- Good intentions when it comes to reforming social care
- £12 billion annually over the next three years
- The tax itself
- What will the tax support?
- How this will affect you
Investment Quorum is proud of the track record it has of honouring its commitments: the commitments it has made to safeguarding the future with its new Sustainability portfolios, the commitments it has made to the various charities it supports with its fundraising initiatives and the commitments it has made (and continues to make) to its clients. Indeed, it is in recognition of these commitments that FTAdviser has included us in its 2021 list of the UK’s Top 100 Financial Advisers.
We have therefore decided to devote this week’s Strategic Insights article to something that affects all of us: the need we all have – at some point in our lives – for health and social care.
Such good intentions when it comes to reforming social care…
If you have lived long enough, then you will have seen successive governments over the years flirting with the idea of reforming social care funding… only to get distracted. They might find themselves taking the country to war, for example or, they decide that on balance, it’s all too complicated. Or as Ed Balls said this week, they just get voted out by the electorate before they’ve had a chance to bring in any substantial changes.
The new Health and Social Care Levy is the current Tory government’s attempt to actually do what its predecessors failed to do.
There aren’t many certainties in life… getting older and being less independent are among the few that there are. The overarching aims of the changes that Boris Johnson announced to the Commons on 7 September set out to address these certainties and are threefold: tackle the long-term challenge to social care posed by an ageing population, help replenish the NHS’s disturbingly empty coffers so it can recover from the Covid shock and clear the backlog of patients waiting for treatment, and fund efforts to integrate health and care services.
£12 billion annually over the next three years
The government’s aim is to raise £12 billion annually over the next three years to fund its proposed health and social care reforms. The lion’s share (approximately £30.3 billion) will go to England over three years. This is earmarked in the first instance for the NHS, before being used to help the beleaguered social care sector.
It’s worth pointing out that the government won’t be allowed to do anything else with this money: it will be ring-fenced, and invested exclusively in health and social care, as set out in the government’s White Paper on “Building Back Better”.
The tax itself
In the short term (starting April 2022), the reforms will mean a 1.25% increase in National Insurance rates for employers and employees, as well as the self-employed. The new tax “proper” is not expected to be launched until 2023, so we have a few more months to determine whether or not it can actually work… as well as who will be affected by it and to what degree.
Anybody who currently has to pay National Insurance contributions will be required to pay the tax. Importantly, it will be extended to anybody who continues to work beyond retirement age. There will be similar increases for people earning dividend income from shares. It will also impact business owners and investors.
Then starting in April 2023, it will be legislatively separated from National Insurance contributions, at which point NICs will return to their 2001-2022 levels.
What will the tax support?
The proposal to place an £86,000 cap on adult social care costs is described as a “seismic change” in the way we pay for care. As things currently stand, if you have assets worth over £23,250, you have to pay for your care needs in full. So people with serious medical conditions (including dementia) have been faced with the prospect of losing their life savings and their home – at a particularly difficult time in their lives.
As long ago as 2011 under the coalition government, a commission that was set up to investigate the funding of care and support recommended placing a cap on care costs and increasing the upper capital limit. The resulting 2014 Care Act actually legislated such a cap. However, when it came down to the nitty-gritty, the minutiae of the proposed cap were not quite those set out by the commission.
The Care Act is essentially a unified legal framework for deciding how care and assistance should be charged for. What this means is that when a local authority is assessing whether or not it should cover the cost of a person’s care and support, it does so by means testing them.
The proposed reforms outlined in the UK government’s policy paper on health and social care include:
- Capping personal care costs at £86,000, starting in October 2023.
- Increasing the threshold above which a person is no longer eligible for financial support towards their social care costs to £100,000, also starting in October 2023.
- Increasing the threshold below which somebody is no longer required to draw on their own capital in order to contribute towards their care costs from £14,250 to £20,000.
- If a person had between £20,000 and £100,000 worth of capital, the local authority may cover the costs of some of their care. However, they may be required to contribute up to 20% of their chargeable assets per year (on top of their income).
- Increasing the amount of income that care recipients can keep once they have contributed towards their care costs in line with inflation, starting in April 2022.
The local authority will decide how all of the above is to be implemented. So the cap will only cover the costs of a care home or the costs of the level of in-domicile care which the local authority deems is required – not what the individual in question things that they need.
How this will affect you
There has been much discussion and debate in the news this week about just how fair the new tax is. Critics claim that people with fewer savings who qualify for financial help will still have to use more of their assets than more affluent people. Others have pointed out that the social care sector will only see £5.4 billion over three years. With social care exhausted by the pandemic, people who use care (as well as those who provide it) may feel somewhat short-changed.
Leaving aside questions about the reforms’ fairness, at the crux of all of this will be increases in National Insurance contributions for both employers and employees – including employees above the state pension age. But this is just the beginning: proposals have been formulated for even wider system reform that will eventually see the integration of health and social care… and the way they are funded.
All of this is going to mean change for you – in your capacity as an employee, an employer, an investor or a pensioner. By way of an example, the government says that the change will cost £255 a year for someone earning £30,000, and £505 a year for someone on £50,000.
Don’t hesitate to bring this up with us the next time we meet with you. We can talk you through the changes in your NICs, as well as how the dividend tax increase will affect you as an investor. And if you are a business owner, we can help you work out the impact of these changes – particularly if you take dividends as well as salary.
Nick Rolf is the Director of Private Clients
Nick spent a number of years working on global equity markets in London and Hong Kong and is passionate about investment advice and tax planning for private clients and trustees. He has expertise in estate and trust planning, retirement planning and pensions, and individual and corporate protection.
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