Tue. Oct 26th, 2021

UK social care updates

The author is Professor of Public Economics, European Institute, London School of Economics

The purpose of insurance is to protect a person from the risk of a bad thing happening, which the person cannot stop and which is very expensive. Needing social care at some point in the future is just such a risk.

The government is right to regard the financing of social care as an insurance issue, but must have a broader view of justice over generations.

Private insurance has many risks. However, the risk that a person will need social care for many decades in the future faces great uncertainties, both about the risk and the cost of care. As a result, insurers cannot accurately price policies, so private social care insurance is expensive if offered at all. Therefore including social care in the Beveridge framework of social insurance is the right policy direction.

The problem with any design that offers immediate benefits to an older generation (state pensions are another example) is that the gift has to be funded by younger generations, which raises the question of what complementary policies can improve the balance between age groups .

There are options. The earnings above which the national insurance contributions (NICs) are payable can be increased, which will generally benefit lower earners. Although with additional administration, it is also possible to exempt employees under 30 from the new health and social care levy.

To fund these changes, the basis for the new contribution can be broadened. Under the proposals of the government, the new levy applies to the earnings of people after the age of state pension, who had not previously made any such contribution. The levy can be extended to cover pensions as well as earnings, possibly using the lower and upper income limits currently applicable to employees. Although it sounds radical, it is the arrangement in Germany, where pensioners still pay the social care premium as it is a risk they still face.

Another way to help younger people is to increase child benefit and / or child tax credit.

On a broader scale, it is not only what younger people pay taxes to, but also what society offers them, especially to build their skills. Two strong proofs are relevant: the most important determinant of whether someone goes to university is how well they are doing at school; and early childhood development is central to performance at school and beyond.

On school performance, a range of policies, from pre-school education to primary education (the literacy and numeracy hours) and secondary education (education maintenance allowance) hollowed out or abolished. Strengthening the policy or follow-up policy should be a central focus for equalization.

In addition to kindergarten and school education, tertiary education policies should give more weight to more than 50 percent of young people who do not go to university. Current arrangements have a clear path from A levels to a university degree (in the jargon(from level 3 to level 6), but the arrangement is like an executive elevator that does not stop at levels 4 and 5, which mainly involves technical training. An improvement made by a House of Lords report and endorsed by the Augar Review is a system in which people can accumulate transferable credits for further and higher education.

A comprehensive approach to delivering this type should be supported by finances covering tertiary education as a whole, also approved by the Augar Review. As part of intergenerational equity, the government should consider the current review of the review rebalance the relative contribution of tuition fees and taxpayer support for teaching, thus reducing the size of student loans.

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