5. Explore a range of options for raising revenue
30 August 2019
Whichever reform option the government chooses, additional public spending will be needed to fund it.
After a decade of austerity in public finances, cutting other public services to pay for social care is not feasible or desirable – particularly given the potential funds needed. Additional borrowing could play a part. But increases in tax revenue are likely to be needed.
Policy options often explored to raise additional revenue to fund social care include:
- increasing general taxation (including from the wealthy)
- taxing or redirecting spend on older people (eg by extending National Insurance (NI) contributions beyond retirement age)
- taxing wealth (eg changes to council tax or new forms of tax on people's estates)
- a hypothecated tax for social care.
Each option has advantages and drawbacks. While the new prime minister has promised tax cuts for higher earners and the current Chancellor has described himself as a 'low tax guy', tax increases would be an obvious route to fund a more generous system. Overall tax revenue in the UK as a share of national income is lower than most other OECD and EU15 countries. And people at the median and top of the UK income distribution pay less income tax than they would if they lived in many other European countries. Taxing wealth would be among the most progressive options, but is not easy politically, as Andy Burnham, a previous health secretary, learnt the hard way when he was accused of proposing a 'death tax'. And while taxing or redirecting spending on older people could help promote intergenerational fairness, this alone would be unlikely to cover the full costs of reform.
Some form of new hypothecated tax – a tax for social care – might generate support from the public. But the idea is a dud in policy terms, as the tax take would rise and fall with the economy, not changes in social care need or demand. A 'soft' kind of hypothecation, where the money raised is not actually ring-fenced in practice – like Labour's 2002 promise to increase NI to fund the NHS – could be used to sell tax increases via other options instead. Though politicians should also consider the risk that an unpopular tax linked directly to social care reform could – as we've seen in the past – help sink the policy proposal it aimed to fund.
Ultimately, the right approach depends on policy choices and trade-offs – for example, on the relative contribution of working age and older people towards paying for care. It also depends on the type of reform pursued. Given that any reform option is likely to be more regressive than the current system (where limited resources are targeted towards people with the lowest means), more progressive options could be explored for raising revenue to pay for it.
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