Monday, 30 May 2011

Age UK - Care in crisis: causes and solutions - Out of 2 million older people in England with care-related needs, 800,000 receive no formal support from public or private sector agencies.


Care in crisis:

causes and solutions


1. Summary

Care and support in later life has reached financial breaking point.

• Out of 2 million older people in England with care-related needs, 800,000 receive

no formal support from public or private sector agencies. With spending cuts

underway the figure is likely to pass one million between 2012 and 2014.

• Since 2004, net spending on older people’s social care has risen by just 0.1 per

cent per year in real terms, a total of £43 million, while real spending on the NHS

has risen by £25 billion.

• Spending cuts are projected to reduce spending on older peoples’ care by £300

million over 4 years (using optimistic assumptions). Real spending on older

people’s care will be £250 million lower in 2014 than in 2004. Over the same

period the number of people over 85 has risen by two-thirds (630,000 people).

• In 2005 half of councils provided support to people assessed as having ‘moderate’

needs, but in 2011 the figure has fallen to 18%.1 As a result the number of people

receiving local authority funded care at home has been slashed from 489,000 in

2004 to 299,000 in 2009.

• Public sector commissioners are underpaying for older peoples’ care homes, with

a cumulative shortfall of half a billion pounds. Age UK estimates that the average

shortfall per resident is £60 per week, rising to £120 per week in South East

England. As a result, many care homes are demanding that older people and their

relatives ‘top up’ their care fees with additional private money, a real injustice as

families are forced to subsidise the State’s statutory duties.

• There are huge local discrepancies in the local quantity and quality of care for

older people. The highest spending local authority (Tower Hamlets) spends five

times as much as much per older resident as the lowest spending (Cornwall).

• An independent review of age discrimination found that younger service users are

allocated an average of £78 a week per person, compared to £53 a week per older


Care in crisis:

causes and solutions


Age UK has ten principles for reform:

1. A guarantee of sufficient quality and quantity of care for low income older people

is Age UK’s highest priority

2. A non-means-tested entitlement for everyone with care needs regardless of

income, for example a limited liability cap to protect against very high costs

3. New financial products to meet the remaining costs of care for middle to high

income older people, such as private insurance

4. Payments to support the additional costs of disability continue to be available on

a non means-tested basis as a national, legal entitlement

5. A national legal entitlement to support, in order to end the current post-code


6. Adequate funding for advice, assessment and support to arrange services

7. An end to age discrimination in the provision of care and support

8. A system which supports rather than penalises families and carers

9. Alignment with the NHS and other local government services such as housing


10. A flexible system which gives users control and permits different types of care

services to develop

Reform cannot be achieved without billions of pounds of new money:

• Today taxpayers spend 0.5% of GDP on care for older people in England. If we

merely maintain this level we will cause misery and danger for hundreds of

thousands of frail older people.

• In Age UK’s view we need to spend 0.9% of GDP on care in later life by the mid

2020s to deliver good quality care for people while maintaining a means tested. As

a start an extra two to three billion pounds per year is needed from 2015.

• If there is appetite for a public system that also helps mid and high income groups

then spending may need to rise to around 1.1% of GDP. The costs of establishing

a limited liability cap, which covers one third of remaining care costs, after meanstesting,

would be in excess of two billion pounds in 2015.

Once the deficit is closed the Government has two options for finding the required


• The Treasury could declare ‘the money will be found’ and allocate funds from the

overall pot of general taxation at a later date. There would need to be explicit

guarantees that sufficient funding would be available otherwise the proposals will

lack credibility when they are put before Parliament.

• Ministers could specify new sources of revenue to support the reforms now. This

could be a package of several taxes or charges that strike a fair balance between

generations and income groups.


2. Introduction

Care and support in old age has reached financial crisis. For years society has

tolerated a care system that has gone from bad to worse, for lack of money. This is in

spite of the dedication, professionalism and innovation of tens of thousands of people

working in social care. Recent well-intentioned reforms have been an insufficient

response to the deep-seated problems our care system faces, because they have

been unable to tackle the underlying financial crisis. Radical funding solutions cannot

now be avoided, and they will not be cheap. But although politicians from all parties

acknowledge the problem there is as yet insufficient commitment to comprehensive


The starting point for this paper is a simple statistic: in the six years before the present

financial troubles, public spending on older people’s care increased by just £43 million

after inflation (a real terms increase of 0.1% per year). At the same time the number of

people aged over 85 who are most likely to need care increased by 23%, while costs

in the care sector continued to outstrip inflation as well.2

This has created huge pressures in the publicly-supported care system: tighter

eligibility requirements; variability in support across the country; inadequate help for

people living in their own homes; under-funded care homes; and the sidelining of

‘upstream’ preventative spending, despite councils’ best endeavours. All this has hit

low income groups the most. But councils have also responded by reducing the help

they offer mid and high income groups, or by charging them more, and private

spending on care has been unable to fill the gap. As a result levels of unmet need are

rising and families are being forced to take on a greater burden. This comes on top of

long-term grievances regarding a means-tested system which asks homeowners to

meet almost all the costs of a care home. The result is a lottery. Some people never

need to use care services and pay nothing while others lose almost their entire life

savings; and in between too many people are put of using support services they

clearly need.

The pity is that this funding crisis has come at a time when councils are making

genuine attempts to transform how they deliver services. For more than a decade

many local authorities have been taking successful steps to reduce the number of

people living in care homes by providing better support in people’s own homes. More

recently, growing emphasis has been placed on more personalised services, including

increased uptake of Direct Payments, preventative support and improved information

and advice. This reform agenda is laudable, and in a different financial climate could

be delivering significant improvements in care. But with insufficient funding, the results

have been patchy, with many authorities simply lacking sufficient funds to provide

adequate personal budgets or invest in prevention at the same time as they withdraw

existing services. The reform agenda of recent years has been well-intentioned, but its

ambitions have been stymied by the current funding climate.

This leaves two funding challenges for future reforms to resolve. First we need a new

publicly-funded system for people with low incomes that adequately meets everyone’s


essential needs, while also going with the grain of personal control, flexibility and

innovation. Achieving this objective will require a new ‘architecture’ to equip the care

system to offer everyone transparent, equitable cash-linked entitlements. But

redistributing existing resources will not be enough. Adequately meeting needs will

also take two to three billion pounds of new money for older people alone.

Second, for middle and high income groups, we need to create a fairer mixed

economy of care and support. The support on offer from the state today is both

irrational and inadequate; and people are unable to insure themselves privately

against the risk of needing care or to put in place other financial plans. We do not

believe the state should pay the full costs of care for mid and high income groups, but

it should make a new offer which gives people certainty, encourages people to take up

support, and limits the risk of very high costs. The lens for judging this new offer

should be whether it enables people on mid incomes to access good quality care and

support at a price they can afford and which people feel is fair.

The process of reform of course involves trade-offs. At the margins it may be possible

to spend a little more on one of these two challenges, and a little less on the other. But

essentially out first challenge must take priority over the second. Society has a moral

responsibility to adequately fund care for people with low incomes and to provide help

to everyone to access the care they need, even if some pay for it themselves. Once

this is achieved, we can go further and find ways to co-fund mid and high income

groups, to help people of all backgrounds share the costs of care.

Each of these challenges will cost in the region of £2 billion to solve, and that is for

older people alone. By the mid-2020s we may need to double the share of GDP spent

on publicly funded care. An increase on this scale may seem dramatic, but it would

mean only a 4% rise in total public spending on older people. It is not money that will

be easily found, but if we do not accept it is needed, politicians will continue to fail the

most vulnerable older people, leaving care needs unmet and huge financial burdens

for a small unlucky minority.

Brave decisions will be needed to raise money on this scale. It is open to the

Government to simply commit to spending what is needed, once the deficit has been

closed in 2015, without specifying where the money will come from. Alternatively, it

could set out a package of taxes or charges to explicitly link its care ‘offer’ to sources

of revenue which are seen to be fair and linked to each generation’s ability to pay.

Now is the time for our political leaders to grasp the nettle and resolve this deep and

worsening crisis. In recent years there has been growing, cross-party, acceptance that

the care system needs reform. But the state of public finances and the current

controversy over the future of the NHS mean that care risks being sidelined again.

Politicians of all parties must sign up to radical reform, and a new financial deal, if we

are to avoid frail and disabled people suffering acute hardship and danger.


3. The funding crisis today

As a society we are spending a grossly inadequate amount on care and support, from

public and private sources combined. Our public provision is so thread-bare that it

frequently fails to meet the needs of those with low incomes it is principally designed to

serve. Many older people and their families also pay large amounts for care from their

own pocket – often more than they feel is fair or they can reasonably afford. But even

added together, private and public spending falls far short of the amount of care and

support people in later life need. The result is that too many people are going without

the support they need, while a huge and growing burden is being placed on families

and carers, many of whom feel unable to cope.

Tens of thousands of dedicated people work in social care and the sector has made

concerted efforts to transform services in recent years, with the mantra of

independence, early intervention and personalised support embraced across the

country. But these efforts have been set against a grim backdrop. In this section we

flesh out the nature of the current funding crisis, analysing the different elements of our

failing care system and how they interact. Even ‘standstill’ spending on care is

inadequate to address the failings of today’s system and to cope with rising costs and

the growing number of people in late old age who will need support. But this is just a

snapshot; in four years time we will be spending even less public money on care, as

spending cuts take effect. Without a radical new funding system the situation will grow

far worse.

Unmet need: The missing million

Social care in England is totally failing to meet the volume of need experienced among

disabled people aged over 65. Today, out of 2 million older people in England with

care-related needs, 800,000 receive no formal support from public or private sector

agencies. In five years time the situation will be worse still. Even before the spending

cuts it was predicted that in 2016 one million older people, out of the 2.3 million who

will have care needs, will receive no support.3 Now the spending cuts could bring this

grim milestone forward to between 2012 and 2014; by then 100-150,000 fewer older

people are expected to be using care services than if budgets had risen in line with

need.4 We fear this suffering will take place in silence, with few older people asking for

extra help or making a fuss.

A public system starved of cash...

Over the last six years publicly funded social care for older people has been

systematically starved of cash. Since 2004/05 net spending on older people’s care has

risen by just 0.1% each year in real terms, a total of around £40 million. Over the same

period the number of people aged over 85, who are most likely to need care, has

increased by 230,000 (4% each year). By comparison NHS spending increased by

around £25 billion (5% each year) over the last five years.5


While this has happened the attention of policy makers and the social care profession

has been elsewhere. There has been unprecedented debate on the future of care –

both its long-term funding and the ‘transformation’ of council provision today. But in the

mean time local authority spending decisions have changed the ‘facts on the ground’

with a significant deterioration in services for older people. All this comes before the

spending cuts which are projected to reduce spending on older people’s care by at

least £300 million over four years.

Net spending on older people’s social care in England

Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Net spending £6,850,000 £7,438,000 £7,683,000 £7,680,000 £7,421,000 £7,384,000

Real increase 6% 9% 3% 0% -3% 0%

outturn outturn outturn outturn outturn outturn

Year 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Net spending £7,633,000 £7,482,000 £7,407,000 £7,333,000 £7,260,000 £7,187,000

Real increase 3% -2% -1% -1% -1% -1%

outturn budget projection projection projection projection


2010 prices; Outturn: Personal social care expenditure and unit costs 2009/10, NHS Information Centre

Budget: Revenue Account Budget (revised) 2010/11, Department for Communities and Local

Government; Projection: -1% real terms assumes government projections for local government

spending and £2 billion top-up for social care passed on in full. Early indications suggest these are

optimistic; Inflation index: RPI

...with ever tougher eligibility rules

The most visible effect of this starving of resources has been a large reduction in

eligibility for publicly funded social care. Since 2003 councils have used a four-point

scale for assessing whether disabled people should be eligible for support (with needs

ranging from so-called ‘low’ to ‘moderate’, ‘substantial’ and ‘critical’). In 2005/06 half of

councils provided support to people assessed as having ‘moderate’ needs, but in

2011/12 the figure has fallen to 18%.6 The impact has been a decline of 39% in the

number of older people receiving local authority funded care at home, from 489,000 a

year in 2005/6 to 299,000 in 2009-10.7 During the same period the number of people

aged over 85 increased by 17%.8 In fairness, until 2008/09, the total volume of home

care provided continued to rise, as councils increased spending on people with very

high needs, at the same time as they reduced the number of people receiving

services. Now not even this is true. In the most recent year the total hours of support

purchased by local authorities for older people fell from 2 million to 1.85 million.9

…variable levels of support across the country

It is often said we have 152 social care systems in England. Variations in eligibility

criteria are but one example of the huge discrepancies in the quantity and quality of

support offered to older people by different local authorities. The highest spending

local authority (Tower Hamlets) spends five times as much per older resident as the

lowest spending (Cornwall). Some of these differences are due to variation in

underlying need, but even when this is controlled for, by looking at spending per older


person receiving benefits, spending is still almost 3½ times higher in Camden than

Cornwall. Age UK supports diversity in the design of services to meet different local

needs, but such major variations in spending cannot be explained in this way. undermining dignity, independence and equality

For those older people who are deemed eligible for services, levels of support are

often inadequate to remain independent and maintain a good quality of life. Normally

only the most essential services are provided; for instance, help to get out of bed,

wash and eat a meal. Home visits frequently last only 15 minutes at a time. Wider

services to help support a good quality of life are often unavailable, for example

domestic cleaning, help with practical tasks around the home, the chance to go out

and social activities. This is despite evidence that these low-level services are the

ones that older people most value.10

Decision makers in local and central government have attempted to counter these

problems by giving people more control over the services that are commissioned on

their behalf. Personal Budgets and Direct Payments (cash payments provided by

councils in lieu of care) are designed to enable people to decide for themselves the

support that would best meet their needs. However sadly they are often paid at such

low levels that older people have little room for manoeuvre in buying their own

services. In 2008 the Commission for Social Care Inspection, raised concerns that the

Resource Allocation System used by many councils was not transparent, did not allow

for equity between different types of service user, and limited the support available to

older people with more complex needs.11 There is no evidence that the situation has


Age discrimination in the allocation of care resources dates back decades, with

commissioners too often having lower standards about the lives older people can

expect to lead. An independent review of age discrimination in social care found that

younger service users are allocated an average of £78 a week per person, compared

to £53 a week per person. Aged over 65.12 The study estimated that equalising the

level of support would imply spending 25% on older people’s care packages.13 Yet, in

recent years spending on older people’s services has stagnated, while allocations for

adults aged under 65 have risen quickly.

... care homes left teetering on the brink

Discussions about the future of social care tend to focus on how to transform support

for people living independently in the community. But more than half of public

spending on older people’s care still goes to care homes – and the share of private

spending on care homes could be even greater. In recent years the care home sector

has made real strides in improving quality, as testified by improving star ratings under

the previous inspection regime. But the sector now faces growing pressures. The root

of these problems is that public sector commissioners routinely under-pay for older

people’s care homes. Independent research by the leading market analyst concluded

in 2008 that this amounted to a cumulative shortfall of half a billion pounds.14 In 2009


Age UK estimated the average shortfall per resident of £60 per week, rising to £120 in

South East England.15 Since then we have heard numerous stories of fees being

frozen, or in some cases cut, even though costs in the sector continue to rise. This

leads us to fear that the situation is deteriorating.

Under-funding impacts on residents in three main ways. Firstly, service quality is put at

risk as operators seek to cut costs. Secondly, for many years care home operators

have responded by demanding top-up payments from families or charging self-funding

residents over the odds, in order to cross-subsidise public sector commissioners. This

is a real injustice; older people and their families should not have to subsidise the state

when it discharges statutory duties. Thirdly, under-funding increases the likelihood of

residents – who have virtually no security of tenure - losing their homes if operators go

out of business. This is very worrying given the health risks forced moves create for

very frail people. We fear that many reputable care home operators will become

increasingly reluctant to invest in new facilities given such poor returns on investment.

Some are even struggling to maintain their existing operations today. The risk of largescale

closure due to the collapse of a major operator appears to be a real possibility.

...preaching prevention but little in practice

In recent years Age UK has keenly supported the increased emphasis in national

guidance and policy on spending money ‘upstream’ on modest levels of support which

will prevent or delay the need for more expensive services. This includes: ‘that little bit

of help’ to stay independent at home; good quality information and advice; and

community-wide services to help people remain active. There have been effective

examples on a small-scale, including nationally evaluated pilots under the

Partnerships for Older People and LinkAge Plus programmes. But sadly the reality in

most places is quite different. Fewer and fewer people are receiving publicly arranged

low level ‘home help’ support (only 55,000 people of all ages received support for 2

hours a week or less in 2008/09). The number of people using day services continues

to fall, even though these are often people’s only opportunity for social contact and

activity. Over the last five years Supporting People spending for older people’s

housing-related support has fallen by 20% in real terms. This has led to many

sheltered housing schemes losing on-site staffing. Finally the number of people

provided with equipment or adaptations has fallen from 386,000 households in 2005-

06 to 208,000 in 2009-10.16

...and penalising people with mid and high incomes

Too often social care provides poor services for poor people. Services in the

community are intended to be available to people regardless of their means, as long

as they meet needs-based criteria. However there is a tough means-test which leads

to people with mid and high incomes often paying substantial charges. In both 2010/11

and 2011/12 many councils increased charges or abolished maximum caps, leaving

many people who receive a large amount of care facing significant increases in costs.

A recent survey showed that 88% of local authorities are planning to raise charges for


care.17 Another survey found that 43% of care service users thought that they were

less able to afford essentials such as food and heating due to changes to services.18

The result is that huge numbers of people do not seek help. The PSSRU estimates

that by 2015 290,000 disabled older people will be not using services because they

are means-tested, rather than partly-funded for everyone.19 In recent years these

problems have been augmented by ‘gate-keeping’ from councils, who have avoided

assessing and offering services to people with mid and high incomes when they ask

for help in spite of legislation and guidance. In many cases families are unable to

access help to arrange services, even when they are willing to bear the full costs


The system also creates a lottery for people with mid and high incomes and assets,

which many view as wildly unfair. People who die without needing to use care services

end up paying nothing, while others who started out with the same amount of money

but need expensive services for many years face the full costs. These costs which

may add up to tens or even hundreds of thousands of pounds are usually very difficult

to predict in advance. While people with very high incomes may be able to cope, those

with middle incomes – people who own a home and may have moderate savings - are

hit very hard. Currently there is no way of sharing this risk between people with similar

incomes, through either private insurance or the welfare state.

...with four years of cuts to come

All this could grow far worse as councils implement four years of significant funding

cuts. We do not yet have the full picture on the scale of cuts councils have

implemented this year to older people’s social care. The most optimistic scenario is

that national spending will fall by 4% in real terms (this assumes that all the

Government’s planning assumptions hold good, including councils spending a new

non-ringfenced allocation entirely on social care). This would leave real spending on

older people’s care £250 million lower in 2014/15 than in 2004/05, while the number of

people over 85 has risen by two-thirds (630,000 people).

To make matters worse, the early indications suggest councils are making larger cuts

than this optimistic scenario would suggest. This may be happening in part because

local authorities have not used their extra allocation for social care as intended.

Additionally many councils, especially in disadvantaged areas, have seen their funding

fall by far more than the national average and have been forced to make very

substantial cuts as a result. If real spending were to fall by 6 to 7% the PSSRU

projects that 250,000 older people would lose services (assuming councils are unable

to reconfigure services to improve efficiency).20

Age UK will publish a full audit of cuts to older people’s care services in June.


4. The architecture for reform

To pull back from the brink older people’s social care needs a new ‘architecture’ and

significant extra resource. This section outlines ten principles for designing a new

system. Collectively these amount to a recipe for a viable new architecture of care and

support. In section 5 we look in detail at how much it would cost.

A re-designed system is required to give everyone with care needs clear and equitable

access to support, while also creating a framework in which innovation can flourish. In

Age UK’s view this implies a more national system, in which the key entitlements

people can expect are secured on a uniform basis. This would significantly change the

role of local government, giving it less discretion with respect to who should receive

services, what they should pay and what outcomes should be achieved. Councils

would be left free to focus on developing effective local care markets and providing

support to people to make effective decisions especially at times of crisis.

Ten key principles for a new care system

1. A guarantee of sufficient quality and quantity of care for low income groups

is Age UK’s highest priority by far. People with few means who cannot possibly

pay for care themselves should become eligible for support earlier; their care

homes fees need to fully reflect the costs of quality services; and packages of

support for those living in their own home (usually in the form of direct payments)

must be enough for people to enjoy a decent quality of life. Together this will cost

two to three billion pounds for older people alone, and the money available will

need to rise further in future to reflect rising demand and costs.

2. Additionally, we support a non means-tested financial contribution for all with

care needs (subject to this being affordable, after money has been found to

improve support for low income groups). The ‘offer’ could be a limited liability

scheme, which the Dilnot Commission has indicated it is minded to recommend.

This would reduce extreme costs for those with the highest needs.

3. New financial products to meet remaining care costs should be facilitated

and promoted by the Government. Models should include viable private

insurance products (although these will only be of interest to a minority) and a

range of options for paying at the point of need.

4. Payments to support the additional costs of disability should continue to be

available on a non means-tested basis as a national, legal entitlement. Retaining

existing disability benefit entitlements (even if they are packaged as part of a new

support system) will ensure everyone has money to meet the additional costs of

being disabled, and prevent the need for more intensive and expensive services.

5. A national legal entitlement to support is essential to end the worst excesses

of the post code lottery. In addition to today’s disability benefits, this should


include (1) the right to a personalised assessment; (2) a national eligibility

threshold so the same level of needs triggers a right to support everywhere; (3)

once someone is deemed eligible for help, an entitlement to the cash resources

(or arranged services) required to meet nationally-determined acceptable

outcomes (albeit subject to means-testing for mid and high income groups). The

allocation of resources to service users should vary in line with regional

differences in the costs of meeting these outcomes, but not with local political

decisions about the extent to which social care is a priority. A fair system for

distributing funds to local government is essential to bring this about.

6. Information, assessment, advocacy and brokerage services should be funded

to a level that they are available to everyone who needs them. This will help

ensure informed decisions and appropriate use of resources.

7. There should be complete age equality in the availability of care and support

resources and the outcomes the system aims to achieve.

8. A reformed system should be carer neutral. Those who want to provide informal

care should be supported to do so, through benefits and services – including

quality respite care – and new financial entitlements should not be designed so

they are a disincentive to caring. But no one should be forced to assume

exclusive or excessive caring responsibilities.

9. There must be alignment with the NHS and other local government services,

especially housing support. The NHS should continue to support health needs in

care homes, and jointly commission preventative services with councils. Councils

should be responsible for joining-up all local support, including coordinating joint

assessments and referrals. They should have a financial stake in the funding of

care so they have an incentive to reduce demand for services by providing

community support and services.

10. The funding system should be flexible to promote diversity of provision and

give users control. This should including neutrality between different types of

tenure and the option of cash payments or commissioned services, whichever is

more appropriate. Funding should encourage innovation and positive risks.

This architecture would redraw the lines of responsibility for social care. National

government would have a more explicit responsibility for defining entitlements and the

outcomes people should expect. It would set out rights, duties and standards of

service and ensure these are met. And it would need to establish a funding

mechanism that ensures these can all be met; in all likelihood this will mean something

different from the current arrangements for local government finance. Councils will be

the critical local hubs for care and support: they will support people to access

entitlements and choose services; ensure local public provision is well coordinated;

and promote a diverse local market of care services. Other public services would need

to cooperate with councils to develop joint approaches to identifying need and offering

preventative support. Finally providers would have much more clarity about their role,


with a direct relationship with the end-users of care - often facilitated by independent

agencies there to support informed decision making - while also maintaining strong

relationships with councils to respond to local demand and improve practice.

What about free personal care?

It is important to recognise that although our principles for reform would be expensive

to achieve, they are very different from previous proposals to offer ‘free personal care’.

Age UK accepts that free personal care regardless of people’s means, is not a viable

option in the current financial climate. More generally, we believe that the question of

free personal care, although a totemic political issue in the past, is actually a

distraction from the wider funding challenges facing the care system. As experience in

Scotland has shown, creating an entitlement to non means-tested support leaves

many questions unanswered:

• At what point should eligibility for support begin?

• What amount of support is sufficient to meet needs?

• How should mid and high income families meet the accommodation costs of

care homes?

Our proposals for reform answer all these questions; indeed they could easily cost

more than some versions of ‘free personal care’. But they are designed to improve the

whole of the care system and address the full range of issues that have created the

care crisis. Our acceptance of a partly means-tested system is in line with the public

opinion. There is now broad support for a care funding system based on mid and high

income groups meeting some, but not all, the costs of care. This position is now

significantly more popular than support for either today’s means-tested system or a

totally free service.


Public views on means-testing of care and support in later life









18-24 25-39 40-54 55-64 65-74 75+

Percentage of adults

The government should only pay the whole cost of care for the least well off, and people

with income or assets over a certain level should pay part of the costs of their care

The government should pay all the costs of care regardless of people's own assets or


The government should only pay the cost of care for the least well off, and people with

income or assets over a certain level should pay the whole cost of their care

The government should not pay any of the cost of care


5. How much will it cost?

There is no escaping it. A new ‘architecture’ for care will need to be adequately

resourced. The first task is to prevent further damage being done by stopping short

term spending cuts which go beyond efficiency savings. All the indications are that this

year’s budget reductions are leading to cuts in frontline services and entitlements, not

just reorganisation behind the scenes; and they mark the first year of a four-year

programme. Once the Dilnot Commission proposals are published we hope the

Treasury will authorise ‘bridging’ finance to stabilise today’s social care provision, and

help local authorities prepare to implement a new architecture and new national


Then, from around 2015, significant extra money will need to come on stream. Solving

our care crisis will take billions of pounds. In the not too distant future spending on

older people’s care may need to double. From one point of view, this makes the whole

debate a non-starter. In a time of austerity how can we possibly contemplate an

increase of that magnitude? But put another way, this just underlines the depth of the

crisis. And fortunately English social care makes up less than 5% of age-related

spending in the UK, with the NHS and social security taking up the lion’s share.

Doubling spending on care would amount to an increase of around 4% in overall

spending on over-65s. As a nation, if we value it enough, we can afford it.

To illustrate the scale of spending required in more detail, Age UK has re-analysed

existing publicly available data, principally work by the Personal Social Services

Research Unit for the King’s Fund. These costs do not include provision of support for

disabled people under the age of 65. The affordability of the overall package will need

to take into account extra demand for support from this group.

Estimated costs of funding care and support for older people in England

£ Billions % of GDP

2015 2026 2015 2026

Status quo £8.1 £12.1 0.5% 0.6%

Priority 1 – fully meet needs,

retain means-test

£10.9 £16.5 0.7% 0.9%

Priority 2 – some help for all

(eg liability cap covering 1/3

of remaining costs)

£13.4 £20.6 0.9% 1.1%

Notes: Prices are 2006/07.

In section 4 we explained that Age UK’s first priority for new money is to adequately

meet the care needs of people currently eligible for support under the existing meanstested

system (priority 1). Any new financial system that fails to achieve this objective

will fail. The PSSRU analysis suggests that meeting needs up to an objectively defined

benchmark would require an injection of £2.8

increases of 4%. If this was implemented p

people would rise from 0.5% to 0.8% of

Projected costs of older people’s care in England

To go further, and also deliver a non

The precise figures would depend on the design of the scheme, but

have assumed that a new system would meet one

(including accommodation costs in care homes). This could take the form of a limited

liability cap (ie the final costs when someone has very high needs) or a co

system (a constant share of costs throughout).

By coincidence the costs of achieving decent outcomes under the means

system and of meeting one-third of all remaining care costs

However they cannot be viewed as alternatives. There is no point in widening access

to publicly funded care to a broader

the needs of those who are eligible for help today.

gets support can only come as a supplement to finding the resources to transform

provision for people with limited means









2015 2016 2017 2018

Billions (2006/07 prices)

spending rises in line with GDP

extra to maintain m/t system

plus improve quality and availability

plus limited liabilty scheme (1/3 remaining costs)

remaining self-funded fees


billion in 2015, followed by annual

public spending on English care for older

UK GDP21 by 2026.

(£billions, 2006/07 prices)

non-means-tested care payment would cost more.

to illustrate we

one-third of the remaining costs of care



are roughly the same.

group of people when it is already failing to meet

Creating a system where everyone


2019 2020 2021 2022 2023 2024 2025

, 2026

Projected costs of older people’s care in England

There are many permutations and an array of numbers

easily summarised:

• Today taxpayers spend 0.5% of GDP on ca

merely maintain this level we will cause misery and danger for hundreds of

thousands of frail older people.

• In Age UK’s view, we need to spend 0.

mid 2020s to deliver good quality care for people

tested system.

• If there is appetite for a public system that also helps mid and hi

groups then spending would










2015 2016 2017 2018

% of UK GDP (England spend)


(£billions, 2006/07 prices)

numbers, but the financial challenge is

oday care for older people in England. I

0.9% of GDP on care in later life by the

while maintaining a means

high income

ould need to rise to anything up to 1.1% of GDP

2019 2020 2021 2022 2023 2024 2025

to maintain m/t system

plus improved quality and availability

plus limited liabilty scheme (1/3 remaining costs)

remaining self-funded fees

If we

% gh GDP.



6. Where could the money come from?

Specifying the design principles required to bring older people’s care back from the

brink - and putting a price tag on it - begs a crucial question: where will the money

come from? One option is for the Government to simply declare ‘the money will be

found’ and leave the Treasury to allocate funds from the overall pot of general

taxation, in competition with other spending priorities. This is after all how we fund the

NHS and state pensions, which cost far more than care and support. If the

Government is to proceed in this manner, there would need to be explicit guarantees

that extra funding would be available on the scale required. Otherwise the proposals

will lack credibility when they are put before Parliament.

The alternative approach would be to specify in some detail the sources of revenue

which will support a package of reform. There are two arguments in favour of this

route. First a new unfunded ‘offer’ from the Government at a time of financial pressure

is likely to be distrusted (even though we would expect the new system to kick -in from

2015 after the deficit has been eliminated). Second, views on the fairness of the

reforms – real and perceived – will depend on people being able to assess both how

the money will be spent and where it has come from. For example many would be

concerned if new support for richer people in later life was being largely funded by low

income working households. Saying where the money would come from does not

mean taxes or charges for care would need to be hypothecated. Indeed we think a

special care levy would be inflexible and administratively complicated. New revenue

could simply be identified and informally earmarked as meeting future care needs.

Any new earmarked revenue could take the form of a package of several new or

increased taxes or charges, designed so that overall they are seen to be fair and

affordable. As part of this, we think it is important that a reasonable proportion of the

costs are borne by people in later life, especially those with considerable wealth, not

just workers’ payroll taxes. To illustrate what might be possible we have assembled a

menu of possible options for earmarked tax changes to support a new care system.

Age UK is not setting out detailed proposals or recommendations, but these examples

demonstrate the order of magnitude of the charges required and the combinations of

policies that might be possible.


A menu of possible options for raising money for care and support

£3 billion Removing the upper age limit on National Insurance Contributions: people with

earnings aged over State Pension Age do not pay NICs on the grounds that they have

completed their period of contribution for the state pension and aren’t eligible for pre-

SPA benefits. NICs paid after SPA could be earmarked specifically to pay for care costs

- a new ‘offer’ from the state which pensioners can expect to benefit from in future.

£3 billion Permanent increase to NICs of 0.25% The Government is hoping the current elevated

rate of National Insurance Contributions will be temporary. From 2015 some of the

temporary increase could be placed on a permanent footing to provide funding for care,

for example by keep employer and employee contributions 0.25% higher than otherwise

planned. We do not think the entire costs of care funding should be paid through

National Insurance, since people in later life who are able to pay should also contribute.

However, just as with the NHS and state pensions, there is a clear case for people of

working age contributing to the costs of age-related spending, in the knowledge that

they will benefit from equivalent support in their own later life.

£2billion Half penny rise in the basic rate of Income Tax Although Income Tax is paid mainly

by people aged under State Pension Age, around half of pensioners also pay. With tax

free allowances for different age groups being harmonised it is increasingly an ageneutral

tax, where people contribute on the basis of their ability to pay not the stage in

life they have reached.

£2 billion Reducing pension tax relief: pensions tax relief is foregone government revenue today

which is intended to improve later life in future. However most of the tax relief goes to

higher rate tax payers, who do not need such a large incentive to save. Some of the

money chould be re-allocated to meet acute need in late old age today. Following recent

reforms to save £4 billion further adjustments could be made to reduce the relief by

another £2 billion.

£2 billion Permanent increase to VAT of 0.5%: VAT has the advantage of being paid by

everyone, rather than just people with earnings, with patterns of consumption smoother

over the life course than patterns of income. The Government could pre-announce that

whatever else happens to VAT rates from 2015 there will be a permanent earmarking of

0.5% of VAT to cover care costs (this might be in the context of an overall reduction in

the 20% rate, should economic conditions permit). Although VAT is generally a

regressive tax in this instance it would sit within a progressive overall package.

£1 billion Taxing assets at the point of transfer: the ippr has recently proposed scrapping

Inheritance Tax and replacing it with a graduated Capital Receipts Tax for all gifts of

over £150,000. This would include wealth passed from older people to family members

other than their spouse, so would be an incentive to spend money on personal needs

during retirement. It would be particular appropriate as a means to pay for ‘limited

liability’ care protection which will be of most benefit to people with high assets they wish

to pass on to family members.

Whatever funding arrangements are agreed at the point of reform, the question of

revenue will continue into the future. Each Government Spending Review will turn

again to the question of how much money our care system needs, and there is a real

risk that funding increases could fail to keep up with need, just as has happened

through the 2000s. In response we propose a process of regular independent reviews

on the amount of resources needed to meet needs. This could be led by a permanent


body or a time-limited panel convened in advance of each Spending Review. This

process could articulate the level of spending required and leave it to the Treasury to

decide on where the money should come from. Alternatively it could also make

recommendations on ongoing options to fairly raise revenue to pay for care.

Andrew Harrop, Director of Policy and Public Affairs

Public Policy Department, Age UK, Tavis House, 1- 6 Tavistock Square, London,


May 2011



1 ADASS survey, reported by BBC, April 201; Community Care magazine, September 2010

2 Population Projections, 2004 and 2006 base, ONS

3 Securing good care for more people, King’s Fund, 2010

4 PSSRU analysis for Age UK, 2010

5 How cold will it be? King’s Fund, 2009

6 ADASS survey, reported by BBC, April 2011; Community

Care magazine, September 2010


8 ONS Population Projections, 2004 and 2008 base


10 The Older People’s Inquiry: That Little Bit of Help, Joseph Rowntree Foundation, 2005.

11 The State of Social Care, 2007-08, Commission for Social Care Inspection, 2008.

12 The Costs of Addressing Age Discrimination in Social Care, PSSRU, 2008.

13 The Costs of Addressing Age Discrimination in Social Care, PSSRU, 2008.

14 Calculating the costs of efficient care homes, Joseph Rowntree Foundation, 2008

15 One Voice, Age UK, 2009


17 Survey of local authorities by Emily Thornberry, shadow minister for care services,



19 Securing good care for more people, King’s Fund, 2010

20 PSSRU analysis for Age UK, 2010

21 Sources for GDP projections:; Economic and fiscal outlook, OBR, Nov 2010