A cruel choice for politicians – how to fund care for the elderly

The sight of politicians being forced to make tough decisions and frantically trying to do so in a way that upsets nobody would be grimly entertaining if the consequences were not so frequently disastrous. A case in point is the current anguish over the funding of care for the elderly and the way it fits in with a welfare system that increasingly favours the retired over those of working age.

In 2011, Andrew Dilnot recommended that a cap be placed on the amount retired people with assets over a given threshold would have to pay towards care. He suggested £35,000 with an estimated cost of at least £1.7 billion as the taxpayer picked up care costs above that. Initially the government seemed to have rejected this but now it appears they will do this, but with a higher cap (£50,000–70,000) and a higher threshold, leaving the total bill about the same.

So, how to pay? One suggestion, floated by CentreForum, is to means test Winter Fuel Allowance to save £1.5 billion. This of course has provoked furious responses from the recipients, who are typically also opposed to having to cash in their assets over a certain limit to fund care.

The basic problem is simple. We have an ageing population and a welfare system that, contrary to popular opinion, is not based on a contributory principle where payment in of tax gives entitlement to benefits. Rather, the current working population pays through taxation for a range of payments to several groups, including the elderly. As the relative numbers of older people increase and the costs of care increase so the charge to the working taxpayer must increase unless older people also make a contribution.

The obvious way to do this, in the case of social care, is to use savings and assets above a certain limit, built up over a working life, to offset those costs. Why should this be thought morally questionable? The point of investing in a house or savings should be precisely to release them as cash to meet the needs of old age. Moreover doing this gives people incentives to take actions that they should take for other reasons such as downsizing their accommodation and managing their savings.

The real problem is that for some people those costs are containable while for others (about 10%) they are large – and nobody can be sure if they will fall into that 10%. The long-term solution should be some kind of collective insurance or risk pooling either public or private. However, given that politicians did not set such a system up thirty or forty years ago (through ducking tough decisions) we now have the choice of asking the current generation of retirees to make a contribution (as at present) or dividing that cost between some retirees and the general taxpaying population. Somebody’s ox will be gored, hence the unhappiness of the current generation of politicians.

Dr Steve Davies is the Head of Education at the IEA. Previously he was program officer at the Institute for Humane Studies (IHS) at George Mason University in Virginia. He joined IHS from the UK where he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History (Palgrave Macmillan, 2003) and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought (Routledge, 1991).

3 thoughts on “A cruel choice for politicians – how to fund care for the elderly”

  1. Posted 04/01/2013 at 15:06 | Permalink

    Paying for old age — especially pensions and health care costs — is a good example of a long-term ‘problem’ that short-termist politicians, anxious above all to get re-elected, have funked for generations. The Beveridge proposals were never implemented as its author had intended — benefits were increased long before the ‘fund had built up to anything like the necessary level. Just over 40 years ago, Arthur Seldon wrote a short book entitled The Great Pensions ‘Swindle’. I don’t know why he chose to put the word ‘swindle’ in inverted commas. That is exactly what the Crossman proposals at the end of the 1960s were. Shortly afterwards I wrote a two page note for the Society for Individual Freedom called simply: ‘Pensions — Freedom or Compulsion?’ Re-reading it now, one point strikes me: that Professor Titmuss had the immortal nerve to call a free society with private pension funds ‘The Irresponsible Society’. His idea of responsibility was for politicians to promise unsustainable levels of benefits at other people’s expense, knowing that that would be long out of office when the chickens cam home to roost. A few years ago I wrote a Hobart Paper about government project disasters, called ‘They Meant Well’. But I don’t think anyone could claim that, with respect to pensions,post-war British politicians have indeed ‘meant well’. In the most cynical way, they have almost unanimously sought to swindle those in and approaching old age. One of the main drawbacks of their schemes is their lack of transparency: hardly anyone can work out in detail what is going on. A few years ago, in 2004, Adair Turner was responsible for producing some proposals concerning pensions in the future. In the introductory volume, there was a revealing table, setting out which bodies people trusted over pensions. Table 6.7, on page 218, of the First Report of the Pensions Commission asked which of Government, Pension Provider and Employer people trusted not to let you down on pension provision’. 52% trusted, or tended to trust, Pension Providers, while 27 distrusted, or tended to distrust, them — giving a net score of plus 25. One the same basis, the net score for Employers was that a net plus 40 trusted or tended to trust them. And Government? This result should make every politician blush deeply. The net score on trust regarding pensions for Government was MINUS 67%. What a disgrace. I’m an academic, but I can only say that words fail me!

  2. Posted 04/01/2013 at 16:08 | Permalink

    I wonder to what extent the costs of care for the elderly have been inflated by government regulation. The new IEA monograph on poverty identifies regulations such as compulsory licensing and staff ratios as major causes of high childcare costs in the UK.

    Moreover, it seems likely that the traditional provision of care for the elderly by the extended family has been crowded out by state provision. Additional problems may include the impact on welfare benefits if low-income working-age families bring an elderly relative into their home, as well as a lack of suitable accommodation due to the planning system and/or building regulations.

  3. Posted 09/01/2013 at 17:57 | Permalink

    Of course, the fact that most elderly people lived their lives being told (erroneously) that they were paying for their retirement benefits makes the recipients feel that they are entitled to receive every benefit.
    Who-ever happens to be in opposition will of course support them.

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