A rise in National Insurance contributions by 1% would immediately raise up to £5 billion towards social care funding1,2. It tested as the most progressive and politically achievable option when compared with other options for filling the funding gap including increasing inheritance tax, removing the triple lock on pensions or means-testing the Winter Fuel Payment. That’s according to new research from Independent Age, the older people’s charity, and the IPPR, the UK's progressive think tank.
The pressures on the adult social care system are likely to increase as demand for care far outstrips the funding available in the system. Estimates predict that the care funding gap may climb as high as £2.7billion by 2020/21 and £9.5billion by 2030/313. However, this is simply the amount needed to preserve the system in its current form. The reality is that significantly more funding will be needed to meet the increasing demand presented by an ageing population and improve the overall quality of care on offer.
The new research examines four options for future funding for social care: means testing Winter Fuel Payment4; scrapping the triple lock on the state pension5; increasing National Insurance contributions6; and an increase in inheritance tax7. Each of these options is modelled to see how much it would generate, and measured against three indicators: whether the funding raised is sufficient; whether the measure is ‘fair’; and whether the measure is politically achievable8.
Key findings include:
- An immediate increase by 1 per cent in the employers’ main National Insurance rate would see the poorest working families lose £20 per annum (0.1 per cent of their income) compared to £1,220 per annum for the richest families (1.2% of their income), making it the most progressive option.
- Changes to benefits are unlikely to raise enough to meet the minimum amount needed to fill the social care funding gap. Means-testing the Winter Fuel Payment against Pension Credit would raise just £1.8billion, while moving from a triple lock to a double lock on pensions raises no immediate additional revenue.
- A wealth tax, added on top of Inheritance Tax, at a 13% rate could raise up to £6.5billion a year, and would be broadly progressive, but could be the hardest option to ‘sell’ to the public.
- No meaningful options for increased funding of social care are an easy ‘sell’ to the public, and the principle of intergenerational fairness will be an important factor as the government starts consulting on funding options as part of its promised Green Paper. Focus Groups involved in the research revealed deep scepticism remains as to whether any money raised would result in improvements to social care, even if changes to tax or benefits were introduced.
As there appears to be no consensus amongst the general public as to how to raise the funding needed to address long-term problems in social care the report recommends the government explain the extent of the crisis in social care, alongside setting out measures that can realistically be acted on in this Parliament and secure cross-party support.
Janet Morrison, Chief Executive of Independent Age, the older people’s charity, said:
“Social care is in desperate need of a sustainable funding solution. However, for all the short-term solutions governments have introduced, the care system needs meaningful change that will work over the long-term. Hundreds of thousands of older people rely on the social care system, either in their own homes or in a care home, and demand for services is only going to increase. Government must face up to facts and stop kicking the can down the road. It needs to confront the difficult decisions about how to fund the social care system because the problem is not going to go away.
“A rise in National Insurance contributions represents one possible way of addressing the funding gap, but even this option has its political complications. Government must use its Green Paper to examine all the future funding options, and be straight with the public about what is needed to fund a social care system that can truly meet the demands of our ageing population”
Harry Quilter-Pinner, Research Fellow at IPPR, said:
"Since 2010 social care has faced unprecedented cuts in funding. This is now taking its toll with huge numbers of people unable to get the support when they need it most. Pressures on quality and safety on the frontline are now at a dangerous tipping point"
"In their Manifesto at the last election the Government promised to lead on social care "where others had failed". They must now deliver on this promise with a long term sustainable funding settlement urgently needed."
"Our research shows that finding extra funding is possible - the public are willing to consider tax rises or changes to benefits - but government will have to design this carefully to ensure the public perceive any solution to be fair"
- An immediate increase by 1 per cent in the employers’ main National Insurance contribution rate would lead to the largest funding increase of £5billion and see the poorest working families lose £20 per annum (0.1 per cent of their income) compared to £1,220 per annum for the richest families (1.2% of their income).
- An immediate increase by 1 per cent in the employee main rate of National Insurance would raise a little less funding overall (£4billion) compared with an increase in the employers’ rate and is a little less progressive, as middle income families would lose the same proportion of their income as the richest (0.5% of their income).
- Health Foundation (2017) Health and Social Care Funding Explained, Health Foundation. http://www.health.org.uk/node/10302#Future
- Means-testing the Winter Fuel Payment against Pension Credit would raise just £1.8billion.
- Moving from a triple lock to a double lock on pensions raises no immediate additional revenue. (NB This was not modelled in this research. It is from forecasts from the Office for Budget Responsibility, set out in the Fiscal Risk Report – July 2017.)
- Op. cit. references 1 and 2
- A wealth tax, added on top of Inheritance Tax, at a 13% rate could raise up to £6.5billion a year, and would be broadly progressive but could be the hardest option to ‘sell’ to the public. (NB This was not modelled in this research. It is from research carried out by the Strategic Society Centre.)
All the above findings relate to funding outcomes in the year 2016/17.
- Criteria for revenue raising options:
- Sufficient: The chosen method should raise enough finding to fill the gap and deliver high-quality care for those in need (e.g. at least £2.7billion by 2020/21)
- Fair: The chosen method should raise funding in a way that is fair both to younger generations (intergenerational fairness) and to the most vulnerable pensioners (intragenerational fairness).
- Politically achievable: The chosen method should be politically feasible and realistic, given the history of failed reform on this issue.