New Clause 32 - Costs of residential care (No. 2)

Finance Bill – in a Public Bill Committee at 6:30 pm on 25th June 2002.

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''.—(1) The income for a year of assessment of an individual who in that year—

(a) is in need of residential care,

(b) receives such care, and

(c) pays for it himself,

shall, subject to subsection (2), be treated as reduced by 50 per cent. of the amount of the payment.

(2) The amount by which an individual's liability to income tax for a year of assessment is reduced under this section shall not exceed the amount by which it would be reduced if the higher rate of income tax for that year were the same as the basic rate.''.—[Chris Grayling.]

Brought up, and read the First time.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

I beg to move, That the clause be read a Second time.

I should like to try to take advantage of some of the finance just mentioned by my hon. Friend the Member for Fareham in his new clause. This new clause is designed to drive to the heart of what I believe remains one of the most significant problems for the elderly in our society, namely, the financing and support of those in residential care. At the moment, elderly people who go into residential or nursing care initially pay for themselves. They do so, first, out of their income and, secondly, out of the sale of their assets. Thirdly, when

they get down to a relatively low threshold, the state takes over and pays the bill.

The reality is that someone living off, perhaps, income from a not terribly substantial old age pension and some savings income pays tax to the Government before paying for the cost of his or her residential care. I think that that is wrong. It is wrong in principle because it makes it more difficult for those people to pay their way. It is also wrong from the point of view of the Government because it brings sooner the date on which the Government take over responsibility for paying.

It also gives rise to an iniquity that, I know, causes huge frustration to elderly people around the country. Hon. Members on both sides of the Committee must have experienced knocking on the doors of people, at election time or in between, who say that they feel deeply frustrated because they have saved all their lives, put some money aside for old age and bought and own their own home, but are expected to pay for their residential and nursing care themselves, whereas, by contrast, those who have not made provision for themselves have the state pick up the Bill. On numerous occasions, people have expressed to me frustration that they are not able to leave property to the next generation or make adequate provision for themselves because of this system.

It seems to me that one way of tackling that—at a cost, and I shall be interested to compare my figures on the cost to the Minister's—would be to change the approach to create a fairer environment for those paying for their own residential and nursing care. This would, I think, benefit the Government financially as well as costing them financially. My proposal is that an individual paying the cost of residential and nursing care should be able to offset 50 per cent. of the cost of that care against basic rate taxation. I have picked 50 per cent. because inevitably in retirement, whether or not one is in a residential home, one has costs—the general costs of living and buying food. It is right and proper that the state should expect a decent contribution towards the cost of residential and nursing care from those able to make it. However, providing tax relief on 50 per cent. of that cost reflects the fact that, when one goes into a residential or nursing care environment, one acquires an extra raft of costs arising from one's dependency on others and inability to fend for oneself. Those are costs that one would not otherwise incur.

If we say to those people, ''We accept that you have limited means and are paying out most, if not all, of your pension income and drawing substantially on savings and the value of your house to pay for this, so we will allow you to offset half that cost against income tax as a relief,'' that would not be a significant expense in the gamut of public expenditure. My betting is that it would cost somewhat less than £100 million to achieve, and I will tell the Paymaster General how I reached that figure. The Government would get much of that money back through the reduction in costs for the state by meeting the costs of those people in residential care at an earlier date than would otherwise be the case.

Let me conclude by telling the Paymaster General how much I think that that would cost. There are 42,700 people in this country currently paying for their own residential and nursing care. Allowing an estimated annual cost of £24,000 a year for those people, they are paying a total of just over £1 billion a year. If one allows them basic rate tax relief on half that, the cost would be just over £112 million—if one assumes it is entirely at income rather than savings rates of taxation. By the time one takes into account the fact that considerable parts of that will come from savings rates of taxation, which are lower, the sum would be less than £100 million.

I believe that much of that money would be recouped through reduced costs to social services and the Government of funding those people at a later date. I do not believe that ultimately the cost is anything like that total, but I think that the gesture that the Government would make to those elderly people in adopting that approach would be such as to make it well worth while, socially as well as financially.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

This is an interesting turn of events towards the end of the Committee stage of the Finance Bill. The hon. Member for Fareham seeks to raise the money in his new clause, and his hon. Friend the Member for Epsom and Ewell seeks to spend it in the subsequent new clause, taking the idea of Government-in-waiting beyond normal expectations.

Our costings come to about £200 million, based on average fees, annual costs and the number of individuals concerned. That is not a small amount of money, but it is not just a question of the cost. It is a question of the principle and how the Government approach the provision for those who require residential care. The new clause, which I will ask my hon. Friends to oppose should the hon. Gentleman decide to put it to a vote, would benefit only those who are paying for their care. The principle for charging for care is not new. Indeed, I seem to remember that the Conservatives were quite keen on advocating payments for care. Where appropriate, it is not unreasonable to expect that people should pay some contribution. They pay the full cost only if their capital is worth more than £16,000 a year.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Yes, £16,000 in total. In many cases, however, the cost of those in residential care has already been met by local authorities. The Government have made it clear that we are committed to providing a wide range and greater volume of high-quality services in response to people's needs. We are pursuing policies that will allow people to remain in their homes, which many people want to do. When they do go into residential care, Government policy has been that there should be a system of charges that is fair to the residents of the care homes, and those who care for them.

Changes were introduced last year that have been financially beneficial to a great number of the residents to whom the hon. Member for Epsom and Ewell is directing his attention. Those followed on from the recommendations of the royal commission for long-term care. The Government have implemented several

of those changes in the residential care charge system. They give residents more options as to how they pay for their care, and have ended the unfair system whereby nursing care was free in some settings but not others. The funding for local authorities for the provision of personal social services has increased, on average, by 3 per cent. a year in real terms during the period from 1996–97 to 2002–03. From 2003–04 to 2005–06, it will increase by 6 per cent. a year in real terms. That is £3 billion of new money, invested in a way that I think is a far better use of resources, particularly given that so many people desire to remain in their own homes and be supported there.

This is about choice and how the money is spent. Even compared with the hon. Gentleman's options, it is a very substantial amount of money. Given the desire to provide for a number of options, including remaining in one's own home, I suggest to the hon. Gentleman that the money is far better spent in the way that the Government intend to invest it, which is to offer those wider options and support people in the home, having made the changes already to the system of care charges.

Obviously, this is an important policy area and the Government continue to look at it closely—not the Treasury, but other relevant Departments. I hope that the hon. Gentleman will feel that, although he has made his case, he does not wish to press his new clause at this stage. If he does, I shall have to ask my hon. Friends to oppose it.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

I am unconvinced by the Paymaster General's argument, but I was not really expecting to be convinced by it. My proposal would be a substantial tax cut for those who have made provision for old age, and would be extremely popular, especially in the residential care home sector, which I do not think has received anything like the attention from the Government that it deserves and has hoped for. Given the Government's failure to live up to the suggestions made in the royal commission's report, the proposal would add significantly to the process of alleviating the financial pressures for those in such homes.

That said, time is running on and I do not intend to press the matter to a vote. I hope that the point has been made, and I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.