Tuesday, 16 November 2010

Long-term care funding white paper

PROPOSALS which would save Islanders from having to sell their homes to pay for elderly care have been published by the Social Security Minister. The proposals call for a 1.5% increase in Social Security payments from Islanders and would set up the new elderly care scheme from 2013... Social Security Minister Ian Gorst has published the proposals today, saying that the demand for and cost of providing elderly care is going to rise substantially over the coming years.(1)

The Long Term Care funding paper is open to consultation (2), and in particular, they want opinions on what are termed "Option1" and "Option 2":

The co-payment will be means tested. Two options are presented in this paper and a final decision will be taken following this final round of public consultation. In both options, individuals will contribute their regular income towards the co-payment, retaining a weekly allowance for personal purchases. In Option 1, a total capital disregard of £500,000 will be applied to the combined value of the main residence, savings and investments. Those with assets above this level will not qualify for assistance with the co-payment. However, they will be able to defer co-payment charges by taking out a bond held against the value of the main residence, redeemed when the property next changes hands. In Option 2, the capital value of the main residence is totally excluded. However, if the main property is empty, it must be used to provide a rental income to help meet the cost of the co-payment. A capital disregard of £25,000 is then applied to all other assets, including other property, savings and investments. Any assets above £25,000 must be used to meet co-payment charges before means-tested assistance is provided.(3)

Of Option 1 and Option 2, I would suggest Option 2 is preferable, and the scheme is a good one as well:

This is on the following grounds:

A) I have come across several cases where other members of the family (daughter, spouse) live in the main (and only) residence. Where the individual has gone into residential case, there was an extra worry because they were told they would probably have to sell the house, and find alternative accommodation. In one case, where it was the spouse, they were in their 80s, and such a transition is an intolerable extra burden to impose upon them. They were extremely distressed and worried, at a time when they also were worried about the health of their husband.

B) Had the husband been aware of impending need for residential care, and made over ownership of the property beforehand to the spouse (when still healthy), perhaps a year before, they would be in an entirely different position, and it seems manifestly unjust that either this should be necessary, or if it had been done, one individual should benefit and another not, for what are very similar circumstances apart from actual ownership.

C) Where savings and home ownership have been made, and existing members of the family live in the property, part of the reason for the individual (now requiring residential care) doing so was to provide for their family, and the whole incentive of this is abrogated where the home comes under threat of being sold under those family members still resident, leaving them thrown (quite possibly) into needing social housing.

D) Option 1 specifies a total value of assets, but as the situation in the UK shows only too well, this has a major disadvantage when house values are concerned. Inheritance tax was introduced as a tax on the very wealthy, but the increasing value of house prices, and the failure of the tax threshold to keep pace, meant that over time, more and more of the population were drawn into the net, so that now most home owners will probably be liable to some inheritance tax. This is the weakness of any system which sets a limit (the capital disregard) which involves property, and while £500,000 may seem at the upper end of the property market, the attrition of rising property prices could easily see it fall prey to the same kind of problems unless there is a fixed relation between median (home) property values and that value. This I see as a major weakness in this option, and why I would argue that Option 2 is preferable.

I'm not whether social security is the best option for funding the scheme. Having read St Ouen's blog, I can see his point that renters will be contributing to a scheme for which they receive nothing, and either funding must be purely levied via on those who own property, or done via the owners rates system on their own home. It is not fair that those renting support those who own property.



Anonymous said...

Tony there is an excellent comment on the funding fairness of this at a View from the West. What do you think of using foncier rates instead of a 1.5% social security increase?

TonyTheProf said...

I updated my original post with a Postscript to link to View from the West's point, which I wholly endorse. He is absolutely right in his arguments. The only thing I'm cross about is not spotting that myself! I could have kicked myself when I read his piece; it is so obvious a point, that I shouldn't have missed it. Let's hope he sends that to the consultation paper.