Insights

NATIONAL INSURANCE INCREASE UNLIKELY TO COVER TRUE COST OF CARE

By
Adrian Howard
on
September 14, 2021

While it’s good to see Government efforts to address the social care issue, an increase in National Insurance has limitations – and ultimate responsibility for care is up to us as individuals, says Tony Mudd, Divisional Director at St. James's Place.

Downing Street have this week announced a 1.25% rise in the National Insurance (NI) rate – effecting employees, the self-employed as well as employers - as a means of funding social care.

We welcome the Government’s intentions to support additional funding into social care but acknowledge more is required around raising awareness of who pays for care, plus solutions for increased private funding.

It’s well-known that the care crisis requires eye-watering sums of money to fix, and some form of taxation is needed to foot the bill.

We published our Social Care Report in July which outlines a range of practical ideas to address the estimated £8billion a year funding gap for social care (1).

This includes increases in general taxation, a new compulsory social insurance scheme and voluntary top up private insurance. The report also examines the viability of the use of existing pension schemes to make payments to care providers in a tax-efficient way.

A rise in National Insurance makes sense due to the fact it’s simple, with the collection mechanisms are already in place. Nonetheless, even this fact is undermined by including workers over the state retirement age - however appropriate this is.

But while it has the capacity to pool risk across a section of society as a form of general taxation and has the potential to be progressive, with individuals earning at higher levels contributing the greatest amounts, there are limitations:

While an increase in National Insurance should raise significant extra funds for social care to it is not clear that it will raise enough to meet costs for social care as well as making contribution to additional COVID-19 costs on the NHS as well as the numerous wider reforms announced,

An increase in National Insurance would result in no contribution from those who are asset rich and income poor, and

Unless National Insurance was extended to be payable by those over State retirement age who are living on investment and pension income, it would not gain a contribution from a significant section of those most likely to benefit.

Taking responsibility for our care needs

The harsh reality is that most older people in the UK requiring long-term social care will need to pay for some or all of it themselves, and exactly how much care costs varies from person to person.

When the need for long-term care arises, most people have very little idea of where to start and responsibility for arranging care often falls to the children of those who need it.

The current care system is also complex with many moving parts, including care needs and care means tests.

On top of dealing with the complexity, there’s often difficult emotional conversations to be had about a parent’s changing care needs and whether to receive care in the home or move to a dedicated care facility.

Many of our Partners at St. James's Place are trained in later-life needs and specialise in supporting people who require care.

What’s more, we have a relationship with long-term-care expert Care Sourcer: thanks to their extensive knowledge of UK care systems, they will be able to provide practical support right through the process – both at the point of need and on an ongoing basis as your or your parent’s requirements develop with time.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The services provided by Care Sourcer are separate and distinct to those offered by St. James's Place.

1 As estimated by Damian Green in his 2019 paper for the Centre for Policy Studies: ‘Fixing the Social Care Crisis’