Over the last few days there has been a story whizzing around social media that our National Insurance contributions are being used to pay off the national debt. The Fund, as revealed by John Prescott in 2015, supposedly contained £30billion of spare money which at the time it was said could be used to save the NHS. Now it is being claimed, falsely, that the surplus fund is being used to pay down the national debt.

There is a fundamental public misunderstanding about how governments spend, the role of taxation (and after all National Insurance is just another tax) and even what the national debt is. The myth about government needing to tax or borrow in order to spend persists in the public mind. However, a government which issues its own currency, neither needs to tax nor to borrow in order to spend and shock, horror that big bad national debt burden is nothing but our savings and no threat at all for today or future generations.

In this excellent blog, originally published here, Public Matters tells the real story about NI from its history to the present day. With a better understanding of how National Insurance works, the questions about how public programmes will be paid for can move from it being dependent on prevailing financial conditions to a question of political choices and ideology.

There are pressing reasons for understanding a bit about how our tax system works and very specifically what National Insurance is. NI is used as successive governments’ tax increase of choice because of a widespread and mistaken belief that it is a direct payment to the NHS. The Liberal Democrats had it in their 2017 manifesto, Gordon Brown put 1p on NI to ‘pay for’ the NHS, Frank Field (Labour) gave evidence on NI to the Lords Committee on the long-term sustainability of the NHS and his website says he is working on this issue with Oliver Letwin (Conservative) and he wants to restore a ‘something for something’ society.

Frank Field’s website says:  ‘Polling last year found that while 42 per cent of the public would support an increase in tax to pay for a larger National Health Service budget, this figure climbs 11 points, to 53 per cent, once the public are asked about an increase in NI contributions.’

One of the most recent additions to this proposition was in an ‘exclusive’ from the Daily Telegraph (18 March 2018 paywalled):  “It is understood there is now broad agreement within the Cabinet that extra money must be provided for the health service. Some ministers have privately suggested an across-the-board rise in National Insurance to provide new ring-fenced funding for the NHS. However, The Telegraph understands that officials are drawing up plans for a more targeted tax rise on older workers as part of a new 10-year funding plan for the NHS championed by Jeremy Hunt, the Health Secretary. One idea under discussion is to make the 1.2 million pensioners who keep working past 65 to pay NI contributions. The move would raise £2 billion per year which could be spent on the health service. Scrapping universal free prescriptions for the over-60s is also under discussion.”

The Telegraph article incorporates many of the issues frequently raised when talking about how to pay for the NHS. These arguments have muddied the waters about how public funding is allocated giving rise to political decisions being made on the spurious grounds of ‘affordability’, ‘sustainability’ and ‘no money’. And it has led to campaigns and petitions calling for 1p in the £ tax or the hypothecation of NI to ‘pay for the NHS’.

Here we make the argument that this is not only misleading but it will undermine rather than support the NHS.

A political consensus – can we afford the NHS if the public won’t pay more?

Earlier this year, thousands of NHS campaigners marched and rallied across the country in protest at the de-funding, cuts and privatisation of the NHS. Anyone who isn’t an NHS campaigner could have been forgiven for missing it, it was given so little press attention.

In contrast, two days later the BBC gave headline space on its flagship news programme, Radio 4’s Today, and on BBC One’s Breakfast, to the Liberal Democrats’ perennial call for NI to be increased for the NHS. They are also calling for NI to be converted into National Health and Social Care Insurance – which they refer to as a hypothecated tax.

Simon Stevens has argued for different funding sources too:

“Would intergenerational fairness support a further increase in the share of public spending on retirees, at the expense of children and working-age people? Should it be easier for families to flexibly fund social care by drawing down resources tied up in housing, pension pots and other benefits?”

A little bit of history (but not too much)

Funding was a key issue in all the prototype versions of the health service that finally became the NHS. The debate about how to pay for the NHS was based around three elements, all of which are reflected to greater or lesser degrees in other healthcare systems around the world today.
These were (and are):

1. The Exchequer should pay a proportion via government run national insurance.
2. Local authorities should pay a proportion from the rates (council tax).
3. People should make a contribution from their own pockets -usually as some form of insurance.

Combinations of these are used across the world in a system known as the Bismarck Model.

NI already existed for working people in the UK before the creation of the Welfare State. It gave an entitlement to unemployment benefit, seeing a doctor and some pension benefits. But Prime Minister Clement Attlee supported Aneurin Bevan’s desire to break the connection with insurance to bring in something quite different for the NHS – and unique in a Western democracy. The NHS was to be paid for in full by the Exchequer. It has caused complaint and consternation ever since about its affordability – ‘growing and ageing populations’ have always been seen as a threat to its survival. Yet it has been consistently one of the lowest cost universal healthcare systems in existence. And that has been largely as a result of this direct funding method.

In 1952 Bevan wrote ‘In Place of Fear’ a remarkably modern set of essays showing that the questions about funding, who gets access, what should be provided are perennial and instantly recognisable across the years. He writes one of the best explanations of why NI was not chosen as the method of payment:

“When I was engaged in formulating the main principles of the British Health Service, I had to give careful study to various proposals for financing it (…) what was to be its financial relationship with national insurance; should the health service be on an insurance basis? I decided against this. It had always seemed to me that a personal contributory basis was peculiarly inappropriate to a national health service. There is, for example, the question of the qualifying period. That is to say, so many contributions for this benefit, and so many more for additional benefits, until enough contributions are eventually paid to qualify the contributor for the full range of benefits.”

So, to answer Bevan’s question, what is the NHS’ “financial relationship with National Insurance” in 2018?

Given the number of people who respond on social media to questions about funding the NHS by saying, ‘I pay for it already with my National Insurance’ – it looks as though the question is answered in popular consciousness, if not in reality.

It might surprise people to learn that the National Insurance Fund (NIF) today is used to calculate employment related and pension benefits, as it did before 1948. It doesn’t include paying to see a doctor! This Fund supposedly contains £30 billion of spare money. You may have seen the petition to parliament asking for the release of the money to save the NHS. John Prescott, former Deputy Prime Minister, was the person who discovered this ‘secret’ in 2015. But, like many things which have an eternal life on social media, it isn’t quite true.

Bevan talks about ‘the qualifying period’ for NI. NI still has qualifying periods for the various benefits it covers.

According to the government website the list below is what NI is for. Each of the benefits listed have different numbers of contribution years needed to be able to claim them. For example, it takes a minimum of 10 years contributions to earn entitlement to any state pension at all and 35 years to earn full entitlement. State pensions aren’t like private pensions. There is no personal money pot built up. Instead your contribution to society through your earnings is a social contract. There is an expectation that, having contributed through your working life, the government of the day will honour the contract when you retire.

Benefit 
Class 1: employees 
Class 2: self-employed 
Class 3: voluntary contributions 

Basic State Pension 
Yes 
Yes 
Yes 

Additional State Pension 
Yes 
No 
No 

New State Pension 
Yes 
Yes 
Yes 

Contribution-based Jobseeker’s Allowance 
Yes 
No 
No 

Contribution-based Employment and Support Allowance 
Yes 
Yes 
No 

Maternity Allowance 
Yes 
Yes 
No 

Bereavement Payment 
Yes 
Yes 
Yes 

Bereavement Allowance 
Yes 
Yes 
Yes 

Widowed Parent’s Allowance 
Yes 
Yes 
Yes 

Bereavement Support Payment 
Yes 
Yes 
No 

The NHS is conspicuous by its absence from the list above.

In the late 1970s over 65% of all unemployment benefits were based on contributions from previous employment with 35% being means tested. Today it’s almost the mirror image and contributory benefits are now just over 42% of the total.

Why do people say that National Insurance pays for the NHS?

Most people will remember Gordon Brown, when he was Chancellor of the Exchequer, saying he would put 1p on NI to ‘pay for the NHS’. There is that claim from John Prescott that he had ‘found’ £30bn in the NIF ‘for the NHS’. And the Liberal Democrats – along with Labour’s MP Frank Field – insist that NI should be changed to fund the NHS and Social Care as a hypothecated tax.

Is it any wonder that people believe that’s how the NHS is paid for, with so many politicians saying it is, or should be?

There is, in fact, a difference between the NIF and the National Insurance Contributions (NICs) collected. And the difference illustrates the confusion that exists about the tax system. At this point it is worth pointing out that, despite any statements to the contrary, NI is just a tax.

The Government Actuary’s Department has estimated that NICs will raise just over £125 billion in 2017/18, of which £101.8 billion will go into the NIF and £23.7 billion will go to the NHS.

What is accounted for in the NIF, as explained above, is the estimated amount of contributions needed to pay for the contributory benefits including pensions. Any excess over that amount is supposed to ‘go’ to the NHS, but it isn’t equivalent to the amount of funding the NHS needs. It is simply accounted for in the Consolidated Fund at the Bank of England which is a record of all the Government’s spending and receipts.

This brings us to the central issue of why politicians insist on making the link between the NIF and the NHS. At its most basic it is because politicians believe that if the public think that the tax is being spent directly on something they want and have a direct interest in (working benefits, pensions, health) they are less likely to complain when that particular tax is increased. And why do they believe it? Because countless polls tell them so. They also like going to the polls saying that they will not increase income tax – that’s a huge vote loser. But a manifesto commitment on ‘income tax’ can be neatly circumvented by increasing the other income tax – NI.

Is National Insurance a hypothecated tax?

A true hypothecated tax is one in which the tax is ring-fenced for a named service and pays for all that service. This system effectively enforces a spending cap on the service being paid for as it limits spending to an equivalent of the tax levied. That’s very difficult to do when necessary spending is required before the taxes are received. It’s also difficult to define the ‘whole’ of a service.

The NIF appears to be hypothecated. Its rules say that the Fund must always contain enough contributions to meet all its obligations as listed above. To this end it must have a reserve in hand (John Prescott’s £30bn ‘secret’). But the Treasury also makes grants available to the NIF to make sure it keeps to its rules when it doesn’t have enough contributions coming in. A further adjustment is made between the balances in the England & Wales account and the Northern Ireland account to make sure they both represent the right amounts for their relative constituencies. Yet more adjustments are made because the Department of Work and Pensions and the Department of Business, Skills & Innovation both make payments out of their own budgets for the benefits accounted for under the NI scheme so transfers are made between them to equalise the accounts.

There is also an excess of receipts required to fulfil the contributory principle over the course of the accounting year and that doesn’t go into the Fund at all. It is not a genuine hypothecated tax. It is a bookkeeping exercise.

If NI is just a tax and it isn’t hypothecated, what’s the point of it?

Historically people had a direct link between their NI contributions and the benefits that accrued to them as a result. Pensions retain that historic link, with a defined minimum and maximum number of ‘contribution years’ required. In and out of work benefits for those covered by the NI scheme also have minimum contribution periods. It is the contributory principle that makes NI difficult to abolish. Income tax is simply recorded as an annual amount, no matter what the source of the earned or unearned income. NI, on the other hand, is recorded as the number of consecutive weekly contributions. It is the appropriate number of full years in a given period that defines eligibility for the benefits.

People who take breaks from paid employment for any reason and therefore have a break in their contributions may receive a letter asking if they wish to make a voluntary payment to cover the missing contribution period. That couldn’t happen with income tax. Getting rid of NI therefore leaves a problem of how to calculate eligibility for contributions-based benefits.

NI hides the true levels of income tax

The headline rates for income tax are currently set at 20%, 40% and 45%. This looks as if we have a very fair system where the lowest earners only pay half what higher earners pay. However, if NI is added to income tax the picture looks very different.
NI (tax!) starts below the personal allowance level.

Income bracket 
Income tax rate  
NI rate 
Total tax 

£8164 – £11,500 
0% 
12% 
12% 

£11,500-33,500 
20% 
12% 
32% 

£33,500-£150,00 
40% 
2% 
42% 

£150,000 + 
45% 
0% 
45% 

People often call NI a regressive tax because it doesn’t increase with higher earnings but what is far worse is that it masks the real differentials between the rates of taxation. The lowest rate is quoted at 20% and the higher rate at 40% which leads people to reasonably believe that lower earners are not carrying the burden of tax but as the real figures are 32% and 42% respectively then it is a far less fair system.

So, when campaign groups call for a penny on income tax to fund the NHS or that there should be further increases in NI they may not be aware of how serious the impact is on lower paid workers.  In 2016-17 a fraction over 31p in every £ of tax collected was income tax. NI accounted for just under 22p. The rest is accounted for by other taxes.

Inter-generational Fairness – a concept designed to persuade people that you don’t get what you don’t pay for

Over recent years there has been a change in the general understanding of what the economy actually means. Politicians talk as if the economy consists of the private sector and its wealth creation with government wholly dependent on the taxes raised from that wealth creation. Government expenditure is framed as money lost or wasted or a drain on the economy. The tax ceiling is used as a whip to limit government who must be vigilant against overspending or allowing ‘debt’ to get out of hand. It also tends to focus on income tax and NI to the exclusion of other taxes.

This is the narrative that explains why services need to be reduced or more paid for them by the public. It creates an obligation on those who cost most to be asked to contribute more for the sake of ‘fairness’ and ‘not burdening the state’. It makes means testing into a harsh system of proving you really need state help before you can get it. It reflects Frank Field’s ‘something for something’ idea that you don’t get what you don’t pay for. It is the political and moral opposite of the NHS.

Far from ensuring intergenerational fairness, this system forces the burden of payment for the NHS on to people in paid employment who are paying NI as this tax is not paid on unearned income nor by various other income groups.

The idea of expanding NI to retirees and of extending its range, making it more progressive, also ignores the contributory element. The regressive nature of NI is directly attributable to its contributory nature. Once you have paid ‘enough’ to meet the contributions threshold there is no justification for levying any more, as there is no more additional benefit to be ‘earned’.

This is the landscape that gives rise to the NHS Five Year Forward View with its voucher scheme for maternity and personal budgets for disability and now for the Liberal Democrats arguing for a National Health and Social Care Insurance for older people. Asking pensioners to pay NI when they already made their contributions to earn the status of pensioners is clearly nonsense and anything but fair, but you can change that argument if you change the purpose of the tax.

An insurance-based health and social care system

The Liberal Democrats report says:

“we .. believe that an NHS funded by national taxation continues to be the best option for delivering our healthcare system, and so we decided early in our discussions that we would not explore options for an insurance-based health system as a means of raising additional revenue.
…. thanks to great strides made in tackling pensioner poverty, after housing costs pensioner households are far less likely to be in poverty than households of working age, particularly those with children.
For this reason, we suggest policy makers consider ending the exemption from paying NICs for people who continue working past the state pension age. NICs could either be equalised with the rates paid by the rest of the workforce, or introduced at a lower rate.
(…) this is the age group who are the biggest users of health and care services and, as described in the section on income tax above, on many measures this group of workers are proportionately better off than younger generations.”

Like many of the issues we have examined in this blog these statements appear to superficially make sense regardless of whether or not you agree with them. But health and social care now form part of a single government department and the NHS and local authorities are being brought together within integrated systems with combined budgets.

Despite saying they would not explore options for an insurance-based health system, the Liberal Democrats’ focus on paying some form of insurance for health and social care actually means converting NI to a state insurance scheme. They are calling for Theresa May to back their scheme. This would transform our Bevanite state-funded NHS into a Bismarckian system. Currently healthcare is free at the point of need and social care is means-tested, which brings an element of uncertainty to what exactly is to be covered by this insurance.

If this were simply an argument about tax there are, of course, many other forms of tax. It takes experts to calculate the changes in government receipts and the effect on households when tax thresholds are raised or lowered. That is what would be being considered if this was about changing our tax structures or raising taxes in general.

But this is not an argument about tax. This is an argument over the role of the government.

While it may appeal to many to call for increased taxes to ‘fund’ the NHS what we really need is to understand how public funding works. The root of the problem does not lie in our tax system. It lies in public policy decisions.

If you are asked to sign a petition or support calls for a hypothecated NHS & Social Care NI or for 1p in the £: just say ‘no’.

For further reading:
Post crash economics and ‘Professor’ George Osborne
Jeremy Hunt calls for increase in tax to pay for Trident

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The post The Myths and Legends of Hypothecated National Insurance appeared first on The Gower Initiative for Modern Money Studies.

One of the other massively failing right-wing economic policies the Australian economist John Quibbin tackles in his book Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton: Princeton University Press 2010) is expansionary austerity. This is the full name for the theory of economic austerity foisted upon Europeans and Americans since the collapse of the banks in 2008. It’s also the term used to describe the policy generally of cutting government expenditure in order to reduce inflation. Quiggin shows how, whenever this policy was adopted by governments like the American, British, European and Japanese from the 1920s onwards, the result has always been recession, massive unemployment and poverty.

He notes that after the big bank bail-out of 2008, most economists returned to Keynesianism. However, the present system of austerity was introduced in Europe due to need to bail out the big European banks following the economic collapse of Portugal, Italy, Greece and Spain, and the consequent fall in government tax revenue. Quiggin then goes on to comment on how austerity was then presented to the public as being ultimately beneficial to the public, despite its obvious social injustice, before going on to describe how it was implemented, and its failure. He writes

The injustice of making hospital workers, police, and old age pensioners pay for the crisis, while the bankers who caused it are receiving even bigger bonuses than before, is glaringly obvious. So, just as with trickle-down economics, it was necessary to claim that everyone would be better off in the long run.

It was here that the Zombie idea of expansionary austerity emerged from the grave. Alesina and Ardagna, citing their dubious work from the 1990s, argued that the path to recovery lay in reducing public spending. They attracted the support of central bankers, ratings agencies, and financial markets, all of whom wanted to disclaim responsibility for the crisis they had created and get back to a system where they ruled the roost and profited handsomely as a result.

The shift to austerity was politically convenient for market liberals. Despite the fact that it was their own policies of financial deregulation that had produced the crisis, they used the pretext of austerity to push these policies even further. The Conservative government of David Cameron in Britain has been particularly active in this respect. Cameron has advanced the idea of a “Big Society”, meaning that voluntary groups are expected to take over core functions of the social welfare system. The Big Society has been a failure and has been largely laughed off the stage, but it has not stopped the government from pursuing a radical market liberal agenda, symbolized by measures such as the imposition of minimum income requirements on people seeking immigrant visas for their spouses.

Although the term expansionary austerity has not been much used in the United States, the swing to austerity policies began even earlier than elsewhere. After introducing a substantial, but still inadequate fiscal stimulus early in 2009, the Obama administration withdrew from the economic policy debate, preferring to focus on health policy and wait for the economy to recover.

Meanwhile the Republican Party, and particularly the Tea Party faction that emerged in 2009, embraced the idea, though not the terminology, of expansionary austerity and in particular the claim that reducing government spending is the way to prosperity. In the absence of any effective pushback from the Obama administration, the Tea Party was successful in discrediting Keynesian economic ideas.

Following Republican victories in the 2010 congressional elections, the administration accepted the case for austerity and sought a “grand bargain” with the Republicans. It was only after the Republicans brought the government to the brink of default on its debt in mid-2011 that Obama returned to the economic debate with his proposed American Jobs Act. While rhetorically effective, Obama’s proposals were, predictably, rejected by the Republicans in Congress.

At the state and local government level, austerity policies were in force from the beginning of the crisis. Because they are subject to balanced-budged requirements, state and local governments were forced to respond to declining tax revenues with cuts in expenditure. Initially, they received some support from the stimulus package, but as this source of funding ran out, they were forced to make cuts across the board, including scaling back vital services such as police, schools, and social welfare.

The theory of expansionary austerity has faced the test of experience and has failed. Wherever austerity policies have been applied, recovery from the crisis has been halted. At the end of 2011, the unemployment rate was above 8 percent in the United States, the United Kingdom, and the eurozone. In Britain, where the switch from stimulus to austerity began with the election of the Conservative-Liberal Democratic coalition government in 2010, unemployment rose rapidly to its highest rate in seventeen years. In Europe, the risk of a new recession, or worse, remains severe at the time of writing.

Although the U.S. economy currently shows some superficial signs of recovery, the underlying reality is arguably even worse than it now is in Europe. Unemployment rates have fallen somewhat, but this mainly reflects the fact that millions of workers have given up the search for work altogether. The most important measure of labour market performance, the unemployment-population ration (that is, the proportion of the adult population who have jobs) fell sharply at the beginning of the cris and has never recovered. On the other hand, the forecast for Europe in the future looks even bleaker as the consequences of austerity begins to bite.

The reanimation of expansionary austerity represents zombie economics at its worst. Having failed utterly to deliver the promised benefits, the financial and political elite raised to power by market liberalism has pushed ahead with even greater intensity. In the wake of a crisis caused entirely by financial markets and the central banks and regulators that were supposed to control them, the burden of fixing the problem has been placed on ordinary workers, public services, the old, and the sick.

With their main theoretical claims, such as the Efficient Markets Hypothesis and Real Business Cycle in ruins, the advocates of market liberalism have fallen back on long-exploded claims, backed by shoddy research. Yet, in the absence of a coherent alternative, the policy program of expansionary austerity is being implemented, with disastrous results. (pp. 229-32, emphasis mine).

As for Alesina and Ardagna, the two economists responsible for contemporary expansionary austerity, Quiggin shows how their research was seriously flawed, giving some of their biggest factual mistakes and accuracies on pages 225 and 226.

Earlier in the chapter he discusses the reasons why Keynes was ignored in the decades before the Second World War. The British treasury was terrified that adoption of government intervention in some areas would lead to further interventions in others. He also quotes the Polish economist, Michal Kalecki, who stated that market liberals were afraid of Keynsianism because it allowed governments to ignore the financial sector and empowered working people. He writes

Underlying the Treasury’s opposition to fiscal stimulus, however, was a fear, entirely justified in terms of the consequences for market liberal ideology, that a successful interventionist macroeconomic policy would pave the way for intervening in other areas and for the end of the liberal economic order based on the gold standard, unregulated financial markets, and a minimal state.

As the great Polish economist Michal Kalecki observed in 1943, market liberal fear the success of stimulatory fiscal policy more than its failure. If governments can maintain full employment through appropriate macroeconomic policies, they no longer need to worry about “business confidence” and can undertake policies without regard to the fluctuations of the financial markets. Moreover, workers cannot be kept in line if they are confident they can always find a new job. As far as the advocates of austerity are concerned, chronic, or at least periodic, high unemployment is a necessary part of a liberal economic order.

The fears of the Treasury were to be realized in the decades after 1945, when the combination of full employment and Keynsian macro-economic management provided support for the expansion of the welfare state, right control of the financial sector, and extensive government intervention in the economy, which produced the most broadly distributed prosperity of any period in economic history. (p. 14).

So the welfare state is being dismantled, the health service privatized and a high unemployment and mass poverty created simply to maintain the importance and power of the financial sector and private industry, and create a cowed workforce for industry. As an economic theory, austerity is thoroughly discredited, but is maintained as it was not by a right-wing media and political establishment. Robin Ramsay, the editor of Lobster, said in one of his columns that when he studied economics in the 1970s, monetarism was so discredited that it was regarded as a joke by his lecturers. He then suggested that the reason it was supported and implemented by Thatcher and her successors was simply because it offered a pretext for their real aims: to attack state intervention and the welfare state. It looks like he was right.

I’ve recently written a ‘top 10’ review of a new book on supportive housing—i.e., subsidized housing with social work support—for persons with serious mental health challenges. The book’s an anthology that was edited by three Ontario-based researchers.

A key questions that emerges in the book is: Should such housing be owned and operated by for-profit providers, or by non-profit providers? An advantage of non-profit ownership, in my opinion, is that a non-profit entity eventually owns the asset.

My full review can be found here.

Photo by Alex Boyd on Unsplash

Social care is in a state of collapse. Despite an additional £2bn of government funding, cash strapped local authorities have been unable to afford the fees charged by private care providers many of whom are now walking away. There is a serious shortage of care workers who have been worn down by poor wages and stressful working conditions. It is expected that by 2025 there will be a shortfall of more than 600,000; add to that the exodus of EU workers who currently have been relied on to be the backbone of social care support. It is clear that if the situation continues to remain the political hot potato it has been so far the situation can only worsen, leading to more suffering and early death for those who deserve better in their twilight years. Despite the urgency of the situation the Social Care Green Paper promised by government has yet to be published and the issue, along with many others of domestic concern, has been set on the back burner whilst government deals with the political fallout from that other hot potato the exit negotiations with the EU.

Politicians across the political spectrum might agree that a solution must be found but the next question, by default, is always how are we going to pay for it? Predictably, the implication is that the public purse cannot sustain the financial burden of social care provision so other solutions must be found so as not to burden current and future taxpayers. And in this vein, earlier this week, it was revealed that the government is considering a hypothecated tax on the over 40s to fund social care with a proposal that people would be given personal cash budgets to help them pay for their care. Research by a pensions consultancy claims that a German-style system could raise half the money needed to plug the £30bn a year gap in funding that it is claimed the UK will be facing by 2031. Commenting on the research the consultancy said that ‘taxation of current and future generations will be needed’. On the same subject the IFS in a contributory piece for the Local Government Association which formed part of its series ‘Towards a sustainable adult social care and support system’ focused its narrative on how the social care black hole could be filled; whether one should pay for higher social care costs through general taxation the burden of which it claimed would fall on younger people, whether it should be funded by a hypothecated (ring-fenced) tax or even as the government is proposing forcing older generations to pay higher contribution rates.

When funding issues are discussed in the media, by institutions such as the IFS or politicians, the household budget narratives are glaringly in evidence. It is vital that we unpick this mythical narrative which claims that government funds public services through taxation.  It is indicative of how deep-rooted the myths are in the public consciousness that when asked if they would be happy to pay extra on their NI contributions to save the NHS, for example, people are ready and willing to do so, such is their attachment to this vital public service.

It is imperative that we debunk this false household budget narrative and show the public how governments really spend and why taxing people more is not the solution to funding public services. So, in short:

• The Government is the currency issuer.
• The UK government doesn’t need tax to spend and does not and cannot collect anyone’s tax to put aside for the future in a savings pot, whether that’s for social care or even state pensions.
• There will be no funding black hole for social care in 2031 or ever. It is a government choice not to fund it today and it will be a government choice, whoever is in power, to fund it or not in 2031. It is never a question of financial affordability.
• The only constraint in provision of social care services that any government will face will be a resource one not a financial one. In other words, did the government invest sufficiently yesterday to ensure that there will be enough trained people and resources to deliver care services today and is it investing enough today to ensure the same for tomorrow?
• Finally, the wisdom of taxing the general population more in a declining economy where wealth inequality is already very high would cause more economic hardship and likely contribute to the already threatening recessionary pressures.

The funding of social care is a public policy decision driven by political ideology rather than financial necessity as the argument goes in political circles.

As Alan Greenspan, former head of the US Federal Reserve, said of funding the US social security system and which applies just the same here in the UK.

‘There is nothing to prevent the […] government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

Once the nation grasps the monetary realities it must then decide whether it believes in the value of public services paid for from the public purse and available to all or whether it prefers delivery by the private sector on a for profit basis rather than public and economic well-being.

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The post Social Care and how we can pay for it appeared first on The Gower Initiative for Modern Money Studies.