This year will see two Budgets as we move to an Autumn Budget cycle – the first of which takes place on Wednesday this week and appears, at least at this stage, to be something akin to a procedural in order to pave the way for the change.
Because of this, I’m not expecting any radical changes to be announced, at least not a series of measures that will be introduced with immediate effect. However, I hope that the opportunity is taken to begin consultations on radical changes that could begin to be implemented in the Autumn Budget.
There are some key changes that could be announced and below is my ‘shopping list’ for what I would like to see delivered. Across all these ‘wishes’ I’d like to see movements that recognise the fact we have an ageing society and the government commits to address the issues this presents.
These include:
1. A reduction in employer and self-employed National Insurance contributions for those working beyond State pension age. This will help the labour market as immigration reduces and will encourage people to work longer.
2. Simplifications to the pensions system. Once money has been crystallised it should no longer have to be tested again against the Lifetime Allowance. Also by abolishing the age 75 restrictions e.g. the restriction to pay no more contributions after that date, age 75 crystallisation tests can be removed. This will add much more simplification to the system making it easier to understand, not penalise investment growth for those who take small incomes and reduce administration expenses.
3. Address the care funding crisis. This applies on two fronts:
a. We need clarification of where we are going with the Care Cap. People going into care now need to have certainty of what the rules will be in years to come. The system that is put in place should not add enormous administration burdens on Local Authorities; it should be easy to understand for claimants and permit the private sector to help devise pre-funding plans. The Care Cap due to be established in 2020 appears to fail all three of these tests.
b. Identify new funding for the care system. One possible approach could be that those who pay Inheritance Tax receive 40% tax relief on their care costs. Their estate is reduced by the amount of those costs. This creates a geographical and wealth imbalance.
In this regard, there are several ways of achieving new funding, none of which will be palatable to everyone. My preferred route is to use Inheritance Tax. If the nil rate band was reduced to £50k and the remainder of the current nil rate band became a reduced rate band of, for example, 5%, a large amount of new money could be collected.
Above this reduced rate band, inheritance tax could be reduced to 35% with an additional 5% levy to fund the cost of care provided by the State. All the 5% would be ring-fenced for care provision and no other purpose.
As mentioned, these are relatively radical proposals across a number of issues however they do reflect the seriousness of the situation and the fact that, without such action, we are merely pushing the can down the road rather than (to mix metaphors) grabbing the bull by the horns.
I’m not expecting Wednesday’s Budget to deliver answer to all these problems but it should (at the least) signal the direction of travel and not be afraid to confront the problems and outline radical solutions. We shall wait and see if Philip Hammond has the will, or inclination, to do this.
Bob Champion is chairman of the Later Life Academy (LLA)