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Social care reforms are another missed chance for change

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Normally, I have a certain respect, even awe for the young, smart officials who provide advice for the chancellor. But this summer, having repeatedly stumbled across the key task set for the Treasury brains reporting to 11 Downing Street, all I have felt is pity.

Once Boris Johnson’s government decided more or less to follow the sensible, yet radical reforms to social care recommended by economist Andrew Dilnot, the question became how to fund the additional costs, which amount roughly to £10bn a year, a sum equivalent to 0.5 per cent of national income.

If implemented as Dilnot envisages, the reforms would give care providers in England — it is a devolved service — significantly more money to improve the creaking provision available today. This would come with new guarantees for people of all incomes that, unlike at present, their finances would not be wiped out if they were unlucky enough to require the extremely expensive social care associated with dementia and prolonged immobility.

Treasury officials are ideally placed to devise a fair, efficient and transparent funding mechanism for the reforms. With the state proposing to correct a longstanding market failure, the universal new rights, mostly for the very elderly, would require funding from taxes with broad bases paid by everyone. That would suggest higher value added tax or income tax rates, with the main difference that the latter is more progressive.

Announcing higher rates of these taxes, the prime minister would not even need to break his manifesto “tax guarantee” not to touch these taxes in this parliament. The reforms would take a few years to implement, and collection of the revenues could wait until 2024 or even beyond.

But it appears that the Treasury has not been tasked with finding the best way to finance social care reform. Instead it has been asked to justify an increase in a narrow tax on jobs and earnings not paid by pensioners. When asked, even the smartest people in the Treasury struggle to explain why higher national insurance should fund better social care. I have heard three potential explanations doing the rounds.

The first is simply to say “one plus one equals one”. Ministers are thinking of binning their maths and economics textbooks and stating that, if employees pay one percentage point more in national insurance contributions on their pay, and if employers are also charged one percentage point extra on pay bills, taxes have only risen one percentage point. The audacity of this explanation is impressive.

For those unconvinced by such dodgy calculations, the second explanation is that the devolution of income tax renders any increase paid by the English impossible to impose on Scots. This is both true and irrelevant. If London were to give the English better social care funded by a devolved tax specific to England, the nationalist-led Scottish government would face a difficult choice. It could decide either to follow suit, demonstrating weakness, or explain to the Scottish people why they should continue to suffer a broken social care system, unlike the English.

If neither of these ploys works, the third tactic I’ve heard is an age-old trick in government: just lie. The favoured untruth in this case is that national insurance revenues are already earmarked for healthcare, so this tax is better suited to funding social care than other levies. Little could be further from the truth.

You have to feel sorry for smart officials who have spent the summer trying and failing to find decent supporting evidence for a policy position handed to them by ministers. Final decisions have not been taken, I understand, so there is still a chance to devise fair and efficient financing for a genuinely worthwhile social care reform package. But at the moment I would not bet on it.

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