The cap on social care charges

In advance of this evening’s vote on the social care cap, I’ve put together a few thoughts on the impacts of it.

There are three main changes going on, all of which make the system more generous for people. None of them make it worse for service users. I think that’s an important starting point.

The unamended changes

The allowances for means tested care will be increased in line with inflation for the first time since 2015. This is a good thing and about time too. Almost all people with lower incomes or capital will benefit from this.

The capital thresholds are increasing dramatically. The biggest impact is the increase of the upper capital limit from £23,250 to £100,000. Previously anyone with any significant assets (e.g., a house) would have had to pay all of their care costs from the value of the house. The more expensive the property, the longer they would have had to use it to pay for the care. The cost could be deferred until after death, but it would have to be paid eventually. With these changes, many people with property (or other savings) will be able to receive help from the local authority.

The average house price where I live in Birmingham is around £230,000. As the means test only applies to your half of any shared funds, a person with a property but not much money in the bank would only have to pay their care costs for a little under a year (assuming average care home fees of £800) before they would qualify for local authority help. Without this increase the person would have had to pay the costs without support for about 5 and a half years.

The cap on care costs

The big one. The maximum cap on care costs of £86,000. This was never implemented under the previous system. Now, the most anyone will have to contribute over their lifetime is limited by this cap. In the example of the homeowner in Birmingham, they would have had to keep contributing to their care from their income and a proportion of their savings for the rest of their life. Now, after they have paid £86,000 they will not have to pay any more. With £800 a week care costs, under the original version of this policy, the cap would have been reached in around two years. The local authority would have to cover the costs from that point on. But this cap is being amended by the Government in today’s vote.

The new detail on the cap

There a two key parts to this.

Firstly the Daily Living Costs. This means that everyone has to pay the first £200 of their care home fees. This is to cover the part of their fees that go towards accommodation costs, food, heating and such-like. This is the same everywhere in the country, no matter what the costs might actually be. So the person with £800 care costs will always have to pay £200 from their income and savings towards this. With only £600 counting towards the cap, it will only be reached after three years of payments, rather than two. It is generally accepted that there should be an element of this daily living cost accounted for, but whether it is fair to have the same charge set everywhere in the country is debatable.

More controversially, the cap on costs was expected to be reached, whether the care charge was paid by the individual or by the local authority, either in full or in part. This has been amended so that only the proportion paid for by the individual is counted towards the cap. This means people who pay for all of their care themselves meet the cap much earlier than people who have some support from the local authority. The example person from Birmingham is expected to pay £155 per week towards their care costs from their pension as well as £320 from their capital. The local authority will pay £325 a week of the costs but only the £475 they pay themselves is counted towards the cap. This means they will be unlikely to hit the cap until they have been paying for six years.

Who benefits from this?

The average stay in a care home in England is around three years, although this varies significantly. Our example of a typical person on the state pension in an average house in Birmingham, will probably never hit the cap. They will get far more help than they do under the existing system, because of the rise in the upper capital limit. But they will have to pay most of their income to the care home and make a contribution from the value of their property throughout most of their life. They should be able to defer some of this cost until after death, but the cap doesn’t really help them.

A care home user with a more valuable property will receive more benefit from the cap as they will have to contribute more from their capital, without help from the local council. They will hit the cap more quickly, but do not benefit as much (or at all) from the raising of the capital limit.

People with lower capital will see proportionally less benefit from the cap and also from the capital limit change, as their assets are lower than the changes support.

Although the changes are all positive, they do not support everyone equally. People with lower savings and less valuable property will have to contribute around as much as they do now. People with middle incomes or capital will receive more help but are less likely to hit the cap so will probably have to pay throughout most of their life, although perhaps not as much. Those with more significant assets, principally more expensive property, are much more likely to benefit from the cap, especially in its amended form, and will be able to keep (and pass on) more of their wealth.