Care Isa is just the latest in a long line of daft solutions from the government
Everyone agrees something must be done to plug the gap between the cost of care and the money available. At the present level of provision, the gap between what is spent and what is needed is expected to be £3.5bn a year by 2025, according to the Local Government Association. It is around £2.5bn now.
At the end of August, Newcastle University’s Institute for Ageing found the number of over-65s needing 24-hour care would rise by a third by 2035, and Age UK found older people and their families were bearing a lot more of the financial risk of needing expensive long-term care.
So yes, something must be done. But what? The problem has produced more daft solutions and been reported in more false headlines than any other.
The latest answer to this crisis is the Care Isa: a mad mixture of relief from a tax the vast majority of people never pay and with the promise of flexibility which every couple in fact already has. But more of that later.
First, some of the wrecks that litter the seabed of this ocean of misunderstanding…
One daft idea from the coalition government was to ‘cap’ the cost of care so that no individual would be forced to sell their home to pay for it. Except, of course, that no one – no one – ever has to sell their home to pay for their care.
The rule that mainly stops it happening is that if their home is lived in by a spouse or partner or by a relative who is disabled or over 60, the value of the home is ignored in the means test applied before the local council pays.
The home is safe however long they stay in the care home (the average being about 2.5 years) and the house is occupied.
Even when it is not occupied, once their savings fall below £23,250 (in England), they can make a deferred payment arrangement with the local council. It takes a legal charge on the home so that, when the individual dies, the bills that have been racking up for care are paid from its value and the heirs get the rest. If there is no surplus, the balance is written off.
The cap – mooted at £75,000 and which we may see revived in the plans the government is due to publish this autumn – is a lie. It excludes all the board and lodging costs, so only covers some of the cost of care.
The cap is calculated using the rate the local council will pay. So, if the council pays £500 a week for care and the home charges £750, the £75,000 is divided by £500 to give 150, and that is the number of weeks of care the individual must pay before the cap applies. So the individual will have to pay 150 x £750 – £112,500 – for care before the cap kicks in.
If they live that long. Most die before they have been in a care home for 150 weeks. On top of that, they will have paid all the board and lodging costs – say £350 a week – which will continue even after the cap.
Unless the government radically changes the policy, the cap is not a cap and is not £75,000. If it benefited anyone, it would be the children of the richest in care.
So what about the Care Isa? Money placed into it would be exempt from inheritance tax, which is supposed to incentivise younger people to save into it.
How many funerals have you seen recently? If it is as many as 20, then just one of those grieving families will face an IHT bill. Nineteen will not. If the person saving into it needs care, then the Isa will be used to pay for it and there will be little or nothing to inherit anyway.
And if they do not, then a spouse or civil partner can inherit it free of tax anyway. Logically, this idea is a dud. But most people are irrationally afraid of IHT and care home fees, and few understand how Isas can be inherited. So a few may foolishly take it up, especially the rich who want to pass their wealth to their children.
Another idea being mooted in government is a special tax to pay for care. A fund would be set up like the National Insurance Fund and some people – it is not clear exactly who – would pay into it. In exchange, they would get care free in old age. Except they do already. Again, the plan has “not thought through clearly” written all over it.
In 2016, I suggested in these pages that the answer was to use the value of a home even if a spouse or other relative lived in it. A charge would be taken against the home and repaid after the death of the second spouse.
It was a deeply unpopular idea, not least when Theresa May adopted it before the 2017 election and then dropped it more quickly than her support for Remain.
There is, of course, a simpler solution which shares the risk of the costs of care among all of us. Raise income tax.
It would take less than 1p on the main rates to raise the money needed now, and the rest could be saved for future growth.
Basic, higher and top rates would go to 21 per cent, 41 per cent and 46 per cent, which they are in Scotland already.
People paying according to their means (or at least their incomes) and given care according to their needs. Now, where have I heard that idea before?