London Met – Course: HSC – Module: IF3050QA Critical Thinking – Year 0 Semester 1 Assessment 2: March 2022   

Task A: Read Source 1. Write a summary of this text.

• Summarise the writer’s argument.  
• You should include: the writer’s overall position; and indicate how the writer supports this position.   

(150 words, 30%)  

Source 1:  

A demographic time bomb is ticking as the huge cohort of baby-boomers approach their 70s. In a few years’ time, a significant proportion will develop care needs. Who will pay for this?

Currently, there is no funding set aside by national or local government. Neither have individuals or families allocated money to pay for later life care. Therefore, care is just funded at the point of need.

Adult social care is the responsibility of councils, but rising demand and costs, coupled with major reductions in councils’ core funding from Government, have forced cutbacks, despite councils protecting social care relative to other services. Councils have had to focus on those with the most severe needs and spending on preventative or earlystage help has been cut, which results in higher long-term costs, especially to the NHS as last-resort provider. Estimates suggest a million elderly people who need care are not receiving it,

As inter-generational demographic pressures increase, younger council taxpayers will face ever-greater burdens, especially in areas with large numbers of older residents as the population continues to age.

There are intra-generational fairness issues too. Most of the costs of adult social care are borne by only a small proportion of the elderly population – those who need care. In line with statutory regulations and guidance on charging, Councils operate a meanstest to control eligibility for public funding, so most people have to pay for their own care, with no upper limit. They risk losing almost all their life savings and assets, before they qualify for any help from the public purse. But while these individuals face losing their life savings or the family home to pay for care, others who never need care, or whose needs are considered as healthcare, rather than social care, may pay nothing.

In fact, the intra-generational unfairness is even worse, because many councils cannot afford to cover the full cost of providing care, so private payers end up crosssubsidizing others, as well as paying for themselves.

Is it sustainable, or equitable, to place this burden on a small group? Surely a more sustainable solution should encompass the pooling of risks.

It is time for national and local politicians to work together towards a solution.

There is no silver bullet, a combination of measures is needed. These would encompass an element of national insurance for risk-pooling, private insurance, equity release and new incentives for private saving, both individually and in the workplace.

Care funding should be a core element of 21st Century retirement planning, but the policy focus is almost exclusively on pensions. This needs to change. The Welfare State needs to be extended beyond just health and pensions, in order to serve the modern era.

Just as the State Pension is supplemented by private pensions, state funded social care can only be at a minimum level, so private care funding to supplement this is also needed. Retirement savings have never accounted for care, despite Exchequer reliefs costing over £40billion a year which support the build-up of funds for later life.

For existing cohorts of older people, it is too late to impose National Insurance. Imposing a hypothecated tax would be possible, but forcing pensioner workers to pay NI seems unwise, as later-life working has significant economic and social benefits.

Baby-boomers with ISAs, pensions or housing wealth should be offered new incentives to keep money for care, rather than spending it in the early stages of retirement.

Potential new private saving initiatives could include an Inheritance-Tax-Free Care ISA allowance  and allowing tax-free pension withdrawals if used for care. A national equity release scheme might also be introduced, as well as whole of life insurance that pays out early if care is needed.

Such measures would need to be combined with a cap on each individual’s elderly care costs, a rise in the means-test threshold for state funding and encouragement of preventive measures that prolong independent living,

For younger generations, more options are available. Extending National Insurance (or tax) to encompass elderly care allows risk-pooling at a national level to spread the costs. Traditional pensions are not adequate for the care needs of future generations. Workplace saving plans, either incorporated into new-style pensions or a separate product, can help people build a care pot for later life if needed and offering workers vouchers to pay for elderly care could work along similar principles as childcare vouchers.

Sustainable reform should spread care funding more evenly, rather than singling out small groups to bear the burden. I believe the fairest outcome would see as many people as possible pay something towards social care, rather than imposing huge costs on the minority needing elderly care or younger generations.

Baroness Ros Altmann CBE

Source 2:  

How should we fund social care? When you try to answer such a big question, you quickly realise there are a whole host of underlying questions one needs to think about. And these aren’t just technical questions for the policy wonks to worry about. They speak to the kind of country we want to be; and the kind of country we think we are.

The role of the state versus the individual

The first is: how big a role should the state have in funding social care and insuring individuals and their families against the sometimes vast costs of social care? As it stands, individuals are expected to pick up the tab themselves – unless they have incomes and assets low enough to qualify for means-tested support. Someone who needs to spend years in a care home can face paying hundreds of thousands of pounds and almost exhausting their assets.

There have been various proposals to make this the system more generous. The Dilnot Commission recommended increasing the means-test limits substantially and capping the overall amount an individual can be asked to pay themselves. This would insure individuals against the risk that they could be left with almost nothing to pass on to their loved ones. But those with significant assets and sufficient income would still help pay for the costs of their care.

After much to-ing and fro-ing, the Conservatives offered up a version of this scheme in their 2017 election manifesto. It would have been much more generous than the current system: the Health Foundation and Kings Fund estimate it could add £4 billion a year to the government’s care bill.

You wouldn’t have thought that from the coverage at the time though. The plans were slated for proposing to count people’s house in the asset test if they required care at home: at the moment it’s only counted for those going into a residential care home. But were the plans so unfair?

As it stands, someone who rents their home and has instead saved in cash, shares and bonds could end up paying more for their care than someone much richer whose wealth is tied down in the house they own. Isn’t that what’s actually unfair?

This is an issue that will grow in importance over the coming decades as younger cohorts with lower rates of home ownership and higher rates of saving in defined contribution pensions, ISAs, etc., age and require care. Unless we grapple with the treatment of housing, we could see real unfairness for England’s growing ranks of renters.

That could mean bringing in housing in to any means-test that’s put in place. Or, it could mean the government stumping up to provide free social care services as in Scotland.

But even without increases in the generosity of the system, an ageing population, increased longevity for those with care needs, and rising input costs, will mean billions of pounds more are needed for social care.

There is no single right answer for how to raise and distribute this money. But a few questions can help us navigate the myriad options.

First, is whether we think fairness requires older generations to contribute to rising costs if they are set to reap some of the benefits of extra spending? Paying for higher social care costs through general taxation will mean the bulk of the burden will fall on younger people. National Insurance contributions (NICs) – mentioned much more often in the funding debate than income tax – don’t apply to pension income or to people over the state pension age.

Other approaches could place more burden on older generations. The Welsh

Government has commissioned research examining the scope for a social care fund to which older generations would pay higher contribution rates – reflecting the fact they would pay in for a shorter period of time. And increasing taxes on property, such as by revaluing and reforming council tax, and bringing primary residences into the scope of capital gains tax, could raise substantial revenues from older people with substantial housing wealth (currently systematically taxed less than other forms of wealth).

The second question is whether social care should be funded by a hypothecated – or ring-fenced – tax? Opinion polls show that Joe and Jill Public like this idea, perhaps reflecting a lack of trust of the political class: let’s bind their hands so they have to spend our taxes on what they say they will.

Economists, on the other hand, tend to be worried about the costs of such an approach. We clearly wouldn’t want spending to rise and fall with the revenues from the hypothecated tax over the economic cycle, so we would end up relying on forecasts of underlying tax revenues – which could be way off, requiring transfers to or from general tax revenues.

True hypothecation would also pose problems for the rest of the UK. Would we remove the discretion devolved governments in Belfast, Cardiff and Edinburgh currently enjoy over social care spending to ensure they spent their share of the revenues on these services? Or would each devolved government be responsible for raising its own revenues to pay for social care, hitting Northern Ireland and Wales with their weaker economies and smaller tax bases hard?

That brings us to our third question: is adult social care a national right or a local responsibility? If we think it’s the former, that doesn’t necessarily mean moving towards a National Care Service. But it would imply that funding be channelled to councils on the basis of local spending needs, alongside national care standards that have real

bite, and perhaps ring-fenced minimum budgets. As we argue in a recent IFS report, this would require a re-think of proposed local government finance reforms.

Alternatively, we could devolve additional tax revenues to councils – perhaps part of income tax, or a new local sales tax – to fund services. But we’d need to recognise that could lead to variation in service quality and offerings as revenues evolved differently, and councils prioritised differently.

So what kind of country are we?

One where individuals should pay what they can first, or where the state insures all against the costs of care?

One where the social care offer should be the same in Sunderland as in Surrey, or where we prioritise local democracy and fiscal accountability?

One where we prioritise fairness between generations, or satisfying the expectations of older people who (incorrectly) thought that their NICs were building up in a rainy day fund?

One where we raise revenues in a flexible way, or where the public are so distrustful of politicians that the only way we can get them on board is to tie politicians’ hands?

Big questions indeed. Answering them will require a full and frank national conversation and joined up thinking across Whitehall and town hall.

David Philips and Polly Simpson

Associate Director and Research Economist, Institute for Fiscal Studies

Task B: Construct your own argument on the topic, based on the two sources:

The State should cover all the costs of elderly social care.

Your argument must include a counterargument and a refutation. Word count: 500 words (+/- 50 words).

Your arguments should: 

• be written in an academic style, in your own words; 
• clearly state your position (conclusion); 
• have a clear line of reasoning, with reasons grouped together logically and argument indicators used where appropriate;   •         use appropriate language to link your ideas together clearly; 
• include clearly refuted counter arguments. 
• You should use and cite Source 1 & 2 where appropriate to support your argument; 
• You do NOT need to include any additional research data in this assessment. 
• You do NOT need to include a Harvard reference list. 

Source of texts: 

Altman, R. (2022). Local Government Association. [online] Available at: https://www.local.gov.uk/about/campaigns/lives-we-want-lead-lga-green-paper-adultsocial-care/towards-sustainable-adult-15 [Accessed 26 Feb. 2022]

In-text citation: Altman (2022)

Philips, D. (2022).  Local Government Association. [online] Available at: https://www.local.gov.uk/about/campaigns/lives-we-want-lead-lga-green-paper-adultsocial-care/towards-sustainable-adult-18 [Accessed 26 Feb. 2022].

In-text citation: Phillips (2022)