Rising care costs ‘could be met by raising national insurance’

20 Nov 17

The UK’s rising social care costs could be met by raising national insurance contributions by 1%, which would yield £5bn a year, research has suggested. 

Hiking national insurance is a “fair” and “sufficient” way of plugging that gap, according to a report from Independent Age and the Institute for Public Policy Research, released last week. 

In Saving Social Care the charity and think-tank argued that such a policy would raise “substantial” sums of money in the short and long term and would be fair because people on high incomes would pay a larger share than those on low incomes.

The social care sector is facing a forecast funding gap of £2.7bn in 2020/21 and £9.5bn in 2030/31 just to maintain existing provision, the report pointed out. 

Under the proposed scheme the poorest working families would lose £20 per annum, 0.1% of their income, compared to £1,220 per annum for the richest families, 1.2% of their income.

Although, the report acknowledges that such a policy would be a hard sell for the public, in addition researchers expressed concern that it might hit low- and middle income families.

It suggested issues, such as with the chancellor's plan to tax hike on national insurance contributions from the self-employed, could arise. Philip Hammond had to u-turn on the policy following a public backlash. 

Other options explored by researchers included means testing winter fuel payments, scrapping the triple lock on pensions, and increasing inheritance tax.

The study suggested a wealth tax, added on top of Inheritance Tax, at a 13% rate could raise up to £6.5bn a year, and would be “broadly progressive”, but could be the hardest option to sell to the public.

The report stated: “Our headline results suggest that changes to benefits, for example, the winter fuel payments or triple lock are unlikely to raise enough money to fill the funding gap in isolation, are more likely to be regressive and generally garner little political support.

“For example, means testing winter fuel payments against pension credit would raise just £1.8bn this year, with the poorest pensioners losing more money than the wealthy.”

By comparison the report stated tax increases generally raise more money and are more progressive, with most people willing to consider them an option at least for national insurance.

Janet Morrison, chief executive of Independent Age, said: “Social care is in desperate need of a sustainable funding solution.

“However, for all the short-term solutions governments have introduced, the care system needs meaningful change that will work over the long-term.”

She called on the government to “face up to the facts” and make the difficult decisions needed to fund social care.

Morrison added: “A rise in national insurance contributions represents one possible way of addressing the funding gap, but even this option has its political complications.

“Government must use its green paper to examine all the future funding options, and be straight with the public about what is needed to fund a social care system that can truly meet the demands of our ageing population.”

Harry Quilter-Pinner, research fellow at IPPR, said: “Our research shows that finding extra funding is possible - the public are willing to consider tax rises or changes to benefits - but government will have to design this carefully to ensure the public perceive any solution to be fair.”

The government announced last week it would publish its social care green paper in the summer next year

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