would need to be a clear definition of “capital wealth” (normally one’s home  or share of it, other property and investments and pension funds above a certain threshold ) and what constituted fair play in terms of anticipatory financial planning and family trusts. The key principle of such a scheme would be that it was a collective insurance by each cohort of pensioners against the extra costs of its care in old age. As the first generations to share (and help pay for) the benefits of the NHS (only to see them undermined in the social care arena by random injustice they thought NHS had made history) this ought to be quite acceptable. As they engage in this solidarity within their own generation the heavier contributors (ie those at the upper end of a very inequitable wealth distribution) should be able to console themselves that they had been the biggest beneficiaries of a prolonged housing boom, generous tax relief on savings and pensions and free higher education. By paying its way each older cohort will also staunch the otherwise growing bill landing on their much less cushioned juniors.

Much of the anger around the present state of social care funding relates to people having to “sell up their homes” or “use up their hard earned savings” to pay for nursing home care. This, with the diagnostic lottery whereby cancer costs are largely picked up by the NHS while Alzheimers Disease will frequently saddle you and your family with a bill for £50-100,000, clearly cries out for risk sharing insurance. By capping that risk the Dilnot Commission attempted to create the conditions for an insurance market but the recent Coalition proposals (especially the small print) would restrict that to the very well off and possibly spawn the next wave of “miss-selling”. The advantage of the scheme proposed here is that even a 15% levy would rarely tap into “hard earned” savings, especially for those at the wealthier end of the spectrum. Even allowing for the big fall in the housing market after the credit crunch most home owning pensioners will still be sitting on an “unearned” windfall well in excess of 15%. For those higher up the market the percentage gains would be much greater, not to mention the higher rate tax relief that boosted their savings and pension contributions. It seems better to use some of that windfall (ie “unearned savings”) to insure themselves and their contemporaries than pass it all on to perpetuate inequality in the next generation.

These arguments are summarised and illustrated in what may be a more digestible form below:

  • Baby boomers and pensioners have huge collective capital wealth
  • The wealthiest tenth of households owned more than 40% of overall wealth and were over 850 times wealthier than the least wealthy tenth of households
  • Over half of the combined wealth held by the top 10% of households was private pension wealth
  • Probably a third of these assets comprise a windfall from house price inflation and favourable tax relief on savings and pension contributions; the proportion of that unearned bonus is highest at the top end of the wealth scale
  • For most older people disposable (and taxable) income drops sharply at retirement, making capital the main resource for funding care or for insuring against the cost of care in old age
  • Any scheme for pensioners to share the risk and cost of their health and social care would need to base their contributions on capital wealth not income
  • The fairest way to collect those contributions would be to assess each person’s capital wealth at the age of 65 from which a fixed proportion (10-15%) would be pooled to ensure future care free at the point of need
  • Wealth would comprise the value of one’s home (or share of it), any further home ownership, savings and investments and pension funds in excess of, say, £0.5 million.
  • Because for most people that wealth would be tied up in their home their contributions would generally be collected from their estate after death
  • Although a compulsory insurance and not a tax HMRC would be best placed to assess and collect contributions, with clear rules to minimise avoidance
  • A national board, with ample pensioner representation would set criteria and standards for allocation of this hypothecated  “fund” and for linking across into the NHS
  • The fund would cover personal care and measures to promote independence for older people disabled by illness but to support care at home it would not cover “hotel” costs in residential and nursing homes
  • It would not provide for the social care of people under 65 (which would remain a function of general taxation), the quid pro quo being that those not living to that age would not have to subsidise those who did

The main benefit of this collective funding by each cohort of its care in old age would be:

  • Fairness within the cohort (sharing cost by ability to pay along the lines of the NHS but substituting capital for income to recognise that this is the main proxy for wealth in retirement
  • Removal of the diagnostic lottery in the cost to the individual of major illnesses in older age: eg. cancer care almost entirely covered by the NHS while Alzheimer’s and similar neurological conditions cost individuals £50-100,000
  • Provider tariffs would be set by need, removing the current inequity, indeed iniquity, whereby many nursing homes charge substantially higher fees (often £1-200 a week) from paying residents to subsidise the lower rates contracted for residents funded by local authorities ( the small print of the recent Government proposals ensure that this anomaly whereby you don’t just pay for your Alzheimer care but for your neighbour’s too)
  • Matching supply (number of people passing 65) with demand (the predictable proportion of them subsequently needing expensive social care) within each cohort – growth in care cost therefore balanced by growth in payer numbers and not falling on the next generation
  • With each generation  footing its own bill it would have a legitimate say in the range, focus and quality of services to be provided
  • By cutting off the increasing overflow of their social and health care cost onto the general tax bill pensioners will remove a growing source of resentment by the younger working age population;  a group increasingly aware of missing out on the perks enjoyed by those currently over 50 (eg. free higher education, improving public health, high levels of employment, expanding home ownership and the windfall of a prolonged period of house price inflation and generous tax relief on savings).
  • Investing some of the older generation’s windfall to repair its own solidarity and social justice would certainly be preferable to preserving it to reinforce the inequality that the “bank of Mum and Dad” is already fostering in the next generation down.

These observations are based on interest and experience based on years working in the health care of older people and observation of the steady exclusion of large elements of that care from the NHS as politicians of all parties put their heads in the sand rather than seeking consensus around a fair and sustainable solution.

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  1. shibley says:

    A very clearly argued article, Colin, and a real delight to read. Many thanks.

  2. Jean Smith says:

    Just one little problem, it will only catch those who have already scrimped, done without and saved to buy their house. Would you buy a house knowing the state would claw it back, rather than it benefiting those you leave behind?

    Todays youngsters are renting in large numbers, as they struggle with the cost of living, low starter wages and to pay off student loans!! A huge number are not even thinking of a top up pension. This has even hit the younger middle aged. If western living standards for ordinary people continue to fall this will not be a long term solution, just a way of getting more money into the coffers of the newly privatised NHS, and private care for the next decade or two – then it will collapse.

    We all paid for the generation ahead of us according to our ability, and expected that the next generation would do the same for us…and their children for them…that is the way a coherent and caring society works. Young people are, in my experience, prepared to carry on with this plan. They do NOT blame older people for lack of free education, and low employment levels (unless they are “Daily Mail” readers who have been primed to do so to take the heat off the powerful!!) Shortfall? Perhaps we could just ask the mega wealthy/ big business to actually pay their dues. They would be bound to find a way out of this plan, and leave the upper low/middle earners to foot the bill yet again.

    As for the quality if you are “footing the bill”. I inspect private care homes – please don’t count on it!! As for home care….have you ever seen any of the whistleblower films?? Seems to make no difference how you are funded – in fact, if you are social security funded you have more protection from abuse.

    The insurance we already pay has been syphoned off by various governments, and I am happy to see that you are so very trusting that what was collected would actually be used for the purpose intended.

    Apart from that – great idea!!

    1. Colin Godber says:

      I am only proposing that we lose part of our unearned windfall. Scrimping and saving to buy our homes put us on a pretty good accumulator that is highly unlikely to matched for those struggling onto that market today (often only possible with an unearned leg up from Mum & Dad). The key problem is that the current workforce will find it much harder to pay for our care partly because they will be poorer but especially because their numbers are static while ours are expanding rapidly

  3. Kirstein says:

    I am confused as to how pursuing asset-based welfare is a particulary socialist, or fair principle. Would not a universally funded insurance-bassed scheme for long-term care to which the state, employers and individuals contribute (ie the German approach) not be systematically fairer and give great social citizenship than a divisive system that sets one class against another and mitigates againsts intergenerational equity?

    1. Colin Godber says:

      The Germans set up their scheme in the early 1990s so that a fund has been building up.Their baby boomers will have boosted that fund. Our problem is that without a cumulative fund each generation of pensioners is funded by the generation behind (and to some extent the generation behind that). For the last few decades the contributing generation has been pretty well static while pensioner numbers (especially the very elderly who have a longer period of dependency before they die) have been climbing. That imbalance will be dramatically increased as the baby boomers move from the workforce into retirement. My proposal simply tries to match payer and user numbers but recognises the reality that the users are collectively income poor but asset rich.

  4. Ian Greener says:

    I can see where Colin is coming from here, but do hesitate about imposing a tax on assets already ‘earned’ (never entirely comfortable with that term, as some have got a hold of them rather more easily than others). I do think, however, that there is a lot of mileage in a deeply unfashionable idea – inheritance tax. We seem to have got ourselves into a mindset where inheritance taxes are regarded as an automatic ‘bad’, but another way of looking at them is a means of levelling the playing field of privilege – if I happen to be good at accumulating wealth, then a large part of that is due to my good fortune in benefiting from the infrastructure and opportunities that have come from this country – and a whole bunch of things completely beyond my control. There is no reason why my kids (yes I do have kids) should benefit from inherited wealth (if I don’t spend it all) – all that does is create unequal opportunities. And it’s hard to argue that inheritance tax, sensibly applied, penalises those that have carefully saved their whole lives (my concern with an older-person’s wealth tax).
    So I’d like to argue in favour of inheritance tax instead of wealth tax.

    1. Colin Godber says:

      I agree thet my proposal was a form of inheritance tax in that it takes the money out as you go through the “final” turnstile. In this case it only occurs if you pass through the senior exit (ie live beyond 65), the one dealing with the increasing numbers. The diminishing numbers going through the turnstile for early leavers (ie dying before 65) are more likely to have young dependents, are not adding to the soaring care bill and should not have to be contributing to the cost of care of those fortunate enough enjoy a full life span. My proposal has a low starting threshold whereas inheritance tax, which is more specifically geared to higher levels of wealth is always likely to start at a much higher threshold. I would still see that operating, albeit allowance for the amount deducted for my levy. By invoicing mine at 65 I was also looking to reduce the scope for avoidance.

  5. Imogen Peck says:

    The Salvation Army is a Christian Church and registered charity founded in 1865. Our services are open to all who need them, regardless of ethnicity, religion, gender or sexual orientation. We manage 16 residential care homes which accommodate 544 residents, and also provide community-based services to older people through our network of 700 church and community centres. It is our belief that older people should be treated with dignity and respect regardless of their material means. We are particularly concerned with how the social care needs of the poorest in society can be adequately met. As such, while we welcome the recent efforts made by the government to address the issue of social care funding we are concerned that they do not go far enough in helping the poorest older people who are most in need.

    At present, while poorer older people do receive assistance in paying for their care costs, the amount Local Authorities are able to pay is often inadequate. This narrows the choice and kind of care open to people. Indeed, Local Authority rates vary widely by region. As a service provider there is a difference of £141/week between our highest and lowest providers, both of which are in the South East of England. We would therefore support the proposal presented in this article that social care be provided on a ‘collective insurance’ basis similar to the NHS. This would remove the “two tiered” system of care which currently operates; many care homes do not accept state funded patients at all, because the rates are so low. A collective insurance system would mean all older people would be able to access care free at the point of delivery. It would remove worries about how to pay for care and ensure all people, regardless of assets, receive the help they need.

    However, we appreciate that a collective insurance care system would be expensive to fund. The fixed levy proposal made in this article offers one possible solution, and is worthy of further exploration. We would welcome research into whether a levy could generate enough money to fund care for all who need it. At present, Local Authorities can only afford to place “substantial and critical” needs in funded care. This is clearly inadequate, and we would like to be assured that any collective insurance system would not be restricted to such a narrow remit.

    We support the principle that people contribute to care costs relative to their assets. A 10% levy on assets would ensure that poorer people are protected from having to pay large contributions, while still generating a significant amount of revenue. The suggestion all older people pay lump sum on turning 65 would generate funds quickly. One of the problems with the current government proposals is that they will not take affect until 2017, while the care system is in crisis now.

    Our primary concern is that vulnerable older people are able to access quality care. A free at access system, funded by a wealth sensitive levy, has the potential to deliver this result. As such, we welcome further research into this alternative and urge parties of all persuasions to consider how best to safeguard our poorest and most vulnerable older people.

  6. Brian Gibbons says:

    This is a useful addition to the debate.

    One difference between this proposal and an inheritance tax is that the it more likely to be perceived to be paid by the likely beneficiary.

    I am not clear if this would be a hypothecated levy, if it would go into some insurance fund or into general taxation? This would affect the perception of the link between payment and benefit.

    Is there an estimate of how much this approach would actually raise?

  7. Colin Godber says:

    I entirely agree with your second point. This levy would be one’s subscription to a comprehensive insurance for care in old age (with the premium invoiced at the beginning of the period of cover but payable after death to minimise opportunity costs).
    The more I see of the detrimental impact of political stewardship of the NHS and social services the more convinced I become of the need for a hypothecated tax to fund a revamped National Health and Social Care Service. The political role should be limited to scrutiny of quality and outcomes and reviewing the size of the levy.
    I saw this old age levy as a remedy for the surge in health and social care costs due to increasing longevity over the last few decades and now the bulge due to the baby boomers. It is financially feasible and virtually painless because of the inflated asset of home ownership over the last four decades. It will therefore work for the cohorts currently over 50 and would sustain free health and social care for older people for the next 40-50 years.
    This would effectively mark the first stage of a transition from each generation covering the old age care costs of its seniors (which were always lower than its own would be) to a system where each cohort funds its own care. Because the cohort currently under 50, and certainly those under 40, will go into old age with much smaller reserves there will need to be a transition to an arrangement in which they insure their old age costs by payroll contributions during their working lives. That would constitute the second plank of a sustainable National Health and Social Care Insurance Scheme. It should be a payroll levy, with contributions from employer and employee (and a proxy tax on companies dodging such obligations). To be more equitable it should operate on a much more progressive basis than current National Insurance. It, too, should be hypothecated.
    For the present it would need to cover social care for the under 65s (also growing but for different reasons than the over 65s), this being offset by the lower health care cost of their age groups. This levy would apply to all people of working age but there would clearly need to be a tapering arrangement whereby in work contributions would be allowable against and eventually replace the over 65 levy.
    The Office of Budgetary Responsibility might be entrusted with the maths of this and advice to the government on the setting of the two levies. The National Health and Care Service would also need a regulatory/consumer council and one should be able to rely on bodies like the IFS, the King’s Fund etc for extra scrutiny.

  8. Anonymous says:

    The state supplies the vast majority of healthcare and whatever rise in heathcare costs is expected in future years it is easily funded by the state. Currently the UK underspends on healthcare. There is no need to invent specific taxes for healthcare. Wealth taxes are a good idea though, and land taxes are also.
    The difficult issue is funding the increases in social care costs for the elderly population unable to pay for themselves.
    In France the family pay. If the family inherit then the family pay is an understood principle. The family will not be able to dump granny – the state will come with the bill.

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