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Carelessness costs

The best way to fund and deliver quality adult social care has long been debated by policy-makers and economists in the UK. The proposed Health and Social Care Levy, together with the health crisis caused by Covid-19, has brought the conversation back to the fore.

Newsletter from 1 October 2021

The availability of good quality social care is a central concern for many families and communities. Care services also provide vital support for the wider healthcare system and constitute an important part of the UK economy.

Throughout the pandemic, the sector has rarely been far from the headlines. During the first wave, coronavirus spread quickly through care homes, leading to thousands of hospitalisations and deaths among elderly and disabled people. Shortages of key medical equipment, such as ventilators and PPE, caused a medical emergency across the country, as care staff tried desperately to protect and treat their residents.

The situation was similarly shocking during the second wave in January 2021, when many more people living in care lost their lives.

Once effective vaccines were developed late in 2020, it was elderly care home residents – as well as key worker staff – who were placed at the front of the queue to get their jabs. But even now, with 82% of the adults in the country fully vaccinated, the continued threat of the Delta variant means many residential care homes remain on high alert.

Protecting the most vulnerable members of society – whether from economic hardship or physical or mental illness – forms a vital part of our response to crises. Even outside the context of Covid-19, an important measure of whether an economy or society is ‘advanced’ is the extent to which vulnerable groups (such as those dependent on care) are looked after within the system.

How to pay for this care with an ageing population is a challenge for governments around the world. The recent review by the UK government of the funding system for adult social care has reignited the debate around whether tax increases are the answer. Last week on the Economics Observatory we explored several of the policy challenges facing social care in the UK.

Taking care

Last week Steven Proud (University of Bristol) looked at how recent changes to social care funding might affect different service users. Steve argues that while the proposed cap on costs may limit how much individuals need to contribute for their own care, its implementation (alongside other means-tested requirements) may still result in inequality between users.

According to his analysis, the cap alone would make little difference to the poorest people. Indeed, the design of the cap – and the way it interacts with the means-testing formula – can lead to some surprising outcomes.

For example, someone who has an initial wealth of £100,000 and has total care needs of £86,000 (spread over eight years) will need to burn through 65% of their savings under the new system. But if their care needs were £500,000, this share drops down to 22%.

For a wealthier service user (with assets worth £300,000), the maximum wealth share that they would need to give up to cover their care would be only 29%. Crucially, this would be the same whether their total care cost was £86,000 or £500,000 (see figure below).

Simulation of the impact of different costs to care

Source: Proud (2021)

Steve concludes by arguing for further reform. Since the cap on contributions only applies to the cost of care, and not to other costs related to moving into a care home, there are plenty of situations where the system can be unfair. In short, further work is needed to develop a more equitable system that doesn’t penalise poorer service users.

If it is broken, how should we fix it?

Clearly the system is far from perfect, with or without the proposed changes to funding. James Banks (University of Manchester/Institute for Fiscal Studies), Jeremy McCauley (University of Bristol) and Eric French (University of Cambridge/IFS) explored the main options for reforming adult social care in England.

They argue that since the population is ageing, there is growing demand for care services among the elderly. The percentage of the population aged over 85 is expected to double over the next 30 years – from 2.5% in 2020 to 5% in 2050. The size of this population group relative to the working age population is also expected to more than double – increasing by 120% over the same period (see figure below).

Dependency ratios, England, 2020-2050 (projected)

Source: Banks et al (2021)

In light of this rising demand, there are two critical areas for reform: improving the affordability of services; and reducing the burden of informal care on family members.

One option could be to provide free personal care (moving England closer to the system in Scotland). But this option would not remove fully the risk of a person facing ‘catastrophic’ costs and having to exhaust their personal savings. Another option for reform could be to unify the health and social care budgets. But questions remain around feasibility and the extent to which integration would actually help to reduce costs.

In any case, James, Jeremy and Eric argue that it is the politics, not the economics, of social care reform that has hindered change to date. While urgent, the likelihood of successful reform – both in relation to the increase in national insurance contributions and to further amendments put in place to address the size and structure of the care system – will hinge on whether the new system is seen as sufficiently politically and socially desirable to justify the extra spending.

Devolution evolution?

The increase in national insurance contributions will also affect the budgets of the devolved nations. This issue was the subject of an article by Graeme Roy (University of Glasgow) and David Bell (University of Stirling).

They highlight how in normal cases it would be up to the administrations in Scotland, Wales and Northern Ireland to decide how to spend the additional budget generated by the hike in national insurance. But the Health and Social Care Levy is different: the UK government is insisting that the money allocated to the devolved nations be spent on care services specifically.

For Graeme and David, while this may seem like a relatively small point in economic terms, it could have wider political implications, with some seeing the caveat as an erosion of devolved powers. They conclude that this may only be the start of more conflict between Westminster and Edinburgh, Cardiff and Belfast: intergovernmental relations on issues such as care funding and levelling up are likely to remain a source of tension for years to come.

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Author: Charlie Meyrick
Picture by Stephan Juban on Unsplash
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