George Osborne’s ‘granny tax’ may have taken all the headlines but there was another Budget measure – the creation of a single-tier state pension – that should be welcomed by older people
The Chancellor’s Budget announcement that a new single-tier state pension will be introduced early in the next Parliament – above the level of the current means tested Guarantee Credit – represents a personal triumph for pensions minister Steve Webb, and starts the clock ticking to the abolition of means tested Pension Credit.
The announcement should have been a day of celebration for the government and older people’s campaigners. Choosing to announce this landmark, grey-vote winning policy on the same day as an income tax rise for pensioners was a jaw-droppingly bad political misstep by the Treasury.
The single-tier state pension will be widely welcomed by anyone with an interest in pensions, savings incentives and retirement. Assuming it lands in the Conservative Party manifesto in 2015, it also seems likely the Opposition will have to follow suit with a similar commitment, especially given the Department for Work and Pensions’ plan to keep the change largely cost-neutral.
However, as lost as it was in this year’s hotch-potch budget, it’s important not to overlook the broader implications of this landmark announcement, especially for wider policy debates around the UK’s ageing population, in particular, long-term care funding.
Let’s first state the obvious: in future, older cohorts are going to have more income to spend on care – notwithstanding the lowering of the personal allowance for older people also announced by the Chancellor.
At a macro level, the size of the long-term care funding challenge brought on by demographic change has therefore potentially just got slightly smaller, even if the cohort benefitting from the single-tier pension won’t have care needs en masse for another 15-20 years.
In today’s terms, a single-tier state pension will mean that an older person with care needs claiming lower-rate Attendance Allowance will receive around £200 of non-means tested cash income each week from the state, on top of any private pension income they may have.
So, as we look at how the shape of state support for care in future is reformed, the foundation is going to be low-level universal cash payments. In practical terms, this will see fewer people entitled to full means-tested support from councils and more charged-for services.
But there’s an even more significant, crucial effect of a single-tier state pension for debate on paying for the ageing population, and social care in particular: means testing universal benefits is no longer an option.
Some commentators have long argued that introducing means testing of universal benefits for older people, especially Winter Fuel Payments and Attendance Allowance, is an inevitability given fiscal austerity, population ageing, and the need to find money to fill the funding gap in the social care system.
However, the underlying assumption has always been that the new means testing required would be done through the Pension Credit system – which the Chancellor has just called time on.
For Winter Fuel Payments, this may mean a future government will instead opt to quietly phase them out as the single-tier state pension comes online, putting the money into more effective measures to tackle excess winter deaths, which – shockingly – still number around 25,000 annually.
Which brings us to Attendance Allowance and the care funding gap. The Wanless Review of social care funding in 2006 set out the argument for means testing Attendance Allowance in order to release money for more generous support from councils in the social care system. Wanless effectively argued such universal payments were not tenable given rising demand for care, and that this resource would be better targeted through local authorities.
This now looks all but impossible. Given Attendance Allowance has long been politically untouchable, the fact that the mechanism for potentially means testing it is now set to be removed suggests this benefit is likely to be preserved in its current form for a long time to come.
This means that debate on how to plug the growing funding cap in the care system will have to look elsewhere for money.
It also means, as the Strategic Society Centre argued last year, we really do need to be thinking more about how the social care and Attendance Allowance systems can be better integrated. The current lack of integration, and the antiquated nature of the Attendance Allowance system, are bizarre given public money could effectively be released by ‘spending better together’ and improving outcomes achieved for the money spent.
As the reality of paying for an ageing population takes a grip on the public finances, the Chancellor’s single-tier state pension announcement effectively nudges into place one cornerstone of the UK’s strategy for meeting this challenge. We can only hope the other pieces follow shortly.
James Lloyd is director of the Strategic Society Centre
