Social care: What's happened to the 'dementia tax'?

Depending on which news outlet you favour, you will have read – in the wake of yesterday's Queen's Speech – that the Conservatives' controversial social care plans are either dead or still very much in the offing.

According to the BBC, the speech setting out a two-year legislative agenda "paved the way for the ditching of the controversial 'dementia tax' in England".

But The Sun says "Theresa May's flagship manifesto plans on social care have not been ditched and could still go ahead" following the speech.

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The different interpretations are based on the fact that the speech did mention a green paper – a consultation – being brought forward to reform the system in order to make it fairer.

But it "stopped short of making specific pledges on the details", says the BBC.

The Tories made specific proposals in the manifesto that would have increased costs for property-rich pensioners, says The Guardian, and always said they were going to bring these forward in a green paper.

Dementia Tax

So what exactly was the plan that caused such a furore? And why is it thought to have destroyed May's majority?

The Conservatives' social care policy was, according to the party, designed to tackle the issue of a rapidly ageing population – the number of over-85s will more than double in the next two decades – and to increase fairness between the generations.

At its core was a pledge to make the means-testing systems for those who receive long-term care at home the same as for those who go into care homes.

In practice this would mean that a house that was still lived in would be included in the means test and its value used towards care costs.

To offset this, the Tories planned to increase the minimum threshold below which councils pick up all care costs to £100,000. The party also promised that no one would need to sell their home in their lifetime to pay for their care.

Dilnot dropped

This was a huge shift from the plans set out in the 2015 Conservative manifesto, which David Cameron's government put on the statute book but never brought into force.

That system was based on proposals by the economist Sir Andrew Dilnot for a lifetime cap on care costs. His 2011 report proposed a £35,000 cap; the Tories legislated for a limit of £72,000.

People going into care homes would have had help towards their care costs if their assets fell below £118,000 (including their home), but the hard floor below which their assets could not fall would remain at £14,250.

Those receiving care at home would have a lower top-end threshold of £27,000.

The Tories' manifesto for the most recent election said these proposals were dropped because they "mostly benefitted a small number of wealthier people".

Which is fairer?

That charge is at least partially true.

Under the current system, whether you receive care at home or in a residential care home the top-end threshold for full self-funding is the same at £23,250.

If you're so ill that you need to leave your own home your housing asset is fair game and you will pay a great deal more than the average person who receives care at home. It's a hefty dementia tax that affects the most ill hardest.

The 2015 Dilnot-based system would have increased the limits for people in care homes. But assuming that most people's largest asset is their house the inheritance of those who can stay at home would still be more protected.

Plus, any flat-rate cap always makes a system more regressive: it represents a smaller share of the assets for the very wealthy compared to those with much less.

In short, people who go into care would have £100,000 of assets protected under the latest proposal rather than between £14,250 and £23,250. Property rich pensioners would be subsidising the system as a whole and filling a funding shortfall.

The plans would also mean that the principle that those who are ill are financially punished would not only be unchanged but would spread more widely.

So what now?

It's likely that the BBC's interpretation of the Queen's Speech is the most reliable.

With no parliamentary majority and most parties (including the Democratic Unionist Party it hopes to do a deal with) likely to oppose the plans, the Conservatives are unlikely to press on with the proposals set out during the campaign.

The only part ministers are committing to from the election trail is the lifetime cap that was hastily re-introduced and became known as an embarrassing U-turn for "strong and stable" May.

But according to the London School of Economics, the previous cap would have effectively increased costs to the public sector by more than £2bn a year – and this would rise over time.

Let's not forget, too, that the system is already underfunded to the tune of billions of pounds.

What are the options?

It's hard to see how the circle can be squared.

The Conservatives wanted to make up the funding shortfall by extending the principle of individuals paying for their own care.

In contrast Labour's manifesto pledged to introduce a national care service and fund it with an additional £3bn a year raised from wealth taxes, a broader increase in working age taxation, or both.

It's also worth noting that Labour was planning to fund its overall spending plans in part by reversing a new inheritance allowance that would add up to £140,000 to the death tax on homes worth between £650,000 and £1m.

Dilnot proposed a potential middle ground of dropping the pensions triple-lock and some universal pensioner benefits like winter fuel payments to provide the extra money needed to make a care cap viable.

The Tories had proposed both of those measures, but they were dropped from the Queen's Speech altogether and won't happen now.

It's likely that the much-needed reform of social care will simply be "kicked into the long grass", says former pensions minister Steve Webb. That's really putting the "green" in green paper.