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Thursday, 14 February 2013

PAYING FOR CARE - THE COALITION PLANS

UPDATED JANUARY 2015

UPDATE 17 MARCH 2013
The Chancellor announced on the BBC's Marr show on Sunday 17 March 2013 that the reforms would be brought forward and start in April 2016. The 'cap' of £75,000 will be £72,000 to reflect the earlier date. No other changes were announced but the other figures may be refined downwards too.

Coalition plans
On Monday 11 February 2013 the Coalition Government published the details of its plans to reform the state subsidy for long-term care of the elderly in England. The Government says It has three main elements

  • A cap of £75,000 (which will now be £72,000) on the cost of care anyone would be expected to pay.
  • An increase to £123,000 (now to be £118,000 for those with a home being taken into account and £27,000 for those without a home being taken into account) (from £23,250) in the amount of savings someone can have and still get some contribution to the cost of care.  
  • A guarantee that no-one would have to sell their home in their lifetime to pay for care

The scheme will cost an extra £1 billion a year by 2020 and help an extra 100,000 people with the cost of long term care in old age.

What's not to like? 

WITH UPDATED FIGURES 
The £72,000 cap
The cap on care costs of £72,000 is in fact not a cap of £72,000 on care costs. 

1. The figure of £72,000 only covers the cost of the care given in the residential care home. It does not cover the hotel costs of accommodation and food. That will capped at £230 a week or £11,960 a year. Those costs will have to be met even when the Government meets the cost of the care itself.

2. The figure of £72,000 is not the amount the individual has spent. It is the amount of care that could be bought at the rate paid by the local authority. For example, if a local authority was willing to pay £411 a week for the care then £72,000 would buy about 175 weeks of care. So to reach the cap an individual would have to buy 175 weeks of care - whatever price they paid. To buy that same care privately the cost would be more - probably around £530 a week. For the cap to come into play the individual would have to spend 175 weeks at £530 - a total of  £92,750 on care. In addition throughout the 175 weeks - about 3 years 4 months - they would have spent £12,000 a year on hotel costs, another £39,600. So altogether the individual would have paid out £132,350 before the '£72,000' cap was reached. After that the £12,000 a year hotel costs would continue. Because the cost of care varies throughout England, the actual cost that has to be met before the cap is reached will different in every local authority area. Find out what you will need to spend in your area with the BBC Care Calculator

3. If the person reached the cap in their £530 a week care home the local council would still only pay £411 a week. If the home refused to renegotiate a lower figure then the individual would have to find another £119 a week towards their costs. At the moment a top up cannot be paid by the resident themselves, only by relatives or friends. Care Minister Norman Lamb has indicated that rule will be changed to allow the resident to pay. With the hotel charges that would mean an annual cost of £18,148 even after the cap was hit.

Savings limit increased to £118,000
The £118,000 savings limit means that anyone who has capital including an empty home which exceeds that figure will have to pay all of their care home costs, until of course the cap is reached. Below that figure a sliding scale will determine the contribution they make. Based on figures given by the Department of Health someone with £100,000 savings would have to pay £330 a week towards their fees. Someone with £50,000 would have to pay £130 a week. Only if savings fell below £17,500 would the local council pay the whole bill. The income means test will however take almost all the resident's income leaving just £24.40 (2014/15 rate; it will be higher in 2016/17) a week personal expenses.

Your home is safe
This claim is perhaps the most disingenuous of them all. No-one – I repeat NO-ONE, again NO-ONE – can be forced to sell their home to pay for their care at the moment. Some of the estimated 19,000 who do so each year are deceived into it by cash-strapped local councils who wrongly tell them they must, aided and abetted by false headlines in the press. But some of the 19,000 choose to use the value of their home to pay for better care than the local council will give them. And why not?

Instead of selling their home a resident can enter into a deferred payment arrangement, which was introduced by the last Government in October 2001. It was “to ensure that people…are not forced to sell their homes as soon as they enter residential care.” It would “help…people who do not want to have to sell their homes in their lifetimes to pay for their care by making loans more widely available”.

Over the years the scheme has become compulsory. In 2009 the Department of Health issued a circular LAC (DH)(2009)3 which said Ministers expected councils to offer deferred payment schemes and “it is the Department’s view that if a local authority were to have a policy of never exercising its discretionary powers to make deferrals, it is likely the courts would find this to be unlawful.”

The most recent figures showed that 8,500 people are currently in such schemes with a total debt of £197 million – an average of £23,000 each. Lawyer Lisa Martin of Hugh James confirms that in her long experience anyone who asks for a deferred payment arrangement – and insists they have a right to it – will get one. But even if they don’t all they have to do is refuse to pay. The local council still has to provide care and take a charge against an empty home so the bill is paid after death. That power was given thirty years ago in s.22 of the Health and Social Services and Social Security Adjudications Act 1983 (HASSASSA).

In either case no interest is charged on the debt while the resident is in care and that concession lasts for an extra 56 days after death with a deferred payment scheme.

Those are the rules now and they apply throughout the UK. The Government plans to replace them in England by a universal deferred payment scheme that local councils will have a legal duty to apply. So far so good. It will take hassle away. But under the new scheme interest will be charged on the debt from the moment it begins. And the backstop provision under HASSASSA will be repealed. That new scheme will begin in April 2015, one year before the other reforms. 

The price
The extra cost of the new scheme will be around £1 billion a year in 2019/20 though official figures show it at almost £2 billion by 2025/26. It will be paid for by two sources of money. 

1. The Chancellor has done a u-turn and reversed a promised rise in the threshold at which inheritance tax becomes payable. It will now not rise by £4000 in 2015/16 but will stay frozen at £325,000 until the end of 2017/18. That will pay for about a fifth of the cost. It will be an extra tax of £1600 on estates in 2015/16 and £7120 or more by 2019/20 compared with an increase in the threshold in line with inflation.
2. The other four fifths will come from the extra revenue generated by changes to National Insurance which are part of the state pension reform announced on 14 January. Then it was said to be revenue neutral year by year. In other words extra costs would be balanced by extra income or savings. Now, three weeks later, there is what is called 'headroom' to fund four fifths of the care reform package. No figures have been given to justify this claim.

The changes to inheritance tax and national insurance apply throughout the UK. So unless some specific provision is made, the tax generated from Scotland, Wales, and Northern Ireland will be used to fund the care reform package in England. 

The gainers
The new expenditure will go mainly to the richest. Department of Health analysis shows that in 2025/26 the extra cost will be nearly £2 billion and of that about £710m will go to the richest fifth of the population and an extra £640m to the second richest fifth. So that richest 40% of people will get more than two thirds of the extra money. About £420m extra will go to the middle fifth, and £210 million to the second to poorest fifth. That 40% of the population get just under a third of the extra subsidy between them. The poorest fifth will get no more money spent - their care costs are met in full already. NB these figures are my estimates from a Dept of Health graph. The figures behind it are being kept a state secret. FOI is in. 

Conclusion
The new scheme will still be a highly complex mixture of a means-test on income and assets topped off by a cap fixed in terms of care provided which will differ in amount in every local authority area. The biggest share of the extra cost of the new scheme will go to the better off - more than a third of it will go to the richest 20% of those in care. The new scheme for protecting the value of a home will in fact cost individuals more than the present scheme. And English care costs could be subsidised by extra taxes raised in Scotland, Wales, and Northern Ireland. 

What's not to like?