It is good that the Government is looking again at long term residential and home care in the UK. 

We need to be clear about the option open to Government and these are now being rehearsed.

These articles are often unclear whether my contributions today as an over-40 are paying for my care in future, or today’s over-80s. If the latter, it isn’t really insurance, it’s tax (which may be the right answer). If the former then it won’t solve the problem for decades!

— Steve Webb (@stevewebb1) July 26, 2020

Steve Webb is right, we either have an insurance system which entitles us to protection in life, or we have a tax system that protects those needing care today from the pocket of their children.

Insurance – national or private?

Theoretically there is something in national insurance that differs from tax that points towards the first option and something about a care tax that points towards the second.

National insurance has now been so conflated with income tax that many people see the two as one.  But National Insurance payments are accounted for separately and broadly speaking for our welfare. Within the notion of a national insurance is the idea that society as a whole will look after the needs of a sub-section of claimants.  What is new is the concept of a big society entered into at your 40th birthday

What is also being  considered, according to this article in the Guardian , is a compulsory insurance scheme run by the private sector “.

I am very concerned that we are even looking at “outsourcing and offshoring” the care of care. There are voluntary schemes that provide immediate insurance (immediate care annuities) and there is a roaring trade in providing liquidity from the elderly’s housing but this is for those able to go private – most people do not have that choice

An over 40s tax?

The attraction of insurance is that it gives a certainty of cover, but as Andrew Young points out, what certainty can we provide for such ill defined liabilities?

How could it be insurance for the future? If it were, what exactly would be covered and how is the risk assessed and underwritten?

— andrew young (@glesgabrighton) July 26, 2020

Targeting one group of society (the over 40s)  suggests targeting the benefits and an insurance scheme.

The alternative is an  hypothecated tax.

The idea that a “care tax” could be ring-fenced to pay for home and residential care for the elderly is difficult.  But at least it doesn’t give false security as any form of insurance might

The risk is that there is no hypothecation or that the tax revenues get muddled with other capital expenditure, for instance on upgrading the NHS in general.

A fund – or reserve on the public books?

The article (seemingly a leak from Matt Hancock) also talks of a national insurance pool, such as sits behind the payment of the State Pension. I am not sure of the status of such a pool and where it sits between a sovereign wealth fund and a book reserve in the public accounts. Some kind of accountability for this targeted payment would be needed.

There are no doubt those in financial services who would like to create a fund to meet our future needs but I am not one of them.

Better a reserve in the accounts and a public promise that allows the public to plan for their futures with the certainty of knowing what the state will cover and what it won’t.

Any form of funding or insurance can then be taken up as a personal decision, depending on individual needs.