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small levy on Welsh residents could feed a dedicated social security fund that meant everyone could be promised adequate social care in old age – a promise that cannot otherwise be made or kept.
It could improve the present situation where old people have to sell homes or other assets to fund residential care when they need it. And the fund would have other great benefits, as it would have to be invested and could be used to boost social housing construction and the growth of promising Welsh businesses.
The levy would differ from a tax in that the receipts would not go into a general government budget. They would be hypothecated to a fund with independent trustees. A portion of those receipts would go to local authorities to expand social care provision straight away.
The greater part of the receipts would be held back for future needs and meanwhile invested to grow over time and enable even greater social provision to be made in the future as the population ages.
That investment would mainly have to be in super-safe assets like UK Government bonds or the shares of blue-chip companies. But some could be invested in property.
Funds could be made available to build social housing whose rents would pay back the money. A small part could be invested in growing Welsh businesses to help the economy as well as providing returns for the fund.
A byproduct of tackling the prospective social care crisis would be the build-up of Wales’ own sovereign wealth fund.
If ever a policy met the objectives of the Future Generations Act, this would be it. The country would be saving to meet the old-age social care requirements of current and future generations and in the process investing in worthwhile assets and enterprises. How might it work? There are currently some 1.4 million people working in Wales with an average income of about £29,000 a year. Income below £8,000 is not liable for National Insurance contributions and would not pay the levy. That still leaves annual pay of £2.8bn (1.4 million times £20,000).
If Welsh workers paid a levy of just 1%, that could bring in some £280m a year. There are different ways to carve that up.
At most, £80m could go immediately to social care, leaving £200m a year to accumulate in the fund. That would be an immediate increase of 15% in social care spending for the elderly.
The £200m could be invested to provide a return; 5% should be achievable without undue risk. Meanwhile, to bridge the care gap, that immediate £80m allocation would need to grow at 11% a year.
If the fund started in 2019, that growth would take the allocation to £400m and would enable care spending to more than double in real terms by 2035, closing the funding gap.
The money in the fund would be growing too, right up to 2035. After five years it could amount to over £1bn and after 16 years it could be at £2.6bn.
The fund would need to be over £2bn at that point to maintain the promise of care for all contributors into the indefinite future.
Of the money going in each year (growing as nominal pay does), some could be invested in rock-solid Government bonds, the largest part in blue-chip, high-income stocks and a smaller part for social housing and/or investments in Welsh growth companies.
Imagine the benefit if, for example, an additional £20m a year was being invested in social housing and nearly £10m in venture capital in Wales. Over a decade and a half, these sorts of investment could amount to £400m.
The fund’s mandate would be set at the outset. It would have its own board of trustees and the investments put in the hands of professionals of proven competence. The fund’s existence would give people confidence that the levy was truly hypothecated to social care and could not be siphoned off for other uses. Million prize once a year Suppose investments are successful and the fund grows at least as fast as needed to underpin social care. To give levy-payers a bit of fun, the trustees could declare a dividend in the form of a premium-bond style payout to random winners. A £1m prize once a year would create public interest without making a dent in the fund.
Now when people claim some social benefits, like old-age pensions, they have to show a record of National Insurance contributions. Inadequate contributions mean a lower pension. Under the levy scheme, younger workers would be paying in for much longer than older ones in order to secure the same promise of care in old age.
To make the system fairer, younger workers should therefore pay at a lower rate than older ones, who will not pay for so long.
Obviously, various schemes are possible. Workers under 35 would pay less than 1%, those in the 35-50 range would pay around 1% and workers over 50 would pay a bit more up to a limit of 2%. On an income of £500 a week, just below the Wales average, the weekly payment would be between £1.75 and £7.
No-one likes paying insurance premiums, even with a lottery ticket attached. Yet those seem reasonable sums for the assurance of dignity and care in old age and the knowledge that the country is benefiting from its very own community fund, able to make investments that improve the economy and life in other ways.