David Bell: Defusing a care timebomb

Publication of the White Paper on Social Care in England on Wednesday hardly raised an eyebrow in Scotland. But if it had fulfilled the hopes of many care recipients, carers and professional care providers, it might have had profound implications for the funding of long-term care for older people in Scotland. In the event, the White Paper turned out to be largely a damp squib, but this should not detract from the need to address the issue of long-term care funding, both north and south of the Border.

Demographic change will shortly change into a higher gear. Between 2010 and 2020, the Registrar General projects that the number of Scots aged 80 and over will increase by 30 per cent. Between 2010 and 2030, it will increase by a massive 81 per cent. Most care home residents are drawn from this age group. These increases have been evident to demographers for decades, but successive governments have fudged the issue of establishing a clear and fair method of funding older people’s care costs which will be robust when the demographic timebomb explodes.

Perhaps Scots have smugly assumed that all problems of social care funding in Scotland were dealt with by the introduction of free personal care in 2001. This is wrong. It is almost as misconceived as the view widely held in England that all social care in Scotland is free. There are around 9,900 residents in Scottish care homes who have to pay for their care costs in full.

According to the industry, average fees for a resident in a Scottish care home in 2011/12 were £34,944 per year if nursing care was included. Without nursing care, the annual cost fell to £29,432. Nevertheless, these are huge sums, well beyond the means of the vast majority of Scottish pensioners.

Local authorities contribute £8,476 per year towards these costs if a resident needs personal care and £12,324 per year if nursing care is also required. In turn, local authority costs are met by additional funding from the Scottish Government, though the exact amount is the source of regular disputes between Cosla and the government. But even after these allowances for nursing and personal care are met, the average care recipient who requires nursing and personal care has a funding gap of £22,620.

Charges may also have to be paid for an extended period. The average length of stay in a Scottish care home is around 2.4 years, and if self-funders stay for about the same length of time as other residents, the average total cost of their care will be around £84,000. Relatively few can access this level of funding without depleting their wealth, and for most people this means taking equity out of their major asset – their house.

In Scotland, those with assets worth more than £23,500 have to pay the full costs of their care home fees. This means that virtually all homeowners have to pay, while those who rent and have no significant financial assets receive care free. Many of those who bought their council houses during the 1980s and 1990s are now reaching an age when they may need care. They will have to meet the full costs of care while their neighbours who continued to rent may not need to contribute at all.

None of the allowances to meet the costs of nursing or personal care is means tested. Both the Scottish and UK governments seem content that the rich benefit financially as much as the poor. For the UK Department of Work and Pensions, this feature distinguishes these benefits from almost all others. And there is now some doubt that universal benefits for older people, which includes winter fuel allowance and free TV licences, will survive the next UK spending review. The Scottish Government seems more wedded to the principle of universal benefits, irrespective of income.

Nevertheless, the funding conundrum in Scotland is not that much different from the rest of the UK. In England and Wales, care home residents requiring personal care receive Attendance Allowance from DWP. This is worth around £4,000 per year. Attendance Allowance is not payable in Scottish care homes because the DWP interprets Scotland’s free personal care policy as contravening its eligibility rules. Free nursing care is more generously compensated in England than in Scotland. At face value, the difference is £1,680 per year though assessment and eligibility rules differ somewhat.

So although fee-paying care home residents in Scotland perhaps receive more cash support from the public purse than those in England, the difference is less than many imagine. Self-funding care home clients face an enormous challenge in finding the money to pay their fees, no matter which side of the Border they live. And this is an issue which successive UK governments have failed to address properly.

In his 2011 report, the economist Andrew Dilnot proposed to change long-term care funding in England by capping an individual’s total contribution for an entire care home stay at £35,000. Even though there was considerable support for this measure, it was kicked into the long grass by the White Paper, presumably at the behest of the Treasury. The coalition government has thus delayed any decision to introduce the cap, arguing that it cannot currently afford the annual costs of around £1.7 billion. This means yet another delay in addressing the funding issue.

Dilnot also suggested that individuals should not have to meet care home fees in full unless their wealth exceeded £100,000 rather than £23,500. This would protect more of their wealth, and would be particularly relevant for buyers of council houses in Scotland. It would also provide a greater incentive to save. Under, the present system, it makes sense to consume rather than save because those with no wealth pay no fees. Yet the White Paper also fudged this proposal, arguing that the government needs more time to assess it.

The politically charged aspect of this debate is that many of those unlucky enough to require long stays in care homes have to sell their houses to meet their care costs and this is hugely unpopular. Though care policies differ somewhat in Scotland and England, the difference in funding is not so great to prevent house sales in Scotland. As the older population increases and the share of those that are homeowners also rises, such forced sales will become more common under present funding arrangements.

This is a huge source of worry for older people, though it may only affect relatively few of them. One of their key concerns is protecting their children’s inheritance, since they are the main beneficiaries of subsidised care home charges. There is a real issue of equity in care policy that the White Paper failed to address and which the Scottish Government cannot avoid in the long-run. There is a clear case that care costs should be spread more evenly across older people and, a slightly more difficult case in current financial circumstances, that today’s taxpayers should meet the bill for the older generations care needs.

The White Paper has produced one concrete development: the UK government will back local authority loans to meet care home fees. These will be repaid from the estate of the older person after death and therefore the cost of the scheme will be modest. However, this will provide clarity to a very piecemeal system of such financial support across English local authorities. Similarly, the provision of loans across Scottish local authorities is disjointed, so there may be a case for Scotland also to look at the possibility of introducing Scottish Government backed loans for frail care home residents.

• David Bell is professor of economics at Stirling University