German-style tax on the middle-aged ‘could solve social care funding crisis’

7 Dec 18

A 2.5% income tax on the over-40s could raise up to £15bn every year to fund social care, a study has found.

Adopting a ‘German model’ of social care tax which uses a social care premium of 2.5% could go some way to plugging the social care funding gap, according to research by financial consultants Hymans Robertson.

The group estimated that the UK is facing a projected £30bn annual gap in social care funding by 2031, based on data taken from the King’s Fund think-tank.

Jon Hatchett, partner at Hymans Robertson, said: “There are no two ways about it, the system needs more money. It needs a healthy injection now and even more in the years to come.

“Taxation of current and future generations will be needed. It is never going to be popular. But, as importantly, funding needs to be ring-fenced and spent well.”

Using a German-style 2.5% levy on income for over-40s, split between employer and employee contributions ring-fenced for social care, could raise £15bn annually the group estimated.

The group said an over-40s tax was one of six options likely to be put forward in the government’s forthcoming green paper on social care.

A similar tax was proposed by the Local Government Association in its own green paper but this suggested a fee of £33 paid by over-40s, which would raise £1bn by 2024-25.

Health and social care secretary Matt Hancock told the Telegraph last month he was “attracted to” the prospect of an over-40s social care tax.

Hymans Roberton’s report said one of the problems facing social care was a lack of public understanding of the scale of the crisis.

Polling conducted on behalf of the firm found 47% of adults in the UK underestimate the cost of care in old age, and 42% of UK workers don’t save for care or have no plans to do so. Calculations are based on responses from 3,081 adults.

Hatchett said: “There are many families, carers and individuals who are completely unaware of the state of social care in this country.

“When confronted with the reality they are shocked. Surveys by the King’s Fund suggest that most people don’t understand how social care funding works. They don’t make a distinction between health care and social care and believe the NHS will look after them”.

Hatchet said one in 10 people who reach the age of 65 will face care costs of over £100,000.

Rob Bilton, local government social care specialist at Hymans Robertson said councils had an important role to play.

“By engaging with the public about the current state of social care and increasing education about it, local authorities will be able to play a key role shaping how the additional funding will deliver the right care, in the right place for the people who really need it,” he said.

The number of over 75s will nearly doubling relative to the number of adults under 75 in the coming decades, driving demand for social care, the report said.

A study from August found that the number of care-dependent people is set to double by 2035.

The government’s delayed social care green paper is expected to be published before Christmas.

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