My Lords, it is a pleasure to open this Second Reading debate on the Health and Social Care Levy Bill. This is a short but very important Bill that aims to legislate the plan announced by the Prime Minister on 15 September. The plan will tackle the NHS backlog, put the adult social care system on a sustainable long-term footing and end the situation in which those who need help in their old age risk losing everything to pay for it.
The Government’s plan will make a substantial difference to the lives of millions of people across this country. It will be funded with a record £36 billion investment in the NHS and social care systems. Noble Lords will be aware that such an ambitious plan requires funding. In order to pay for a significant increase in spending in a responsible and fair way, the Bill before the House today introduces a new 1.25% health and social care levy. The levy will apply UK-wide to taxpayers liable to class 1 employee and employer, class 1A, class 1B and class 4 self-employed NICs. However, it will not apply where taxpayers pay class 2 or class 3 NICs. It will be introduced from April 2022 and, from April 2023, the levy will also apply to those working over the state pension age.
Noble Lords may be aware that it takes time for HMRC to prepare its systems for such a major shift. That is why, as set out in Clause 5 of the Bill, in 2022-23, the levy will be delivered through a temporary increase in NIC rates of 1.25% for one year only. I would like to make it clear that all net revenues generated by the temporary increase in NIC rates will be ring-fenced and paid to NHS England, NHS Scotland, NHS Wales and the equivalent in Northern Ireland. From April 2023, the temporary rise in NIC rates will be replaced by a formal legal surcharge of 1.25%. Clause 2 of the Bill sets out that this revenue will be ring-fenced for health and social care only.
It is the intention that existing NIC reliefs and allowances will also apply to the levy. That will mean that 40% of all businesses will not be affected due to the employment allowance. When it comes to individuals, those earning more will pay more. The top 14% of taxpayers will pay around half the revenue raised. Conversely, at least 6.2 million people earning less than the NIC primary threshold will not pay the levy at all.
Let me once more remind Noble Lords today why this levy is so crucial. As the Prime Minister and the Chancellor have said, this levy will enable the Government to properly fund the NHS, so that it can recover from the pandemic. Senior NHS leaders have made clear that without additional financial support we will not properly be able to address the significant backlog in the health service. To get everyone the care they need will take time and will require additional revenue.
In addition, our social care plan aims to create a dramatically expanded safety net for people in their later life. This means that, instead of individuals having to bear the financial risk of catastrophic care costs themselves, we as a country are deciding to share more of that risk collectively. This is a permanent, new role for the Government and a structural increase in the size of the British state. We therefore need a permanent, new way to pay for it. Noble Lords will be aware that the only alternative would be to borrow indefinitely. That would clearly be the wrong course of action when our national debt is already the highest it has ever been in peacetime. Borrowing ever more today just means higher taxes in the future.
My Lords, I am grateful to the Minister for his brief introduction to the Bill.
The key promise of what he has described as the permanent new role for the Government, as expressed in the Bill and accompanying documentation, can be described as the introduction of the health and social care levy, which will mean that, between 2019 and 2025, the NHS England budget can increase by 3.9% per year in real terms. That is slightly above the long-run average of 3.6% in UK health spending. However, it is well above the 1.2% per year seen in the Conservative austerity years from 2010 to 2019, in which the share of GDP spent on the NHS fell year after year, leaving the NHS severely weakened when the pandemic struck. However, even this new higher rate of investment in the NHS will be well below the average of 6% per year seen under the Governments of Tony Blair and Gordon Brown.
It is useful to start from the fact that the Bill consists of three semi-independent strands woven together. First, there is the introduction of a new hypothecated tax: the health and social care levy. Secondly, there is the predominant alignment of the base on which the new tax is charged with the present tax base of national insurance contributions. I say “predominant” because the levy is also to be funded by the extension of NICs to those over 65 and by the dividend tax promised in the Budget later this month. Therefore the tax base is potentially malleable: it need not be NICs and it is not entirely NICs even at the beginning. Thirdly, there is the transitional arrangement of raising overall taxation in 2022-23 via the one-year increase in NICs—the transitional year.
To assess the true impact of the Bill it will be helpful to deal with these three strands of the Bill in order, beginning with the first strand: the new hypothecated tax. It is well known that hypothecation is a dirty word in the Treasury. National insurance contributions, for example, are not allocated uniquely to national insurance, and the road tax is not used for the upkeep of roads. Yet here we have a substantial increase in taxation that is, we are assured, pre-allocated to health and social care. Given the historic experience with other fictional hypothecation, it is reasonable to ask: for how long will this last? It is noticeable that Clause 4 allows the Treasury to use the levy to make different provision for different purposes, not necessarily the purpose described by the noble Lord. The only conclusion can be that this is a grudging and perhaps temporary hypothecation—a temporary uplift in NHS spending sufficient to buy political time as NHS waiting lists reach all-time highs. Can the Minister make it crystal clear: is this hypothecation here to stay or is it a temporary political expedient?
My Lords, I declare my interests as a vice-president of the Local Government Association and a vice-chair of the All-Party Parliamentary Group on Adult Social Care. I also declare that I am disabled as a result of a long-term condition, and that my husband is my unpaid carer.
From these Benches, our focus is to see how this levy Bill will benefit those using social care and those working in it who are trying to provide an essential but frankly invisible service against impossible odds. There is no doubt that they have hoped that this Government will introduce real reforms for the care sector, especially after Ministers’ abject failure to protect people in care homes during the pandemic: from the lack of tests and PPE, to lies about a “protective ring” around care homes while people died in horrifying numbers. The way hospital patients were moved into care homes to free up space without being tested for Covid was equally horrifying for patients, their families and the staff in care homes, too.
The current underlying problems in our care sector were there long before the pandemic. We have an iniquitous funding system, with the general public not understanding that they are more than likely to have to pay for their care, and that the so-called “hotel costs” of living in a care home—accommodation and food—will now be separated out.
Ten years ago, the three major parties all came together to support the proposals of Andrew Dilnot’s review—but, just before we were going to achieve success, the Conservative Party walked away. Over the succeeding decade, the crisis in the sector has worsened considerably, not least because of the draconian cuts to local councils and other local services, especially to those that are there to help keep people out of homes, to keep their independence and their lives going. The current pricing of beds and the cuts to day services mean that independent living, which really would help keep people out of homes, just is not there. Staff in the care sector, unlike in hospitals, are paid at the minimum wage because, shamefully, as a society we regard social care as unskilled, when those of us who know the sector well see the exact opposite.
My Lords, it is a pleasure to follow the noble Baroness, who speaks with such authority on this subject. I very much welcome the Prime Minister’s determination to fix social care. However, this Bill does not do that. It is a bit like going into a restaurant and being presented with a bill for the meal before you have even seen the menu. I have to say to my noble friend the Minister, whom I admire enormously, that to speak for less than five minutes on a Bill of this importance to the economy and to millions of families—a Bill which has been rushed through for reasons that I still do not quite understand—says something about the relationship between government, the Executive and Parliament itself.
The Bill certainly will not fix social care but it will massively increase the regressive nature of the taxation system, because, as has been made clear, it will place the burden on those who have least, not those who have most. Way back in 2006, when we were in opposition, George Osborne and David Cameron asked me to spend a year of my life with some very able people of all political persuasions to produce a tax reform document. One of the recommendations was to look at merging national insurance with income tax. This is an absolute missed opportunity for those of us who believe we need a simpler, fairer, flatter tax system in our country.
I have a number of questions on the tax aspect. What measures will be in place to prevent people getting round these national insurance increases? I can see even now—well, I cannot actually see it, but I can imagine it—people in the City thinking, “Those bonuses we were going to pay in April, perhaps we had better pay them in March.” How will we avoid the loss of expected revenue? Will measures be brought forward to avoid forestalling?
I will concentrate on social care. The Economic Affairs Committee, which I chair, produced a report more than two years ago called Social Care Funding: Time to End a National Scandal. We set out a series of arguments. Since then, we have had a number of debates in this House on this subject. There has been unanimity across the House on the need to deal with this urgently. Since then, and in the run-up to the publication of that report, demand for social care has grown and grown—and not just among the elderly. One of the really frustrating things about this debate is that everyone seems to focus on the elderly. We are told that it is not fair that young people have to pay for the needs of the elderly, yet half the budget goes on people of working age; the demand from that group is growing as well.
4:06 pm
The Lord Bishop of Carlisle
My Lords, it is a privilege and a little daunting to follow the noble Lord, Lord Forsyth. I should declare an interest in this debate, given that I share with my brother in caring for our 93 year-old father who has dementia. He lives with each of us for six months at a time.
To be positive for a moment, I should also say how grateful I am that the ongoing nettle of funding social care is being grasped, at least tentatively, by this proposed levy when, for so many years, it has been studiously avoided or ignored. Nor would I wish to quibble with the obvious benefit of this proposal for our hard-pressed NHS, resolving as it will at least some of the backlog of diagnosis and treatment that has built up during the pandemic. Despite the hesitations already expressed about Sir Andrew Dilnot’s proposals, I am glad of signs that some of them—now 10 years old—are being partially implemented. I am also delighted that the question of integration between health and social care is, at least on the surface, being taken seriously at last.
But—and it is quite a significant but—there are several problems with this proposal, in addition to those which have already been raised, which demand our attention. First, we have already referred to the relatively small amount of money raised over the next few years that will actually go into social care when the whole social care system is already on its knees and in danger of breakdown.
Secondly, even after two years, there are real questions about whether the funding allocated will be enough and, indeed, as the noble Lord, Lord Eatwell, has indicated, whether this hypothecation will actually last.
Thirdly, little attention has been given as yet to workforce planning, which goes hand in hand with the developing integration of health and social care and is so crucial for the future. We are promised more of this in the forthcoming White Paper, to which I look forward and which will, I hope, also address issues such as the value and status of paid carers, many of whom will in the near future find themselves even worse off than they already are due to a combination of the levy, the removal of the universal credit uplift and the rising cost of energy and other goods, as mentioned by the noble Baroness, Lady Brinton.
Fourthly, the massive contribution of unpaid carers—really massive—is not yet properly recognised. We need further proposals for funding carers’ breaks; for increasing the carer’s allowance; and for honouring the Government’s manifesto pledge on leave from the workplace. However, I am pleased to know that unpaid carers will be consulted about the White Paper and blueprint for adult social care which we all await with some eagerness.
My Lords, I draw attention to my declaration of interests in the register, including the ownership of a flat that I rent out.
I have long been in favour of a health and social care levy and, unlike most former Treasury officials, I am in favour of the hypothecation set out in the Bill. It was clear long before we knew about Covid-19 that the country would need to spend more on the national health service and social care. Demographic pressures have been building for some time and are set to increase further over the next three decades. The events of the last year have confirmed that care home provision is simply not good enough. It is a mark of a civilised society how a country treats those in need of the greatest care.
It has also been clear for some time that the Government have lost the will to find offsetting spending savings to pay for demands on our health and social care system, so taxes have to rise. I have no great problem with that. With gilt yields rising, debt interest promises to be the fastest-growing programme in the spending review. Better to finance current spending out of revenue than through borrowing. So I congratulate the Treasury and the Minister on achieving something all too rare: persuading an oversensitive No. 10 to accept a tax rise that breaks a manifesto commitment. This is not a forced tax rise of the sort that followed crises in 1976, 1992 and 2009 but a discretionary one. The Government are choosing to spend more, so they are taxing more.
I am tempted to leave it at that, but I feel duty-bound to take issue with three aspects of the tax. First, there is the issue of fairness. It is a principle of sound taxation that the tax base should be as wide as possible to keep rates as low as possible. Here I fear the Treasury has missed a trick. The health and social care levy should be paid by everyone, old as well as young, and should be payable on all income.
My Lords, for decades, social care has proved to be an intractable problem. After numerous reviews and failed reforms, the level of unmet need rises, the pressure on unpaid carers grows, the supply of care providers diminishes and the strain on the undervalued care workforce ever increases. So, it is welcome that at last we have a proposal before us and, as the noble Lord, Lord Macpherson, has said, a recognition that taxes will have to rise to pay for it.
The problem is that these are the wrong proposals. What the Minister has brought to us today, is essentially a tax increase on younger and low-paid workers so the wealthy can retain more of the value of their properties to pass on to their children. As we have heard, it is a tax on employment that will hit businesses. It will not, as yet, solve the underlying pressures in social care.
What a flimsy Bill it is. It is treated—remarkably—as emergency legislation, despite the fact that the Government have had 11 years to bring forward proposals to Parliament. There have been no cross-party talks about this and no consultation, and no Select Committee was allowed to scrutinise the Bill before it was brought before Parliament. Clause 4, as my noble friend Lord Eatwell said, is remarkable in the power it gives to the Treasury to make any change it seems to want to in relation to the proposals before us. If this Bill were to receive proper parliamentary scrutiny, it would be torn to bits. No wonder the Minister spoke for less than five minutes.
My noble friend Lord Eatwell has already referred to the remarkable commentary from HMRC on this tax rise. I will repeat one comment that he made. HMRC said:
“There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”
As my noble friend said, how can the Minister justify that? What does he say to the CBI, which commented that a national insurance increase
My Lords, I declare an interest as a close family member is a long-term care home resident. Before turning to the specifics of the Bill, I will make a few general points about reform of social care, as others have done.
First, as well as looking at how the money is raised to provide a cap on social care costs and a more generous means test—as we are today—we must consider how we can best shore up a fragile and highly fragmented sector reeling from the impact of the pandemic, increased costs and low occupancy rates, with some care homes becoming increasingly financially unviable. Immediate funding is needed to improve the quality of care and introduce minimum standards for care homes.
Secondly, we urgently need a new deal for the care workforce, with action on pay, training development, career progression, professionalisation and recognition. In my view, care staff, who have given so much during the pandemic, deserve to be paid well above the minimum wage. Thirdly, and as the noble Lord, Lord Forsyth, pointed out, half the adult social care budget is spent on working-age adults—often people with learning disabilities—many of whom do not own their own home. So framing this whole social care debate in terms of trying to prevent older people having to sell their homes is only one part of a much bigger picture. Finally, the social care sector is complex and little understood, with both large and small providers providing both domiciliary care and care in care homes—something I hope I can expand on when we have our debate on Thursday.
The Bill takes forward the Government’s decision to introduce a new tax to pay for social care, beginning as a 1.25% rise in national insurance from next year and then becoming a separate tax on earned income from 2023—the levy. It is estimated to raise £12 billion per year.
As others have already said, raising this money primarily from national insurance is regressive, falling disproportionately on the young and low-paid. While I welcome the fact that the levy will be payable on dividends and pension earnings, which is a step forward, there is no getting away from the fact that this tax will impact hardest the lowest earners and youngest, as the noble Lord, Lord Hunt, said, as well as hammering small businesses. The threshold for paying national insurance contributions is lower than the income allowance threshold, so a worker has to earn only £9,560 to start paying NI contributions, as opposed to £12,570 for income tax. The rate paid on national insurance falls as earnings increase, in contrast to the more progressive structure of income tax.
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We need to fund our vision for the future of health and social care in this country over the longer term. As the Prime Minister said, with proper funding, we can tackle not just the NHS backlog and expand the social care safety net but afford the nurses’ pay rise, invest in the best equipment, prepare for the next pandemic, provide the largest investment ever to upskill social care workers and build the modern, more efficient health service that the public across the UK deserve.
To conclude, this levy will enable the Government to tackle the backlog in the NHS. It will provide a new, permanent way to pay for the Government’s reforms to social care, and it will allow the Government to fund our vision for the future of health and social care in this country over the longer term. I beg to move.
Once introduced, taxes tend to rise, so does the Minister expect an expanded role for this new hypothecated funding of health and social care? Or does the Minister agree with the assessment of the Institute for Fiscal Studies that
“In the short run, the additional revenues may be spent on boosting spending on health and social care. In the longer-run, the hypothecation is an illusion”?
If for now we accept the Government’s commitment to hypothecation, what is the rationale for the second strand: basing the levy predominantly on the NICs base rather than any other tax base? It is, after all, obvious that this will solely impact individuals whose income is mainly made up of earnings or profits, as opposed to other forms of income such as property income, pension income or savings.
When the Minister replies, will he explain why the levy does not cover income from buy-to-let properties? Why does the levy target the 17% of pensioners who work, while allowing wealthy pensioners receiving income from other sources to escape scot free? And why does the levy fall on low-paid workers?
Given the evident unfairness, I find the Government’s attempts to justify the distributional impact of the levy in the document entitled Illustrative Analysis of the Impact of “Building Back Better: Our Plan for Health and Social Care” a disturbing insight into Tory instincts where the NHS is concerned.
It is customary for the Treasury to accompany fiscal changes with an analysis of the distributional consequences of those changes: the impact on the poorest 10%, the next poorest 10%, and each decile up to the wealthiest 10%. Here, for the first time, the Treasury presents the impact of the levy on individual social groups together with what it believes will be the consequential spending on healthcare from which that social group would benefit. In other words, payment of the levy by a given group and the provision of healthcare to that group are linked. It is but a short step from this approach to the idea that payment for healthcare and receipt of healthcare should be linked—a negation of the fundamental character of our NHS, in which funding and the delivery of care have never, before this document, been linked. I hope that when the Minister sums up, he will disown the document.
I turn to the third strand: the impact of the increase in NICs and the dividend tax from their introduction in April next year. The policy paper published by HMRC on 9 September sketches—the appropriate word for something that is very limited—the various impacts that the Government have considered. For example, HMRC refers to the impact on households:
“There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”
This is not the Opposition speaking, it is HMRC. On business, the Government tell us:
“This measure is expected to have a significant impact on over 1.6 million employers who will be required to introduce this change.”
On the economy as a whole, HMRC says:
“The measure is anticipated to have a significant macroeconomic impact, with consequences including but not limited to for earnings, inflation and company profits. Behavioural effects are likely to be large, and these will include decisions around whether to incorporate or not, and business decisions around wage bills and recruitment.”
That is all rather serious stuff. Will the Minister tell us what steps are being taken to offset the impact on those who HMRC says are just about managing financially and who will see their disposable income reduced? Is he content to serve in a Government who wilfully introduce extra taxation that they acknowledge will hit those who are just about managing while at the same time cutting universal credit? Is he proud to be doing this to those who are suffering in-work poverty?
What of the impact on those 1.6 million employers—many of whom, as HMRC says, may well be reassessing business decisions on wage bills and recruitment? Will the Minister tell us exactly what the Government anticipate will be the scale of the impact on recruitment? Does he agree with the assessment of the Federation of Small Businesses that the levy will result in 50,000 fewer jobs being created? Does he agree with the Institute of Directors, a well-known left-wing organisation, which argues that:
“This is an extraordinary time to be adding additional burden to business and the cost of employing staff”?
Where are we to find the Government’s assessment of the impact of these measures on earnings, inflation and company profits? We have been offered none. However, the Institute for Fiscal Studies has again commented that:
“Following a rise in income tax of £8 billion and in corporation tax of £17 billion in the March Budget… the Chancellor has announced a further tax rise of £14 billion… which if delivered will raise the tax burden in the UK to the highest-ever sustained level.”
When the economy is struggling to recover from the pandemic, when the furlough scheme has ended, when business support has ended, leaving small and medium-sized companies with debt-laden balance sheets, when output is barely back to pre-pandemic levels and is hampered by serious supply chain problems and fuel shortages, the Government raise the tax burden to the highest-ever sustained level. Does the Minister consider that in this critical recovery period, the introduction of a levy that will have “significant macroeconomic impact” is quite such a good idea?
Finally, we come to the most important question of all: will it work? A fundamental issue must be the division of revenues between the NHS and the social care providers. As has been made clear, spending will be heavily weighted towards the NHS in the first three years, and then perhaps there will be some crumbs for social care. How can the Minister really pretend that this is the plan that the Prime Minister promised two years ago? To quote the Institute for Fiscal Studies once again:
“While the precise path for spending—and hence for the availability and quality of care—is unclear, it is clear that the extra funding will not be sufficient to reverse the cuts in the numbers receiving care seen during the 2010s”—
the great austerity period.
“Thus, while more people will become entitled to financial support as a result of the reforms planned”,
as the Minister told us,
“many people with care needs not considered severe enough will continue to miss out.”
In fact, the focus of what has been announced is almost entirely on changing who pays for care rather than directly addressing the growing problem that too few people are getting the care they need in the first place.
In his introduction to Build Back Better: Our Plan for Health and Social Care, the Prime Minister writes:
“We will bring the health and the social care systems more closely together”.
Over the weekend, there have been suggestions in the press that the Government are planning to create a national care service, integrated in some way with the NHS. If this is so, will the Minister tell the House what will be the role of the levy? Will it be raised further for what will be an expensive operation? Will hypothecation be extended?
I am afraid that the Bill is a typical example of ill-thought-through legislation, rushed through Parliament to spare the Prime Minister political embarrassment. If this was a plan ready more than two years ago, why the need for fast-track legislation? The explanation given by the Government is, I am afraid, disingenuous:
“The legislation is required to be in place for the 2022-23 tax year, which starts on 6 April 2022. The increase in National Insurance rates for that year will require changes to be made to the systems of employers and HMRC … it is important for both those employers and HMRC to have as much time as possible to implement the changes.”
All this amounts to saying that, even though the Government have announced the policy, with great fanfare, uncertainty about whether it will be put into effect persists, halting action until the relevant legislation is passed. In other words, a Government with a majority of 80 in the House of Commons are uncertain whether they can pass a money Bill. Pull the other one.
The rush was clearly designed to limit the time for proper scrutiny of the Bill and its many implications—scrutiny that your Lordships’ House can provide this afternoon. With that proper scrutiny, it will be evident that the provisions in the Bill are ill-thought-through and unfair, and will have potentially serious macroeconomic consequences.
Worse, the funding rates for residents are based on most staff being on the minimum wage, making it impossible now for employers to compete with retail, hospitality and agriculture, where employers are charging customers more and are then able to pay their staff more. Worse, these dedicated staff, under this proposal, will be paying an increase in national insurance, which will further reduce their income at the exact time that they are facing cuts to universal credit and increases in the cost of energy, food and many other items. The limits on publicly funded costs and the iniquitous position of privately funded beds now cross-funding those in beds funded by the state must stop—and now. But this means that the real rates need to be paid to reflect that cost.
The paper Build Back Better: Our Plan for Health and Social Care, published last month with a foreword by the Prime Minister, is not a plan for health and social care. It is a funding plan for how people pay for their care and for the NHS, and for what element is paid for by the state. The Minister has set out the structure for paying the costs of those who will need support beyond the proposed cap, but not, as many think, for extra front-line funding for our care homes. Even worse, the public do not understand that this cap excludes all of the so-called “hotel costs”, regardless of the resident’s length of stay. That means that those who believe this Conservative Government’s words that they will no longer have to sell their home might find themselves, if they are asset-rich and pension-poor, likely to have to sell their home anyway for a large portion of their weekly care costs. This sleight of hand is breath-taking.
The extra funding referred to by the Minister in the paper for the next three years is first and foremost for the NHS, which is likely to have to absorb the 3% pay rise that the Government have graciously given it, as well as deal with the backlog from the pandemic. Once again, the Government are blunt: social care will get whatever sits behind and is left from that NHS spend. Already, many in the care sector are concerned that there will be nothing left for social care, so I really hope that the Minister will be able to say what funding from the £12 billion announced in the paper is guaranteed for the social care sector. Will any extra be provided if the NHS needs it all?
I echo concerns about what was said in newspapers over the weekend. There were leaks from the Government that local authorities might well be required to fund support for social care increases via council tax increases of 5% per annum for three years. That is another deeply regressive tax that puts a very specific burden on the lowest paid in our society. I echo concerns about the rumours outlined by the noble Lord, Lord Eatwell, about integrated health and care services in the future. Is this not all totally upside-down and back-to-front? Surely the principles of reform should be announced first, before a funding mechanism is agreed by Parliament. Despite the fact that the Commons is already looking at the Health and Care Bill for integrated care structures, the Prime Minister’s proposals for reform of the social care sector remain stubbornly in his mind and behind the closed doors of No. 10. There needs to be honesty about the direction; reforms must be long-term and total. They are missing at the moment, and this is a key element.
How will the delivery of social care itself be reformed and do we know that the funds sought through the levy will be adequate for it? From these Benches, we were clear in our 2019 manifesto that we would raise additional revenue that would be ring-fenced to be spent only on NHS and social care services through income tax. This would be generated from a 1p rise in the basic, higher and additional rates of income tax. We would use this cash to relieve the crisis in social care and urgent workforce issues and to invest in the mental health and prevention services that I outlined earlier. This frankly represents an efficient and effective way of spending these extra resources and ensuring that they will have the greatest impact on the quality of care that people receive.
We from these Benches have been calling on the Government not to delay any longer and to engage urgently in cross-party talks on the wider future of social care. If the Prime Minister has not yet announced his reforms to social care but keeps saying that he is prepared to talk to other parties, why are we not talking now? Perhaps the Minister could remind him.
Two years ago, Boris Johnson pledged from the steps of No. 10 that he would fix the crisis in social care once and for all, as a top priority. But with social care services in crisis, it is time that he sets out how he plans to do it. Instead, people are selling their homes to pay for care and more than 1.5 million people are missing out on the care they need. More and more people are stranded in hospital, unable to leave because the follow-up care just does not exist, and the staffing crisis in the sector worsens daily. This is putting an increased strain on the NHS, which does not have the cash to cope.
The cost of inaction and delay is falling on the shoulders of the over 11 million unpaid carers in the UK, whose contribution to the current social care system is almost completely ignored. The cost of reform to the Government might seem large, but it is a fraction of the true cost to families across the country. Carers UK estimates that unpaid carers already save the Treasury £193 billion a year. Any discussions of funding for social care services need to include discussions on fair pay and support for hard-working carers employed in the sector. This pandemic has reminded everyone that caring for people’s health does not stop at the hospital exit or the GP’s surgery door. We can improve the NHS only if we properly support carers, whether unpaid family carers or dedicated staff working in homes and in patients’ homes.
This Bill does not build back better; it is a building block to start the funding mechanism, but one that uses national insurance, disproportionately affecting those on low incomes, including, critically, those working in the sector. Perhaps that is this Government’s secret plan. After all, the Secretary of State for Health and Social Care told the Conservative conference last week that we did not need the care sector, as families should just look after their own. Of all the comments from Ministers over recent weeks, that was the most chilling. I hope the Minister can reassure us that the Government believe in, and support, our hard-pressed social care sector and recognise the real need for reform beyond the financial levy. From these Benches, we remain prepared to help.
Our report set out a number of questions for the Government. I am very pleased that my noble friend Lord Bethell will speak later in this debate. At each and every debate, he has said that the Government will produce a White Paper but that they want to follow the recommendations of the Economic Affairs Committee and find a solution on an all-party basis, so that it is permanent and so we can move forward. This is certainly not an all-party solution. In case people think I have gone native, I also think it is a bit rich for the Opposition to keep criticising what the Government are doing, without putting forward their own proposals on social care.
In this context of increasing demand, our committee reckoned that it was necessary to spend £8 billion on social care just to get back to the standards of care that existed in 2010. This Bill aims to raise £12 billion, but that will not touch the sides of the problems which face the social care industry and the people who depend on it.
My right honourable friend the Chancellor said that it was a moral duty to ensure that the costs of this were met by an increase in taxation and not by borrowing. Personally, I think we need to think about how as a nation we can generate the wealth to meet our obligations to the elderly. If we are going to talk about moral duties, it is certainly a moral duty to ensure that there is a safety net below which those vulnerable people will not fall. And they are falling.
This Bill, and the Government’s proposals set out in that document, do nothing to address immediate needs. As the noble Lord, Lord Eatwell, said, it is not clear how much of the £12 billion will actually go to social care. Last time we had an emergency payment for the National Health Service, it was £20 billion, and it disappeared into the health service. How much of it went to social care? Almost nothing. The entire cost of social care then was £20 billion. Some people refer to social care as the Cinderella service, but in this case, Cinderella never gets near to going to the ball. That is true of these proposals.
We are told that this will happen in 2023 and we are told that the Dilnot report is the answer. When our committee looked at Dilnot, we were concerned. If you have a cap on spending, the level at which the cap is set is very important, and £86,000 is quite high. Most people will, sadly, spend only three years in nursing care, so you would have to go pretty hard to spend £86,000. Does it apply then only to those who might spend a long period in nursing care? That is okay, but how will the £86,000 cap be calculated? Will we have an army of bureaucrats going through every invoice and every type of care provided in the course of a lifetime? No. I suspect—and the Government’s own publication hints at this—that it will be calculated on the basis of what the local authorities would have paid. But we know, and our report pointed out, that the local authorities’ rates are being subsidised by self-funders, who are sometimes charged as much as 40% more than the going rate for the local authorities. That is not to blame the local authorities; they do not have the money, so they try to squeeze.
What is the solution put forward for this? It is that everyone, even if they are a self-funder, can have their place found by the local authorities. That will not provide the revenue for the people who run the nursing homes. As a result, the nursing homes are going to disappear. Indeed, it is already happening that they favour self-funders because of the differential.
When we started our report on social care, I was attracted to the idea of a cap because the insurers would then be able to come in behind it. It will not work, however, because of the size of the cap and because, on the whole, people will not buy insurance for something they think will not happen to them. It is hard enough to get them to invest in pensions, when they know—or hope—that they are going to get old. They do not hope that they will require care in a nursing home or elsewhere.
The most chilling thing of all—because none of this money will be allocated to social care in the short term—is that it will all be left to local government. Over the weekend we heard the hints that the noble Lord, Lord Eatwell, mentioned: that local government will need to pick up the strain here. It does not have the money. If it goes on the council tax, that will be even more regressive and damaging and will introduce a postcode lottery for care. The sad thing is that some of the local authorities with the broadest tax base have the least demand, and those with the narrowest tax base have the most demand. There would therefore be inequality. Building up? This is building down. A postcode lottery would be the consequence.
What will the Government do to fulfil the Prime Minister’s promise to fix social care? I have been watching the Brown-Blair films, and there is a bit where Gordon Brown is alleged to have said to Tony Blair: “You have stolen my”—expletive deleted—“Budget”. I have a feeling that the Chancellor’s Budget has been stolen a bit here, because we have a commitment in this respect, but where are we on local authority funding? If we are really to fix social care, I assume that the Chancellor will make a very generous settlement to local authorities in order for them to provide the means they need to deal with this problem now. I hear someone saying it is unlikely—have faith.
If the Government really want to fix social care and are committed to the Dilnot solution, why on earth are they not doing it now? The legislation that provided for Dilnot was passed in the Care Act 2014—seven years ago. It is there on the statute book; they could do it now. What we are seeing here is a bit of: “I need money for the health service and I need money for social care. Let’s think of a number that’s not quite big enough, and we’ll say that we’ll do it first for the health service and then social care will get it.” If you believe that, you will believe anything, because the truth is that the National Health Service needs that £12 billion and, three years on, the money will not be available—just like the £20 billion put in before, as I mentioned.
I have a question for my noble friend: is domiciled property to be included in the means test for domiciliary care? At the moment it is not. If it is, it will create a huge incentive for people to go into nursing homes and a real unfairness for people who wish to be cared for in their own homes.
I did a few calculations, in case my noble friend thinks I was being unfair about the regression. If you are an average worker on an average wage and are paying the basic rate of income tax at 20%, and you work that little extra to create that extra £1 of value, 20% of that disappears in income tax, 13.25% disappears in national insurance and your employer has to give up 15.05%. In other words, 48.3% of every £1 disappears—and we wonder why our productivity is low when those are the incentives. I do not believe that national insurance was the right tax to use to achieve the purpose that the Government intend.
Of course, it is too late to say that now. We cannot change it in this House; we have to leave it to the House of Commons. A decision has been taken, but it is for the Government to fulfil the Prime Minister’s promise to fix social care and that means looking at the resources provided to local authorities, which have been absolutely heroic. My bins get emptied once a month now. Almost every service has been cut to the bone in order to try to help those people needing care. We look forward to the Budget at the end of the month and the fulfilment of the promises that have been made.
The fifth point is that people of working age with complex disabilities currently account for about half the total spend on social care, as mentioned by the noble Lord, Lord Forsyth. I hope that they will also be consulted to ensure that any reforms in future meet their needs. Sixthly, while welcoming the money that will be aimed at hospital discharge and rehabilitation—about £500 million—I wonder whether this relatively small sum will be enough for the sort of preventive measures that could make such a huge difference to the current demand for social care.
Finally, whatever the amount raised by the levy and however it is ultimately distributed, the biggest question of all—this has been raised by the noble Baroness, Lady Brinton, and so graphically by the noble Lord, Lord Forsyth—relates to the quality and nature of the care on which this money will be spent. We on these Benches were unsuccessful in proposing a cross-party Select Committee to consider that issue, so instead we have established a commission that has been tasked with reimagining social care in this country. We look forward to sharing our findings in due course with both Her Majesty’s Government and Members of your Lordships’ House.
I welcome the Chancellor bringing dividend income into the levy’s coverage, but I am puzzled that rental income is exempt. The fact is that rental income has its own income tax schedule, Schedule A, so it would be easy enough to ensure that such income bore a higher rate of income tax. Indeed, for much of income tax’s 220-year existence, unearned income incurred a higher tax rate than earned income. That has been turned on its head over the past 40 years as Governments have chosen to channel tax increases through national insurance and tax cuts through income tax. However, the issue of rental income is a matter not just of fairness but of economic efficiency. Housing already receives substantial privileges, which further entrenches the bias in favour of property investment over equity investment. Rentiers generally do not need additional privileges—they have enough already.
I am also concerned that the levy further increases the differential in tax between employees and the self-employed. However, having spent 30 years of my life trying to persuade politicians to close this gap, only to see the noble Lord, Lord Hammond of Runnymede, try and fail the year after I left the Treasury, I am sufficiently realistic to accept that there is a zero chance of correcting this anomaly.
My second concern is that Government have decided to apply the levy to employers by increasing the rate of national insurance that they pay. This is sleight of hand, as the incidence of the tax and its economic effect is the same whether it is borne by employees or employers. It would have been much more transparent to introduce a levy of 2.5% payable only by individuals. I fully understand that taxing employers is easier politically—they do not have many votes—but, as always with tax, there is no free lunch. Employers’ national insurance is a tax on jobs. Tax more employment and you get less of it. That is why Margaret Thatcher abolished the national insurance surcharge in the 1980s.
I recognise that this Government have a rather different attitude towards business. The Chancellor has announced over £40 billion of tax increases this year. Nearly two-thirds of these will be borne by business in the form of high corporation tax and national insurance. That may be good politics, but at a time when Brexit has made it more important than ever that the UK is business-friendly, it is almost certainly bad economics. That, in turn, makes me wonder whether the Government will succeed in making the tax increase stick. Over the past 50 years, there has been many a radical tax change. Tax rates have swung wildly, new taxes have been created and old taxes abolished, but throughout this period, the tax take has remained stubbornly stable. No Chancellor has managed to get tax receipts above 34.1% of national income. Many Chancellors have forecast a rising tax take, only to be disappointed. This Bill envisages a tax take not seen since the days of Sir Stafford Cripps. I am sceptical it will deliver it.
My final point relates to where the money will be spent. I can see the case for capping the care costs individuals pay, but I agree with the noble Lord, Lord Forsyth, that it likely to have many unintended consequences. The social care cap is a simple income transfer from those who pay the levy to those who benefit from the cap. Of itself, it does nothing to increase the capacity of the social care sector. Given the travails of the past 18 months, that should surely be the priority at the current time. It would be tempting to rely on increased funding for local authorities, but, again like the noble Lord, Lord Forsyth, I fear that will not be forthcoming. It is not a protected programme, and recent Governments, since 2010, have chosen to squeeze local authorities over and over again. So, as well as looking forward to the increase in the social care levy, we will be looking forward to many an increase in council tax.
To conclude: I support this Bill, but the design of the levy has flaws. I hope that once the levy is in place, the Government will seek to address some of its faults.
“will directly hurt a business’s ability to hire staff, at a time when businesses have faced a torrid 18 months and are now fighting crippling labour shortages”?
Indeed, having listened to the Prime Minister and Ministers last week, I might ask whether the Government have any interest at all in the future health of our business sector. It seems not.
Unfair as it is, will this levy be sufficient? In his opening remarks the Minister remarkably claimed, without any evidence whatever, that this will put social care on a long-term sustainable footing. But we have already heard that the levy is projected to raise £36 billion over the next three years, that all the money raised in 2022 will go to the NHS and that for the remaining two years £5.4 billion will be invested in social care. This money is not designed to alleviate existing funding pressures on the system, yet these are immense. The committee chaired by the noble Lord, Lord Forsyth, published an excellent report which estimated that an £8 billion yearly increase would be needed to restore care provision to 2010 levels—he has already referred to that. But the £5.4 billion, one assumes, is to be allocated primarily to implementing the cap.
The Health Foundation, following up on the Select Committee report, set out at the beginning of this month what it may cost the Government to fund the NHS and social care system in England, along with workforce requirements, over the next 10 years. It looked at two projections, stabilisation and recovery, and stated that both of them would need much higher growth than in recent years. It said that
“an additional £8.9bn and £14.4bn is needed in 2030/31 over 2019/20 for the stabilisation and recovery scenarios respectively.”
Does the Minister really think that the levy is the answer to that, when most commentators reckon that, in the end, the NHS is going to need almost all of the levy and is likely to get it?
The claim that no one will be forced to sell their own home is surely questionable. My estimate is that on average a person will have to spend at least £160,000 before they get to the £86,000 cap. This takes account of a modest calculation of living costs at about £12,000 per annum, and the fact that the £86,000 cap, as the noble Lord, Lord Forsyth, who is surely right, said, will be calculated on local authority rates—despite the fact that the self-funders subsidise those local authority rates. Even when a person reaches the cap, they will still have to find living costs on an annual basis, and it is quite likely that the local authority will still pay only at the local authority rate, so many people will have to pay top-ups as well. Melissa Lawford in the Sunday Telegraph put the estimate much higher. She thought a self-funder would receive government support only after five years, having spent £296,000. The puzzle to me is that no effort at all has been made to encourage and incentivise the insurance market to provide a more effective way of support for self-funders.
The ABI, in a commentary it set out over the weekend, said that the cap should be viewed as a solution to avoid catastrophic care costs and not as a way to enable a private market to develop. A cap, in itself, would not prompt a market to develop. Why on earth are the Government not seeking to incentivise a private market to develop to help self-funders, allowing the Government to concentrate on the proper provision of social care for those who cannot afford to pay above any insurance prospect?
Why have the Government spent so long dithering about implementing Dilnot when they should have been thinking about a much more concerted approach to dealing with these issues, to encourage as many people as possible to support themselves while shoring up the pitiful state of our social care system at the moment? There is no plan. We are promised a White Paper in December. Does any noble Lord think that this is going to be well thought through in a way that will deliver a good social care system for us going forward?
What about carers? The right reverend Prelate asked what this would mean for carers. I would just say to him, as Carers UK has said, that carers have been propping up a chronically underfunded healthcare system at huge cost to their own personal health, finances and ability to stay in work. It is very telling that nothing, in all the claims the Government have made, has been said about how carers will be helped.
Paul Johnson of the IFS recently described our social care system as the unfinished business of the National Assistance Act 1948. It enshrined, he said, a Poor Law philosophy of both needs-tested and then means-tested moving into the social care system, to be run in parallel with the free at point of use NHS.
This Bill is not the answer to that. It will not transform social care; it will not help care workers get the pay, terms and conditions they deserve; it will not help unpaid family carers. Instead, we have a huge, missed opportunity and a tax on the youngest and lowest-paid workers for the benefit of the better off. This Bill will not do.
As well as its regressive nature, national insurance is levied only on earnings and not on unearned income, so those in work contribute more. In addition, increasing national insurance increases the tax gap between employees and the self-employed, and the gap between the tax that people pay on their employment income and the tax that they pay on income from renting out property. Those last two points were compellingly covered by the noble Lord, Lord Macpherson.
None of this feels fair to me. As Paul Johnson, director of the Institute for Fiscal Studies—much quoted already in this debate; I hope he is listening—has said previously:
“Funding social care just from national insurance would be very inequitable.”
He pointed out that the levy on employee earnings and employer wage costs, despite applying to working pensioners and running alongside an increase in tax rate dividend—we do not know what that will be yet—remains
“a tax which will be overwhelmingly borne by workers with very little coming from pensioners.”
That is a serious concern.
We already know that the vast majority of the money raised will go to the NHS, including £5 billion for healthcare in the devolved nations, to increase capacity and help with the backlog of treatments built up over the pandemic. Of course that is much needed, but it leaves only £5.3 billion to be allocated to social care, and the bulk of that—£2.5 billion—will fund the cap on lifetime care costs. Ultimately that leaves, by my calculation, some £2.8 billion over three years for social care reform, which is so much lower than many respected commentators, such as the Health Foundation, have said is needed. Indeed, a total reform package which included investment to improve access to social care, paid workers decent wages and enabled providers to deliver higher-quality care is estimated by the Health Foundation to cost about £12 billion, as the noble Lord, Lord Hunt, said. That sounds a lot but, to put it in perspective, it represents about a month’s NHS funding or 0.6% of GDP.
Now that the Government have finally published their proposals for social care, it is time to start the long-overdue cross-party talks that have been promised for years to bring on a proper, long-term, sustainable solution that ensures that everyone gets the quality care they need, which this short-term fix clearly does not. For me, nothing should be off the table in those long-term cross-party talks; they should certainly include looking at other sources of income and wealth. It seems illogical that income from property rental is excluded, so we end up with a situation whereby a relatively low-paid pensioner earning a little extra to help make ends meet will end up paying national insurance, whereas a property owner receiving a good income from rent will pay nothing, a point made by the noble Lord, Lord Eatwell. To throw in another idea, how about taxing the IT giants in the digital economy—the Facebooks and Googles of this world—so that they can start making a proper contribution to health and social care?
I have long believed that we should look for a long-term solution through the prism of intergenerational fairness, in which all generations contribute but no one generation is impacted unfairly. That will be vital to ensure greater buy-in across the generations. Although it may be a bit out of fashion, I have always sympathised with the recommendation of the Barker commission back in 2014 that the over-40s pay an additional national insurance contribution earmarked for adult social care. However, proper cross-party talks involving a wide range of stakeholders are far more likely to come up with a long-term funding solution that sticks, rather than being a political minefield in every general election.
This is a deeply flawed Bill which fails to set out a plan to fix the crisis in social care or improve pay and conditions for social care workers. Only a small proportion of the money raised will go to social care over the next three years, and even that is not guaranteed. It is deeply concerning that there is no commitment that Parliament will get a vote on the social care plan when it is finally published before spending the money it raises.
I end by asking the Minister to explain more convincingly than I have heard so far why the Bill was brought forward before details of the Government’s social care reform plans for England have been published—which is very much the wrong way round, as many other noble Lords have said. Can he also clarify whether the cap on lifetime costs will be available only for those starting care from 2023—that is, it will not apply to those already in the system? If that is the case, it strikes me as very unfair.