England’s social care system is likely to come under further strain as the population ages and costs increase. The government has recently proposed a cap on total costs, but significant funding or restructuring will be needed to meet rising demand.
In recent decades, there has been lots of debate but little action when it comes to adult social care reforms. The current system offers little protection against high care costs and places a substantial burden of informal care on families.
Both these problems are expected to increase over time as the population ages. To tackle them, the government has recently proposed a cap on total social care costs and an increase in the level of assets below which individuals qualify for support towards their care costs.
What is social care and how is it provided?
Adult social care refers to the system of support designed to aid the activities of daily living of older and disabled individuals to improve their quality of life. This includes stays in nursing homes, as well as help with tasks such as at home assistance washing, dressing and feeding. In the UK, total expenditure on these services represents 2.3% of GDP, with around 64% financed by the government (Health Accounts, 2019).
Whereas healthcare is provided by the National Health Service (NHS), public social care services in England are provided by 151 local authorities. Social care is means-tested: only individuals with low levels of assets get their care entirely provided by the local authority.
The means-test threshold is currently £23,250 (the value of an individual’s house is not exempt for those in nursing homes, although it is exempt from the calculation for care received at home). Most services are delivered by private providers, paid for by the local authority. But those receiving means-tested care are expected to contribute to the cost based on their current income, with the local authorities free to set their own charging policy.
There is substantial variation in the availability and quality of care. But to date, very little systematic quantitative data exists on these regional differences. For those aged 65 and over, estimates using the UK Health Accounts and local authority data suggest that just over half of social care spending is paid for out-of-pocket or through co-pays.
There has been a push in recent years for older people to receive care in their own home – 60% of recipients of public social care currently receive this form of care. There has also been a move towards ‘personal budgets’ and ‘direct payments’, which allow recipients to choose how their allocated money is spent and can enable them to choose their own care worker.
The recent period of fiscal austerity has seen cuts in social care spending, with current spending now lower in real terms than in 2010. Figure 1 shows the trends in inflation-adjusted social care expenditures by English local authorities between 2006 and 2020.
By 2020, total expenditures had only just got close to where they were back in 2010. But this ignores the growth in need during the decade. The population has aged and more people are now classified as being disabled and therefore needing care.
Figure 1 also reveals that needs-adjusted real terms spending is around 20% lower than it was a decade ago. Unlike the unadjusted real expenditure series, needs-adjusted spending has not risen since 2016. Lower spending by local authorities means more of the care burden is being placed on individuals’ out-of-pocket spending and/or on informal care from family and friends.
Figure 1: Gross current expenditures on social care by local authorities, 2006-20
Source: Authors’ calculations based on expenditures data from ASC-FR Collection 2019-20 from NHS Digital
Notes: Amounts in 2020 £s; the size of the disabled population is estimated by authors
Currently, around 1.6 million workers are employed in the social care sector, which represents almost 6% of all workers in England (Skills for Care, 2020). This industry faces its own issues: with complaints of low pay, poor working conditions and deterioration of the quality of care services over time (Giupponi and Machin, 2018). Recent immigration changes have also meant that ‘care worker’ is not an occupation eligible for visas, which may affect the supply of workers.
Are social care needs rising?
The population is ageing, leading to growing social care needs. While this has already started to happen (see Figure 1), it will soon accelerate. Figure 2 shows that the percentage of the population aged over 85 is expected to double from 2.5% in 2020 to 5% in 2050. Further, the size of this population group relative to the working age population is expected to more than double – increasing by 120% over the same period.
As older people are living longer, the size of the population aged 65 and older is growing. This population group is also expected to have greater disability needs in the future, partly because the average age of the population over 65 is rising. The percentage of over-65s with any disability is expected to grow from around 36% in 2020 to over 40% by 2040 (Wittenberg et al, 2018).
Figure 3 shows the potential public care burden in England projected forward, assuming the current eligibility requirements. Under current eligibility, the percentage of adults receiving publicly funded social care is expected to increase by over 50% by 2050.
Figure 2: Dependency ratios, England, 2020 and 2050 (projected)
Source: Authors’ calculations from Office for National Statistics data
Figure 3: Gross local authority spending and caseloads, England, 2016-67
Source: Office for Budget Responsibility, Fiscal sustainability report, July 2018
Notes: Spending includes local authority net spending, and co-pays by individuals. Out-of-pocket spending for non-local authority subsidised care is not included. Caseload shows adults receiving publicly funded adult social care services in England as a share of the population aged 18 and older.
What are the policy changes and options available?
There are two issues driving the need for policy change. The first is the affordability of even the current system in the face of demographic trends. Without reform to the current social care system, costs are projected to rise much faster than even healthcare costs over coming decades (Collins et al, 2019).
More importantly, at least when it comes to structural reform as opposed to just a need for more funding, the second issue is that the current system already places a high burden of informal care on many families and/or exposes individuals to potentially very high social care costs, which they will need to provide for themselves.
The current system offers little protection to anyone other than the least wealthy in society. This group are the least likely, on average, to face high social care costs as they have lower chances of living long and facing expensive nursing home costs. This means that those with the highest social care costs are less likely to be covered by the public system.
These costs can be considerable – estimates from the United States suggest that the 5% of the population with the highest lifetime nursing expenses spend approximately seven times more out-of-pocket than the average person over their lifetime (Hurd et al, 2017). While reliable equivalent estimates for the UK are hard to obtain, some evidence suggests that social care spending may be even more concentrated among those with the highest spending in England (Dilnot, 2011).
Unless individuals exhaust their personal savings (and other assets) in paying for care, they are unlikely to receive much in the way of public assistance. Economists generally see it as socially optimal to pool financial risk to insure those who face the risk of costs. A combination of private and public insurance markets exists to cover almost all other risks that individuals and families face. Evidence from the United States looking at Medicaid, which has many similarities to the social care system in the England, shows that most individuals (even the wealthy) value these systems more than they cost due to the risk pooling that is provided (De Nardi et al, 2016).
But increased public insurance may result in a decline in the private insurance market – as those who may have otherwise got private insurance instead opt for the public insurance (Brown and Finkelstein, 2007). This is an example of what economists’ call market ‘crowd out’. In England, the market for private long-term care insurance is tiny, potentially due to public insurance ‘crowding out’ the private market, and because of the difficulties of operating private insurance markets in situations with the possibility of catastrophic costs.
Better protection against catastrophic costs is not the only reason to bring in reforms. Advocates argue that a more generous social care system may reduce healthcare costs for the NHS. This is because when social care is lacking, it can result in more hospital visits. Lower social care provision can also put the burden on families in the form of the need to provide unpaid informal care, which also tends to fall disproportionately on women.
Around 4.5 million individuals in the UK provide informal care, at an estimated costs of around £132 billion per year. While not much is known about how changes in social care spending affect the informal care burden, there is evidence on the link between social care and healthcare showing that lower social care spending results in increases in the number of emergency department visits (Crawford et al, 2021).
There has been much debate around reforms of social care in England over previous decades, but little action. The main proposal on the table that is currently being debated in Parliament stems from the 2011 Dilnot commission, which recommended a fixed lifetime cap on social care charges (Dilnot suggested £35,000) and a more generous means test.
The current proposal, to take effect from October 2023, is for a lifetime cap of £86,000 (less generous than proposed by Dilnot) and an increase in the upper asset limit above which individuals are not eligible for local authority support towards their care costs (the means test) from £23,250 to £100,000.
These proposals will help to insure against the risk of catastrophic costs and, it is hoped, will create the right conditions for a private long-term care insurance market to exist (to insure costs below the cap). But the proposed changes will not fully insure against catastrophic costs as ‘hotel costs’ (for example, food and accommodation) of nursing homes – which tend to be very large – are not included in the cap.
Previously, in 2014, the government started to legislate these recommendations, but they were subsequently postponed because they were considered too difficult and costly to implement. The current government has proposed to fund these changes by increasing National Insurance contributions.
Current proposals focus solely on lifetime spending caps and a revised means test, but the government has also promised a white paper on adult social care later in 2021 focusing on wider system reform.
What other options for reform are available? In 2018, the Health Foundation along with the King’s Fund published a report outlining various options that the government may consider (Wenzel et al, 2018). In addition to changes to the means test and a cap on lifetime costs, they discuss two other options most commonly raised in the debate around social care funding:
- Free personal care: this would move the system in England closer to what is currently in place in Scotland by establishing a set of personal care tasks and providing them on a non-means-tested basis to everyone over the age of 65. To achieve this, either the needs test would need to be harsher or more funding would be required. This option will also not fully remove the risk of catastrophic out-of-pocket care costs, as only tasks that are classified as personal care tasks (for example, not ‘hotel costs’) are covered.
- Single budget for health and social care: in 2018, the government signalled its intent to integrate health and social care more closely by renaming the Department of Health as the Department of Health and Social Care. There are two major questions hanging over this. The first relates to the feasibility and logistics of integrating the systems and services given that social care is provided by local authorities and given the current differences in eligibility requirements. The second is the extent to which this integration, even if it were sensible for other reasons, would actually reduce costs sufficiently. It is also worth pointing out that this integration alone is not going to solve any broader issues surrounding the insurance, whether public or private, of catastrophic costs.
Any reforms that address fundamental issues and pressures with the current system require funding. Given the current low quantity and low quality of the public social care system in the UK, and the high burden of informal care, such funding will need to be substantial in order to meet current needs, let alone projected future needs.
This will make it unpopular with politicians and the public. This has already been the case with the current proposal, although the ‘fairness’ or otherwise of raising the revenue solely from working (and therefore predominantly working-age) individuals through National Insurance contributions has also added to this.
The likelihood of successful reform, both in relation to the already announced proposals and to anything further to address the size and structure of the public care system, will hinge on whether the new system is seen as sufficiently politically and socially desirable to justify the extra spending.
It is the politics not the economics of social care reform that has hindered reform efforts up until now. It is therefore the politics of social care funding and reform that will need to be addressed going forwards. As time goes on and the demographic need for reform increases, the stakes will only become higher.
Where can I find out more?
- The Dilnot commission report, from 2011, provides the basis for the recommendations that the government is currently proposing.
- Approaches to social care funding is a working paper produced by the Health Foundation and the King’s Fund, which outlines various options for funding social care in England.
- What impact did cuts to social care spending have on hospitals? A summary of how social care spending affects the number of hospital visits.
Who are experts on this question?
- James Banks, University of Manchester and Institute for Fiscal Studies
- Eric French, University of Cambridge and Institute for Fiscal Studies
- Jeremy McCauley, University of Bristol