The cost of the UK’s ageing population is set to define politics for the next three decades. The Dilnot Commission on the funding of long term care, like the Turner Commission on pensions and Wanless Review of NHS funding, heralds another opportunity for an honest debate about the fiscal cost of demographic change.
Reform’s latest report, Old and broke, argued that when developing a plan to rescue the public finances there is no greater mistake than to ignore the effect of demographic changes. Population ageing is no longer a problem for the distant future. In fact, the fastest growth in the pensioner population in the whole of the 21st century will take place in this Parliament. Between 2011 and 2016, the number of people aged 65 and over will rise by 1.4 million, while the working age population below 50 will fall by 160,000.
As the UK’s population gets older spending in areas like health, pensions and long term care is accelerating. Reform’s analysis shows that annual expenditure on pensions is projected to increase by around 2.1 per cent of GDP by 2041, while expenditure on the NHS and care will grow by at least 2.6 per cent of GDP. The cost of long term care is set to rise by 0.5 per cent of GDP by 2030 to 1.7 per cent.
The Dilnot Commission recognises the need for a public-private partnership to meet these costs. It eases the mean test, makes the system more predictable and allows individuals to prepare for their own needs. However like Turner and Wanless, Dilnot advocates greater public funding. Estimates vary, but capping private contributions at £35,000 is likely to require an additional £1.7 billion a year from the taxpayer. Given the parlous state of the public finances it is not clear how this can be afforded.
While his proposals for funding long term care may not be affordable, Dilnot has proposed a model that could meet the costs of the major areas of age-related spending: the NHS and pensions. Securing public and political acceptance of individual contribution to fund social care could help steer the debate on how to make the UK’s public finances sustainable in the long term.
Thomas Cawston is a Researcher at the independent, charitable, non-party think tank Reform.