It’s time to be honest about the funding of social care

For 23 years, year after year, governments of both persuasions cut the real value of the winter fuelallowance. In 2000 it was set at £200. That’s where it stayed until this year, a reduction in its realvalue of nearly half. I heard not a peep of complaint over that entire period. Meanwhile, pensioner incomes grew at twice the rate of those of working age. Yet the decision to finally end this payment has caused outrage.Our social care system has been a mess for at least three decades. Tens of thousands of people have had to give up their life savings, indeed their homes, to pay huge and uninsurable costs for their care. Politicians of all colours have lamented this fact. We have had promises, royal commissions andreview after review. Finally, the Dilnot Commission proposals, that costs payable by those in needshould be capped, appeared to have been accepted by all. That’s right, appeared to have been, but the Conservatives never actually made the change. And this policy was actually the biggest casualty of Rachel Reeves’ July statement, despite Wes Streeting, now the health and social care secretary, saying only weeks before the election that Labour had no plans to resile from it. That represents a huge policy about-turn, besides which the policy on the winter fuel payments pales into insignificance.An opposition leadership election, in which all the candidates say they want to keep taxes low andreduce the size of the state, is under way. None, so far as I can tell, has a single credible answer tohow they would achieve this, which is perhaps not surprising, given the evidently shocking state ofmany of our public services. All, nevertheless, vociferously denounce that cut to the fuel allowance.All were part of a government that raised taxes and spending and expanded the scope of thewelfare state. All want to increase defence spending, cuts to which have been just about the onlyreliable source of funding for other services for decades.The new prime minister welcomes a report on the dire state of the NHS, which makes patently clearthat a big part of its problem has been a lack of investment in buildings, machinery and technology, alack that will take tens of billions of pounds to rectify — at the same time, and in the same speech, restating the absurd promise that he will not raise taxes on “working people”. There are no taxes that don’t hit working people. And if he means by working people those on average sorts of earnings, well, their direct tax bills are already lower than they have been in half a century.A Scottish finance minister blames budget cuts on Westminster-imposed austerity when her countrybenefits enormously from the Barnett formula that provides for far higher spending north of theborder than south of it. What we in England wouldn’t give for the higher welfare benefits, free highereducation and higher public sector pay that the formula has allowed her government to provide forthe citizens of Scotland with only slightly higher levels of taxation.A government claiming a new era of honesty and transparency in public finances pretends it had noidea before the election that the public finances were unsustainable. Then it hammers home amessage about an unexpected £22 billion “black hole”, much of which it knew about and had controlover. And part of which — what has happened to the so-called Treasury Reserve — it simply refuses toexplain. Speculation is now rife that rather than meet some of the challenges head on, it will resort toredefining debt rules, something that the chancellor seemed to rule out before the election.Last week into this maelstrom of denial, obfuscation and avoidance, the Office for Budget Responsibility lobbed an enormous brick. Whatever the details of fiscal holes over which we are now quibbling, the public finances are unsustainable over the long term. You don’t have to take its precise figures too seriously — we are not going to end up with debt at nearly 300 per cent ofnational income — to accept the urgency. Over the coming decades we will spend more on health and pensions. Much more. We will lose £30 billion or so of revenues from fuel duties. We will spend billions on climate change mitigation. No longer will we be able to raid the defence budget to pay for any of this.
In all the chatter in the run-up to October’s budget, about tweaks to taxes here and changes to definitions there, these are the realities. Even if we are on course to meet the present, ultra-loose fiscal target that debt should be falling in five years’ time, our public finances will still not besustainable without serious cuts to the scope of the welfare state or increases in taxes.So we will have to make choices. Cutting winter fuel allowance is one tiny choice. Of course, it was ludicrous for a government minister to claim that it was a choice necessary to prevent immediatefiscal armageddon, but it is incumbent on those who don’t like it to say what they would proposeinstead.Not extending the scope of the welfare state to insure against the cost of social care is a bigger choice. It’s a choice that our welfare state should not do exactly what it was set up to do, to provide social insurance to protect people from risks that they cannot insure themselves. But it would cost more and, if we are not willing to pay for it, it is time, perhaps, to accept the consequences. If we, to ourcollective shame, are never going to find the political will to finance social care for some of our mostvulnerable citizens, as it seems increasingly obvious that we are not, then it’s much less cruel simply to say so.
Paul Johnson is director of the Institute for Fiscal Studies