Whilst social care reform proposals remain bedevilled by an inability to find a funding solution, the Office for Budget Responsibility (OBR) has published its annual Fiscal Sustainability Report. As last year, this warns of the age-related risks to public finances in the longer term – which, to the OBR, is 50 years.
Its big picture forecast is of rising costs on health and pensions, offset by falls on public sector pensions, and of shrinking revenues from parts of the existing tax base especially oil and gas and (because of globalisation) corporation taxes and VAT. It expressly does not call for more fiscal tightening in the medium term – the period in the Treasury’s sights to 2017 – but it concludes that “governments would be likely to need some replacement sources of revenue just to keep the tax burden constant, let alone to meet the costs of an ageing population”.
Comparing 2016/17 with 2061/62, the OBR sees:
- health spending rising smoothly as the population ages from 6.8% of Gross Domestic Product to 9.1%;
- state pension costs increasing from 5.6% to 8.3%;
- social care costs growing from 1.1% to 2%;
- gross public service pension payments falling from 2.2% to 1.3% – or in net terms (including contributions) from 1.7% to 0.9%.
The shortfall in tax revenues are even less easy to project, but could amount to 2% of GDP or more.
These percentages translate into big money – in today’s terms, 1% of GDP is about £15bn. But it is striking how modestly social care features in these estimates. And of course, all the calculations are based on what we are doing today and cannot reflect any significant change in public habits and behaviour, or indeed scientific breakthroughs, such as finding a cure for dementia.
Meanwhile, what do we know about the public’s attitude to paying higher taxes for better public services? The picture is often contradictory. Polling by MORI shows that in 2010, 58% of the public supported cutting public services to pay off the national debt, but by June this year, that had fallen to 46%. The British Social Attitudes Survey, covering the years 1998 to 2009, showed a falling appetite for spending more on welfare benefits for the poor if it led to higher taxes: different age cohorts hold different views (with older generations being more supportive), but nearly half the baby-boomers, for example, supported this proposition at the beginning of the period, but only a third by the end. There has been a slow but steady shift from supporting a society which emphasises social and collective provision of welfare towards encouraging individuals to look after themselves – the balance is now 51:49.
The row about social care reform, of course, is that people probably would do more to look after themselves if the reforms gave them a credible platform to do so. That was the whole point of Andrew Dilnot’s proposed caps, which we now learn the Government agrees with in principle. If we look at the OBR’s rather gloomy forecasts we cannot have these proposals too soon, both for social care per se and for getting more efficiencies into the health service. Kicking these decisions into the long grass is not going to make the OBR any less gloomy next year.