Incentives are needed to fix our broken social care system
If I could choose just one phrase to sum up what politicians and civil servants need to know – the single maxim that should be tattooed on the insides of their eyelids – it would be this: “People respond to incentives.”
It’s such a simple idea. But it’s extraordinarily powerful. Whenever something in government – or indeed the economy – is working properly, it always turns out to be because the right incentives are in place. And when they aren’t, disaster follows.
Yesterday, our think tank published a new report by the Conservative MP Damian Green on social care called Fixing the Care Crisis. We did so with a certain level of trepidation – it was, after all, a new blueprint for social care that was at the heart of the Tories’ disastrous election campaign in 2017. After which the Prime Minister gave Green, then her First Secretary of State, the unenviable task of coming up with a solution.
The thing that most people know about social care is that it needs more money. And they’re right: it does.
As the population ages, more and more of us will need more and more help in our old age. There is a significant funding gap already – something which Green’s report highlights and suggests possible solutions for.
But as ever, when you actually dig into the subject, you find out that incentives are utterly crucial.
Back in the 1980s, the Thatcher government asked Sir Roy Griffiths to come up with a new blueprint for social care. A major problem at the time was that the bill for residential care in care homes was soaring, but quality wasn’t following. As Sir Roy said, care was “everybody’s distant cousin, but nobody’s baby”.
The solution was to hand over responsibility for care to local councils, which would oversee the system, though no longer manage the majority of the actual care homes themselves.
And here’s where the point about incentives comes in. For councils, older people thereby became a budgetary burden. Every extra pensioner living in your community was a social care bill waiting to happen.
So, as Green’s report sets out, councils became incredibly reluctant to approve new care homes or specialist retirement housing in which elderly people could maintain their independence (which is also more expensive for developers to build).
Between 2012 and 2017, the number of care home beds in England increased by just 4.3 per cent – while the number of people aged over 85 rose by 16.2 per cent.
Similarly, Britain has just a tenth of the level of retirement housing compared to similar countries. This of course compounds the housing crisis by making it less likely that people will move out of big family homes towards the end of their life, meaning that fewer properties are available for younger families to move into.
And while we’re talking about knock-on effects, the shortage of care beds and retirement housing flows back into the NHS. Hospitals can’t discharge patients who are medically well but have no care in place, meaning that they stay in expensive hospital beds – and new patients arriving at A&E find that there’s no room at the inn.
All of this also means that social care is not just a broken market, but a fragmented one, with few economies of scale and a desperate shortage of modern, up-to-date facilities. Astonishingly, productivity in the sector has actually fallen by 20 per cent since 2000, meaning that we are having to pump £3.4bn more in for the same level of output.
Green’s central insight is that the best way to cut through the thicket of complexity and controversy around social care is to copy an existing, universally acceptable model: the pension system.
Under this system, the government provides a set level of support to ensure that everyone is taken care of, in the form of the state pension. But we also nudge, push, and occasionally shove people towards providing for themselves beyond that.
With social care, he argues, everyone should be eligible for support from the state – a “universal care entitlement”, set at a level that fills the current funding gap.
But beyond that, you should be encouraged upon reaching retirement to put a set amount of your savings, or a proportion of your housing wealth, towards buying a “care supplement” – an insurance policy that upgrades your care to whatever level of luxury that you can afford (and, of course, means that the risk of having to sell your home is eliminated).
Not only does this make sense on its own terms. It also means that while councils would still manage social care, they would no longer fund it, and so would be incentivised to actually provide for their elderly residents, rather than trying to minimise their number.
As with the NHS, the easy solution on social care is to simply say “give it more money”. But that can be not only lazy, but actively harmful if it means you stop thinking about how the incentives within those systems actually play out, and how to make them work better.IF I COULD choose just one phrase to sum up what politicians and civil servants need to know – the single maxim that should be tattooed on the insides of their eyelids – it would be this: “People respond to incentives.”
It’s such a simple idea. But it’s extraordinarily powerful. Whenever something in government – or indeed the economy – is working properly, it always turns out to be because the right incentives are in place. And when they aren’t, disaster follows.
Yesterday, our think tank published a new report by the Conservative MP Damian Green on social care called Fixing the Care Crisis. We did so with a certain level of trepidation – it was, after all, a new blueprint for social care that was at the heart of the Tories’ disastrous election campaign in 2017. After which the Prime Minister gave Green, then her First Secretary of State, the unenviable task of coming up with a solution.
The thing that most people know about social care is that it needs more money. And they’re right:
it does. As the population ages, more and more of us will need more and more help in our old age. There is a significant funding gap already – something which Green’s report highlights and suggests possible solutions for.
But as ever, when you actually dig into the subject, you find out that incentives are utterly crucial.
Back in the 1980s, the Thatcher government asked Sir Roy Griffiths to come up with a new blueprint for social care. A major problem at the time was that the bill for residential care in care homes was soaring, but quality wasn’t following. As Sir Roy said, care was “everybody’s distant cousin, but nobody’s baby”.
The solution was to hand over responsibility for care to local councils, which would oversee the system, though no longer manage the majority of the actual care homes themselves.
And here’s where the point about incentives comes in. For councils, older people thereby became a budgetary burden. Every extra pensioner living in your community was a social care bill waiting to happen.
So, as Green’s report sets out, councils became incredibly reluctant to approve new care homes or specialist retirement housing in which elderly people could maintain their independence (which is also more expensive for developers to build).
Between 2012 and 2017, the number of care home beds in England increased by just 4.3 per cent – while the number of people aged over 85 rose by 16.2 per cent.
Similarly, Britain has just a tenth of the level of retirement housing compared to similar countries. This of course compounds the housing crisis by making it less likely that people will move out of big family homes towards the end of their life, meaning that fewer properties are available for younger families to move into.
And while we’re talking about knock-on effects, the shortage of care beds and retirement housing flows back into the NHS. Hospitals can’t discharge patients who are medically well but have no care in place, meaning that they stay in expensive hospital beds – and new patients arriving at A&E find that there’s no room at the inn.
All of this also means that social care is not just a broken market, but a fragmented one, with few economies of scale and a desperate shortage of modern, up-to-date facilities. Astonishingly, productivity in the sector has actually fallen by 20 per cent since 2000, meaning that we are having to pump £3.4bn more in for the same level of output.
Green’s central insight is that the best way to cut through the thicket of complexity and controversy around social care is to copy an existing, universally acceptable model: the pension system.
Under this system, the government provides a set level of support to ensure that everyone is taken care of, in the form of the state pension. But we also nudge, push, and occasionally shove people towards providing for themselves beyond that.
With social care, he argues, everyone should be eligible for support from the state – a “universal care entitlement”, set at a level that fills the current funding gap.
But beyond that, you should be encouraged upon reaching retirement to put a set amount of your savings, or a proportion of your housing wealth, towards buying a “care supplement” – an insurance policy that upgrades your care to whatever level of luxury that you can afford (and, of course, means that the risk of having to sell your home is eliminated).
Not only does this make sense on its own terms. It also means that while councils would still manage social care, they would no longer fund it, and so would be incentivised to actually provide for their elderly residents, rather than trying to minimise their number.
As with the NHS, the easy solution on social care is to simply say “give it more money”. But that can be not only lazy, but actively harmful if it means you stop thinking about how the incentives within those systems actually play out, and how to make them work better.