Money: Gambling on growth to fund old-age care

Have the experts got their sums right? Clifford German takes a look

Everyone agrees that we need an urgent solution to the problem of how to pay for the care of our elderly. Earlier this month the Royal Commission on long-term care published its findings. Yet the Government's reported lack of enthusiasm must make Sir Stewart Sutherland - the Edinburgh academic who chaired the commission - wonder whether he and his colleagues were wasting their time.

The report's main recommendation was to separate the costs of care from the accommodation and living costs faced by people in residential care. Most of the commissioners wanted the state to pay for the care element, regardless of the individual's income and assets. The commissioners also wanted to see more financial support for those living at home who need extra care.

It's easy to see why the Government was less than enthusiastic. Implementing the report in full would cost the state up to pounds 1.2bn immediately. But the majority of the commissioners think economic growth will cover most of the long-term increase in costs. In this scenario, caring for the elderly would require only 2.6 per cent of the projected tax take in 2051, but doubts have been expressed about the maths.

The 12 commissioners agreed the current situation was far from satisfactory. Sooner or later most old people need some sort of care, usually in their own homes and most of it provided by unpaid carers, usually relatives. Only one in five men and one in three women actually goes into a residential home or nursing home.

The average cost of a residential home is around pounds 12,500 a year per person, more than that in south-east England. About half the cost of a residential home is made up of "hotel costs" - food and accommodation - and the rest goes on what the commission calls "personal care", which covers the special needs of older people such as washing and dressing.

Going into a specialist nursing home increases the average cost to around pounds 18,000 a year and once again fees of pounds 25,000 or more are not uncommon in the more expensive parts of the country. More than 60 per cent of the over-65s do not have the money to pay for care out of income and are already entitled to free care, but those who do have some capital - including the value of their home - find that even the average stay of three years in a home exhausts their financial resources. They may be left with a bare pounds 10,000 to pass on to their children before the state takes over the full costs of continuing in care.

It is possible to take out insurance to cover the costs of long-term care but the premiums can be very expensive. The report argues that private insurance companies cannot and do not want to act alone to finance an increase in private provision for this. But they could finance part of the cost at much lower premiums if the state agreed to shoulder part of the burden.

Barbara Reilly, of the market leaders PPP Lifetime Care, says: "If these recommendations are adopted, we look forward to developing new insurance- based solutions to help people cover the remaining costs."

Two years ago the preferred solution seemed to be a partnership system where, once individuals took out insurance to cover all or part of the cost of the first two or three years, the state would then step in to shoulder the whole of the remaining costs, limiting the maximum liability of their insurance companies and allowing individuals to ensure that their homes did not have to be sold to cover the cost. The commission decided that this was not a particularly effective answer, even in some states of the US where the system has been applied, and inevitably many existing pensioners would be too old, too poor or too poor a risk to qualify for immediate private cover.

The report recommended that the state should take over part of the costs of care but take them over immediately, making the cost of insuring against the uncovered costs a more economic proposition.

But the commission was split, with 10 of the 12 members wanting the state to cover the cost of nursing care in a specialist home, and also personal care - which accounts for roughly half the cost of a stay in a residential home. This would leave only the cost of food and accommodation to be paid for by the individual out of income, assets or insurance.

The two minority members feel their colleagues have underestimated both the size and cost of the future problem. They would be prepared to see the state pay for nursing care but not for personal care. In effect, they would halve the cost of state aid and double the costs that old people would have to pay for themselves.

There are no prizes for guessing which option holds more appeal for the Treasury.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific