Care costs: Christmas come early?

18 Mar 13

George Osborne's announcement that care cost and pension reforms are to be brought forward a year sounds like good news. But there's a catch

Blink and you missed it. The Chancellor of the Exchequer went on live TV yesterday to announce U-turns for two of the most significant government announcements this year: the introduction from April 2017 of a single-tier state pension and the Dilnot ‘capped cost’ model.

Instead, both are to be introduced from 2016.

Why the sudden change? The original April 2017 date was of course supposed to be the end of the government’s deficit reduction plan. Does the Chancellor now think the deficit will be paid off early?

In fact, the answer is almost certainly something else: introducing the single-tier state pension will actually bring in new money to HM Treasury because of the end of ‘contracting out’.

Some of this revenue had already been allocated by the government to pay for the ‘capped cost’ social care reforms from 2017. As HM Treasury goes over the books ahead of the Budget, Ministers appear to have decided they would like the rest of this money to be flowing in before 2017 to improve the medium-term fiscal forecasts, and that - care funding reform aside - this money will be flowing straight into Treasury coffers.

The 'good news' presentation of the 2016 announcement also suggests the Budget may contain some nasty surprises for age-related spending. We will find out on Wednesday.

Some will pitch this as further evidence of a government bowing to the interests of the 'grey vote'. But that misses an important detail. The single-tier state pension will only apply to those retiring after the reform has been implemented. And the ‘capped cost’ model will only meter people’s notional care costs from the day of its launch onward, rather than counting backward. In fact, it’s still likely to be around 2021 before anyone hits the ‘cap’.

In presenting the change, the Chancellor said the government will 'reduce the cap' to £72,000 from the previous £75,000 figure. This shows either a worrying lack of grip on the policy, or a deliberate attempt to mislead people. The ‘capped cost’ model would always see the ‘cap’ uprated with inflation, so a £72,000 ‘cap’ in 2016 will still become around £75,000 in 2017, £78,000 in 2018, £81,000 in 2019, and so on.

Overall, the Chancellor’s performance on the issue was no more convincing than the Prime Minister’s appearance on the same TV programme earlier in the year, when he made the farcical claim that the Dilnot ‘cap’ will create an 'enormous' market in long-term care insurance.

So is the announcement of a 2016 implementation for these reforms all good news? Why indeed wait to 2017? Well, there is a downside to bringing forward these reforms to 2016. It’s the difference between making big bold policy announcements and actually making stuff happen on the ground.

Implementing a single-tier state pension in 2016 will be far from straightforward for DWP, HMRC, employers and pension fund managers – the administrative and operational reorganisation will be significant, as pension fund trade groups were quick to point out yesterday.

And as for the ‘capped cost’ model - setting up the new ‘metering’ systems required ahead of a launch in April 2017 already looked ambitious given the wider resource and reform pressures bearing down on the care system.

Remember, there are around 325,000 older people paying for care at home in England who will have to be given needs assessments and means assessments by their local authorities when the ‘cap’ is implemented. Councils now have exactly three years to prepare for this.

Some local authorities are already buckling under funding pressures to fulfil their duties under the current system. If money isn’t found to close the gap in baseline social care expenditure that has opened up since 2010, councils will only do this using the money made available to fund the care ‘cap’.

So while some will cheer the Chancellor’s announcement, the task facing local authorities and Whitehall officials has just been made even harder and the risks of missteps in implementation have been made even bigger.

Did you enjoy this article?