When the levy breaks
More than a decade after the Dilnot Commission published its findings, a ‘plan for social care’ has finally been unveiled. At the heart of Dilnot’s 2011 proposals – the ‘big idea’, as it were – was a cap on the amount an individual pays for care in their lifetime. This would prevent those in need from being forced to sell their homes, or see their estates dwindle dramatically, in the latter stages of their lives.
At the time, research suggested that a cap of £35,000 would provide relief for around a third of people over 65. The plan was met with furrowed brows at the Treasury: how, exactly, would this social care safety net be funded?
Well, now we know. Even with the level raised to an eye-watering £86,000, the sheer burden of paying for such a cap requires a manifesto-busting increase of 1.25 percentage points in national insurance contributions and tax dividends.
Except this money isn’t just for social care. The ‘Health and Social Care Levy’, which will appear on pay slips as a separate tax from April 2023 onwards (after a transitional period, during which the increase will be directly applied to NI contributions), will also function as a ‘temporary’ source of funds for a national health service still reeling from the pandemic.
The extent to which this arrangement is equitable, or even temporary, is highly questionable. In fact, only one pound in six will go to social care over the next three years, with the chancellor to rule on how the cash is distributed thereafter.
For social care leaders, this is a dispiriting equation. The NHS is the dominant force in British politics – in the eyes of both the general public and bean-counters. For the health service to simply relinquish control of these funds without a bitter battle is an unimaginable scenario. History tells us that the health service has an innate ability to absorb funding and, with a historic backlog to be dealt with, the prospect of this cash injection directly relating to a three-year burst of productivity seems fanciful.
Likewise, it’s difficult to imagine individuals who are expected to require social care in the coming years taking much comfort from the announcement. To reach the cap of £86,000 (remembering this is just for ‘care’ costs, not so-called ‘hotel’ costs) one would need to reside in a care home for somewhere approaching three-and-a-half years. The average length of stay across the sector is between 15 and 18 months. Senior figures in the market predict that the proportion of people who will benefit from the cap will be single figure percentages – at best.
For those invested in and operating care businesses, however, the key question of this social care plan remains unanswered. It is widely acknowledged that the true cost of delivering quality care is not recognised under current fee structures, but there is scant detail on how this will be addressed. Assuming funds raised actually reach the front line (and offset the increase in taxation that social care employers face), will it be impactful enough to change the dynamic of the publicly-funded care market?
Investment into the elderly care sector over the past decade has been a tale of two markets, with most capital seeking the healthier margins of private pay. The largest local authority players have typically been through multiple financial restructures in recent years, paying off debt accrued from expansion strategies in the heady days of the noughties.
At least one element of the investment theses for the current owners of these businesses is that the underfunding of the sector will be recognised and a ‘correction’ will fundamentally alter this section of the market, allowing for services to be improved, capital expenditure on assets to restart, and profits to be returned to shareholders.
Those close to Number 10 say there is a nervousness that the proceeds of this generational tax-hike will end up in the pockets of overseas investors that have bet on the UK’s ailing system – but this over-simplification can’t stand in the way of the investment that is desperately needed into the largest part of the social care market. The system needs every penny of the windfall it can lay its hands on. It just needs the cash to get past the NHS first.
Managing director, Investor Publishing