By Mert Kul, Politics Editor and History Graduate from King’s College London
Fundamental reform of social care in England and Wales has long been neglected by governments, even those with the largest majorities. Over decades, various disjointed initiatives to raise money for it have simply papered over ever-growing cracks as the strain of demographic change puts further demands on the system. More than two years after promising a plan to ‘fix social care once and for all,’ Boris Johnson has bitten the bullet of a manifesto-breaking 1.25% rise in National Insurance contributions (NICs) for both workers and employers, expanded to include all working age adults including those over the pension age. Those who derive their income from dividends will also be asked to pay an additional 1.25% on their earnings. The £14bn the government hopes to raise will be front-loaded towards clearing the ballooning waiting lists for NHS treatment caused by Covid, before the majority is reallocated into the care system after 3 years – allowing the government to cap lifetime care costs at £86,000 and protect those with assets of £20,000 or less from any costs at all.
Of course, this is predicated on the health system being able to survive without more funds a few years down the line, an assumption which has been repeatedly proved wrong in the past. Moreover, the plan, on the face of it, lacks any strategy for actually improving the standard of care or to fill the current 120,000 vacancies in the care sector – which are bound to rise further given the government’s proposals also lack the means to raise chronically low pay in the sector. This is not to mention the total lack of support for the army of unpaid carers without whom the care system would implode. In truth, the PM’s plan for social care is simply a means of redistributing the cost of the existing, inadequate system away from individuals and onto the taxpayer, in the unfairest way possible. For while millions of workers on low and medium incomes will foot the bill, those who receive income from capital gains, rent or interest payments are exempt from any extra costs at all. Although the need to pool risk nationally to fund social care is undoubtedly important, there was no elaboration from the Downing Street briefing as to why this method of pooling funds from earned income as opposed to unearned has been chosen, in an era when earned incomes have been stagnant and assets have been inflated.
If the Coronavirus pandemic has achieved one thing, it has been to shine a light on the irregularities and inequities within our existing financial system – and the policies which have led to them. While economies have been shut down and millions of jobs furloughed, the value of assets such as residential property, supposedly linked to the real economy, have rallied to record highs; fuelled by unprecedented fiscal intervention, lockdown saving and yet more quantitative easing by central banks. But though Covid has made the scale of these disparities more explicit, they are far from a new phenomenon. In the UK, while average nominal wages have increased 74% from January 2000 to January 2020, the average price of all residential properties has risen 174% in the same period.
The roots of all of this lie ultimately in our largely unregulated and misguided system of banking, which is incentivised to create money to fund asset transactions, and thus creating short term gains through asset price inflation, while small businesses are largely excluded from productive credit lending to implement new technologies, drive productivity and increase real earnings over the long run. Yet while a prosperous real economy would generate the revenues needed to adequately fund social care, as long as politicians remain uninterested in the wider debate about money and credit allocation, it falls on them to respond to the inequitable consequences of depressed earnings and booming asset prices by taxing asset wealth rather than wages.
This would not require a one-off comprehensive wealth tax, though the potential to raise hundreds of billions over the next few years and its existing use in countries like Sweden, Switzerland and Spain make this an attractive proposition. There are more unambitious tools already at the government’s disposal, should it choose to use them.
A good first step would be to bring capital gains tax in line with income tax, ending for good the inexplicable unfairness of taxing earnings from labour more than those from capital. Far from a radical move that free marketeers could seek to smear, the policy of equalisation is the offspring of former Tory Chancellor Nigel Lawson, the main architect of Margaret Thatcher’s liberalising economic reforms of the 1980s. To protect the incentive to invest, capital gains allowance was indexed to inflation to ensure only excess return was taxed. The Office for Tax Simplification suggested last November that as much as £14bn per annum could be raised by aligning capital gains tax rates to current thresholds for income tax. This review was asked for by Chancellor Rishi Sunak although he has yet to implement its recommendations.
While these changes would make the UK an outlier among OECD countries and investors would likely seek to find jurisdictions with lower rates, working towards international cooperation on aligning global tax rates would stifle this incentive. As the Health Secretary Sajid Javid has referenced himself, the world’s 20 biggest economies are ‘all in the same boat’ when it comes to the accelerated need to find additional funding for health and social care, with many also facing the long-term challenge of an aging population alongside the economic damage caused by lockdowns. It makes alignment on rates in the common interest of many comparable economies.
Funds need not only be extracted by further taxation, but by simply reducing the enormous sums given away to corporations for ill-defined social or economic benefits through corporate tax relief, which makes up around half of the UK’s astronomical £362bn total tax relief bill. Critics, including the Office for Budget Responsibility (OBR), have argued that many such reliefs are opaque and are subject to a lower level of scrutiny than conventional public spending. The OBR even included tax reliefs in the ‘revenue risks’ section of their Fiscal Risks 2019 report, which cited, among other things, the lack of ‘a systematic way of evaluating the effectiveness of those tax reliefs and expenditures with a stated policy objective.’ The 2019 Labour Manifesto pledged to conduct a government wide review of such relief, with the aim of making a relatively unambitious 1% cut to the bill by the end of the parliament – which was still projected to raise around £4.3bn in the 2023/24 fiscal year. The OBR’s 2021 Fiscal Risk Report recognises that the government’s ending of just two such reliefs will save an estimated £3.5bn a year by 2024-25.
Yet despite this, the government remains keen to funnel money, which could be used for supposed priorities such as social care, towards policies such as last summer’s stamp duty cut, which was due to cost the treasury £3.8bn before it was extended for a further 9 months – despite skyrocketing property prices. These examples demonstrate that, far from being an unavoidable reality of funding changes to how health and social care is paid for, the current plan is yet another political choice by the current regime, whose past record has consistently favoured policy decisions which have subsidised the gains of the propertied classes.
Yet for all the inadequacies and unfairness present within the current funding proposals, they have at least received extensive attention and debate among the commentariat. The flip side of the coin – namely preventing the cost burden of future disease in the first place– has had comparatively little mention. One solitary page was reserved to it in the government’s official document outlining the plan, with vague words on prevention tagged on almost as an afterthought. It has often been an issue that the long-term thinking and resource allocation required for good future public health does not marry with the immediate short term political priorities of avoiding a catastrophe in a health and care service that is routinely run on the brink. Tackling poor population health, as a means of limiting the increased future demands on care brought on by demographic change, needs more than more funding for treatments and screening as the government has suggested, but real social-economic change to support healthy lifestyles on the ground.
According to ONS figures, while overall life expectancy for men and women has continued to rise over the last decade, ‘healthy’ life expectancy – where respondents report themselves as in ‘good’ or ‘very good’ health – has flatlined over the same period, and been on a downward trend since 2015-2017. ‘Disability Free’ life expectancy – where respondents were reported as free from persistent limitations on their day-to-day activities – also fell for both sexes from 2014-2016 to 2017-2019. This meant women on average lived with a disability for over a year longer than they had before.
The scale of this challenge is vast. People aged 65 and over in the UK are forecast to spend almost 50% of their remaining lives with a debilitating long term physical or mental condition. Data analysed before the pandemic showed that half of those who had trouble with independent living already received no formal or informal support, with the absolute number of older adults with some level of dependency predicted to rise by almost a third by 2035.
The starkness of the impact both future demography and public health will have on the public purse is perhaps best demonstrated by the problem of dementia care, one of the UK’s main disease burdens. The total cost of treating dementia in the UK in 2019 was £34.7bn, with publicly funded care consuming 45% of this. By 2025, the total number of people with Dementia is expected to rise by around 20%, and by 2040, is projected to rise 80% from its 2019 levels. For reference, the total public spending on adult social care in England was around £18bn in 2018-19, following almost a decade of real term cuts.
It is therefore clear that any future funding settlement, from wherever it is derived, will likely fall short of required levels unless taxes rise drastically, meaning government policy needs to prioritise immediate preventative action to support good public health. To succeed, any approach will have to be focused across the entire population. The youth of today will be the old and frail of tomorrow if unhealthy lifestyles continue at or exceed current levels, with a recent study stating that the reduction of healthy life expectancy at birth since 2011 ‘was mainly attributable to increases in unhealthy life in younger age groups.’ This means the government is likely to fall short of its existing target to increase healthy life expectancy by 5 years by 2035.
Published in 2015, the Global Burden of Disease project produced modelling which showed that just poor diet and tobacco use together accounted for over 21% of total ill health in England, leading to corollary ailments such as obesity, diabetes, musculoskeletal conditions, heart disease and stroke which all increase demand for long term care. The geographic distribution of this ill health was also spread unequally. As a result, Public Health England argued that if health in the worst performing regions matched the best performing ones, England could have some of the lowest burdens of diseases within developed countries. This, it argues, presents a huge opportunity for preventative public health.
The pandemic has prompted much needed discussion of health inequalities and the need to tackle them, with the government’s new Office for Health Improvement and Disparities beginning operation later this year. Only time will tell whether this is simply yet another pointless reorganisation of the health bureaucracy, or a meaningful ally in promoting preventative public health. Nonetheless, it will need to be armed with a broad remit, strong powers, and iron political will from the top to tackle the wider trends which have contributed to greater long-term illness. These include pervasive societal issues such as the corporate corruption of nutrition and advertising, increasing physical inactivity driven by technological change in transport and for other daily activities, as well as the ever-greater levels of stress and mental ill health induced by work, deprivation and the high cost of living well.
Governments around the world have succeeded in creating conditions for greater socio-economic fairness and good health outcomes, understanding that former leads more often than not to the latter. If the mantra of ‘levelling up’ means anything at all, it is time for our current government to do the same, starting with a radical and properly resourced plan for preventative health and social care along with a fair means of paying for it.