Back to School with a Bang

carer with elderly resident

Head of Public Affairs Henry Thompson gives an overview of the latest UK Government proposals for social care funding.

No matter your age, the first full week back in September after the summer holidays always has that ‘back to school’ feeling. Like schoolchildren around the country, MPs will have dusted off their own uniforms and polished their shoes ahead of a mass return to Westminster, with Headmaster Hoyle’s warning on their attire in the back their minds…

This particular return from recess feels especially busy given the plethora of announcements packed into the first week back on issues that have bubbled away over the summer months (if not many years before). MPs reappeared in Parliament amid a feeling of something close to normality, yet the political scene is anything but normal as our politics continues to be shaped by the impacts of Covid.

There was no gentle return to class. The Government had chosen to tackle two huge policy challenges head-on in the first two days of term, breaking the same number of manifesto promises in the process.

Social care in England has been the subject of lengthy debate, matched with minimal action for decades; it is the definition of a ‘wicked’ problem. Even after the Prime Minister pledged to fix the care crisis on the steps of Number 10 as he began his premiership, sceptics may have seen it as yet another empty promise by a politician on a problem which has no easy answers.

Yet today’s announcement represents tangible action and funding for a sector long in crisis. After extensive deliberations with the Chancellor and the Health Secretary, the Prime Minister set out his plans to overhaul social care. At the centre of the Government’s proposals was a UK-wide "Health and Social Care levy" to address the funding crisis in the sector. The new tax begins next April as a 1.25 percentage points rise in National Insurance and tax on share dividends, with a separate tax on earned income from 2023 which will raise almost £36bn over three years for frontline services. The plans are coupled with a cap on the amount individuals spend on their care at £86,000 from October 2023 with taxpayers funding costs on top of this.

Despite rumblings of disquiet ahead of the announcement from those on the Government backbenches on grounds of intergenerational unfairness, a loosening of public spending controls  (and the minor inconvenience of reneging on a manifesto commitment), the reception from Conservative MPs was rather warm; likely assuaged by the broadening of the tax take beyond national insurance alone. There will have also been a growing realisation about the true impact the pandemic has had on both the NHS and the UK’s finances. The threat of a ministerial reshuffle may also have helped to focus minds…

Concerns remain around the question of who should pay for care, something the IFoA has consistently pointed to. But there are wider fears about the long-term affordability of the reforms. Analysis by the Institute for Fiscal Studies (IFS) warns that an ever-growing NHS budget could swallow up all of this week’s tax rise, leaving little for social care. Based on its assessment of health funding over the last 40 years, the IFS suggests that a future top up could be required. Even without one, health spending is set to account for an ever-growing share of total day-to-day public service spending: 44% by 2024−25, up from 27% in 1999−00.

Not satisfied with just one major policy announcement, the Government also set about tackling another sizeable issue (also exacerbated by the pandemic) in the form of the triple lock.

After months of speculation, Work and Pensions Secretary Thérèse Coffey announced a suspension of the triple lock on the state pension for the year 2022/23. Her justification centred on the big post-pandemic rise in average earnings which would have seen pensions increasing by 8%.

In ‘normal times’, the state pension is supposed to increase each year in line with whichever of the following three things is highest: inflation, as measured by the Consumer Prices Index (CPI); the average wage increase; or 2.5%. It was introduced by the Conservative-Liberal Democrat coalition government in 2010 and featured in the Conservative’s 2019 election manifesto with a guarantee to keep it in place for the duration of this parliament.

The average earnings component will be disregarded in the 2022-23 financial year. Instead, the rise will be based on CPI or 2.5%. The move was widely expected given the unprecedented situation the Government finds itself in. Regardless, like other organisations, we were pleased to see that the suspension was limited for one year only, and the lock will return in full the year after. Whether the triple lock is sustainable in the longer-term is different question.

Naturally, the IFoA responded to both announcements given their importance to the work of actuaries and our focus on ‘the 100 Year Life’ as part of our policy priorities. The IFoA has long been an important voice in the debate on care funding and we will look to leverage the actuaries’ in this space as the proposals take shape. You can read the IFoA’s press reaction here and find out more about the social care proposals in this IFoA briefing note.

The pace of activity shows no sign of slowing. The Budget and Spending Review have both been confirmed for 27 October, amidst a bumper autumn for politicos and policy wonks alike, with party conference season and COP26 either side. These set piece events will be punctuated with decisions and developments on issues, including but not limited to: universal credit; ongoing supply chain issues; the end of furlough; the Levelling-Up White Paper; Net Zero plans; the aforementioned reshuffle; and the ongoing management of the pandemic/vaccine rollout.

School is definitely back with a bang.