Why social care policy keeps failing, and how to fix it

The Providence Papers: Part 3

This is the third paper of a three-part series, published weekly.

Eben Wilson is a political economist, entrepreneur and industrialist, and former Director of TaxpayerScotland.

In the first two papers in this series, I described the idea of Social Providence Accounts as a method of financing social care and how they would be administered.

In this third paper, the failure of politicians to develop successful social care policy is examined as a public choice issue rooted in a dissonance between interests and a subsequent dislocation and conflict of incentives. Implementing individual Social Providence Accounts is seen as offering a restorative realignment for sustainable success in compassionate beneficence. The people’s freedom always needs defending: we need to be free to be beneficent.

Central state failure – a policy sclerosis

Economists are often accused of being wrong, or useless. This misunderstands the distinction between mathematical econometrics (the analysis and forecasting reported by the largely statist commentariat which is highly prone to error and statistical delusion) and political economy (the interpretation of economic actions and outcomes embedded through the interests and incentives of human nature).

The world-view of political economists is deep rooted; Francis Hutcheson, Adam Smith, Böhm-Bawerk, von Mises, Hayek and Buchanan (among others) provide a lineage offering insight based on human nature, the use of capital, the value of ownership, price theory and the spontaneous unplanned complex society of classical liberalism. This is not dry economic theory; it offers principles for policy analysis and policy development.

The social care issue is a policy implementation problem, not one of us not knowing what options exist, their risks and constraints, and what might be done. Normative proposals abound.

Prime Minister Andy Burnham, with some empathy, has described the lack of success in funding social care as “a dereliction of public duty”; to the political economist as an impartial observer, it is a clear example of government failure. This paper examines this failure, a sclerosis disabling organisational change, while seeking to unlock a route forward when living in a period when “there is no more money”; the UK’s debt burden increased by around £360m a day last year, while the UK is facing a doubling of the financial cost of social care over 20 years. What can be done?

The elements of sclerosis

In The Tyranny of the Status Quo (1984), Milton and Rose Friedman cited vote-retaining politicians, the central and local state bureaucracy and special-interest rent-seekers (non-profit third-sector or state quangocracy players with an interest in self-preservation) as an “iron triangle”, a diffuse cabal denying change through their self-interest in retaining control of spending, while the wider dispersed constituency of taxpayers pays for their expanding budgets.

These incentives persist today. Within the complex ecosystem of social care, they create the locking mechanisms that prevent policy change. It is why small incremental process changes involving thresholds, means-testing rules and other entitlement variations tend to run into deep sand; without a core institutional framework based on agreed sound principles, the self-interested groups above will block any policy change substantial enough to make a difference.

A parallel difficulty is the timescale intrinsic to policy choice in social care. We can be retired for decades, and some people are disabled for long periods. Parliamentarians are not good at looking beyond their electoral horizon; they may well be altruistic and well-meaning, but the ability to “do good things for the good of the people” depends on being in government.

Any new social care policy framework has to provide both an extended constancy for forward planning and flexibility to adapt to as yet unseen circumstances. That is a design integrity issue, not a political one.

The above “tyranny” tells us that for any policy to be successful the proposal has to cater for political and bureaucratic risks and uncertainties, providing incentives for its support within the wider context of what is actually a long-term insurance problem for individuals who have different earning powers and wealth-building capacities.

Social support principles and political risks

Most of us want to be self-reliant. We are aware that the freedom to be so in modern society involves having the wherewithal to support ourselves today and tomorrow. The difficulty with social care is that its costs, if required over a long period, can bankrupt us. A policy is therefore looking to satisfy the demand for security assurance, at an acceptable price.

With respect to social care policy choices, the interests and incentives pertaining to how individuals perceive “an acceptable price” are linked to where the money is coming from to provide security assurance and on whom it is spent. There is an interesting insight here within the desires, constraints and incentives of “the four ways to spend money” as described by Friedman and others:

• The wealthy could decide to spend their own money on themselves; they have the wherewithal through personal thrift and wealth. There will be constraints, self-chosen, on how much to save for the future as against today’s consumption and overheads.

• Those with adequate funding might well decide to spend money on their near relatives. Again, there will be an incentive for spending constraint, mostly a balance between self-preservation of personal wealth for the future and altruistic support of a loved one.

• Some with few funds to support themselves and requiring support from others will care about the quality of support but not usually be over-concerned about the cost to others. In that sense, the incentives that constrain funding transfers are essentially thinned.

• Some with few or no funds to support themselves who are looked after by third parties spending other people’s money on other people in need will not have any incentive to consider the costs incurred on the fund providers or indeed on the price of the provision to the intermediary.

As can be seen, from a policy perspective, the incentives of fund holders and providers, and fund receivers and users, and their interests in the price of any redistributions, are fundamentally different. Politicians, in their hunt for votes, will adjust their values in response.

For policy implementers any resulting dissonance is a huge difficulty, particularly when the policy is a long-term commitment. The risks of policy dilution, complicating amendments, long-term disputation or indeed gradual failure are high. In fact, the present state of social care policy outcomes and spending today in the UK reflects all these poor risk outcomes. No-one is happy, from taxpayers, social care recipients and our local authorities who have inherited a sequence of “fudges”: creeping and often hidden overspending, with unfunded targets, entitlement promises and other elements of a failing social care framework, along with a continuing pressure for higher taxes to pay for a failing system.

Ideologies and ideas for social care policy implementation

As mentioned, numerous reports and reviews have laid out, in detail, the options for social care funding, none of which have yet been adopted. The lack of cross-party consensus as to what principles might drive a way forwards is notable.

A cynic might question whether today’s politicians have principles; however, that caustic approach is unhelpful: politicians tend to have a package of ideas embedded in principles held altruistically. Held fiercely, they could be called didactic ideologies; held objectively, they are hopefully coherent ideas.

For policy makers these stances in opinion are again elements of the puzzle needing a solution to the obstacles to policy change and implementation – as the financial calculations continue to worsen. In practical terms, echoing the ways to spend money above, here is a set of perspectives driving the political economic choices available to policy makers.

• We should maximise and have an individual interest in our self-reliance.

• We should provide strong incentives for self-reliance with a ceiling for personal obligation.

• We should have security through known collective support alongside some personal obligation.

• We should maximise an altruistic interest for, and provision of, collective support.

Here, in the attempt to optimise the chance of the sustainable, long-term success of a social care policy framework, we could become engaged in a Jesuitical discussion between self-interest and collectivist altruism. This will fail to produce cross-party consensus. History tells us that hard-boiled individualists and stout collectivists are unlikely to come to terms on their core views about human nature.

However, from the stance of a political economist acting as an “impartial spectator”, they are largely reflections of the same ethic viewed from a different perspective. Social care is embedded within our perception of our moral duties; mechanical econometrics cannot resolve the policy issue. Again, we need to act through a policy based on moral principle, not political expediency.

What is social care for and why is it a moral duty?

No policy can survive long if it is based on mere political expediency, especially with many separate and dissenting interests involved. A policy needs clear foundation principles that are understood by all parties. The purpose of social care provides these principles. However, political values drive policy choices.

Human behaviours emerge from mostly hidden personal preferences which lie alongside what is called “attribution” of opinions and actions to others; both of these affect our perception of the quality of our lives. What is this quality that we seek, seen against these two drivers? Here, we find that values often have dichotomies.

• Dignity. We do not want to live in squalor. Equally, we do not want others to demean our presence in society and so remove access to opportunity.

• Comfort. We need to feel comfortable. Equally, we do not want to be held back from using processes that secure a nest egg for future comfort.

• Security. We fear being hurt if our liberty to protect ourselves financially is curtailed. Equally, we are hurt by any impression that others are trying to do us down in a way that will make us less secure.

These two sides of the same objectives echo the four ranked choices cited for the funding of social care. Both the self-reliance and the collectivist perspective need to believe that stated policy objectives work for them. For some that is taken to mean us personally, and for others all of us.

The notion of personalised Social Providence Accounts emerged from the idea that this dissonance can be dealt with through the combination of a growing personal capital fund and an embedded equalisation ethic.

The SPA Scheme aims to align the interests and incentives of both private individuals and public choice interests across the entire population. In practical policy terms it provides a policy with a) a well-defined and transparent scope, combined with rules and constraints in the form of a “collective contract”, b) transparency and clarity in the scope and constraints that permit flexibility in their operation should that contract be felt to be in need of adjustment through time, and c) easily understood outcomes of policy changes.

These policy tests offer constancy for continuity in cross-sectional agreement in the longer term. The first seeks to assuage the fears of those who wish to champion self-reliance against intrusions by the central state, the second to assuage the fears of those who want collective action to provide the three quality outcomes for social care above. The third offers an enumerated basis for agreement about goals that protect the taxpayer.

The shared interest in the SPA Scheme policy is in its success, and successful policies are observably more long-lasting, sustainable and less bureaucratically costly where complications through tinkering are minimised.

Incentives for the control of policy

If we are to have a sustainable social care support policy, there are key political incentives that have to be catered for. Specifically, public choices have to be constrained through the use of arrangements such that the actions of special interests and adverse incentives to destructive actions are avoided. The SPA Scheme embeds these constraints in its operation.

• Perceived ownership of value is vital. One of the lessons of the past century where widespread nationalisation of public services has been attempted, often free at the point of use, is that the users of services cease to recognise their value.
  
  Today, local authorities are seen to be failing entities; the “free” NHS (in reality, very expensive), purportedly “ours” and the envy of the world, is rapidly losing that kudos through extensive service rationing.

  This phenomenon is akin to the communist world’s aphorism of “they pretend to pay us, and we pretend to work” but reversed into “we pretend we don’t pay and they pretend to serve us”. We don’t own our services or their service offers.

  This is a predictable human nature response where prices are distorted or removed at the point of transaction; prices are the de facto expression of perceived value of the buyer’s desire for the supplier’s offer; changing prices provide information about how buyers’ perceived values change, in response to which suppliers then innovate.

• Rent-seeking must be minimised and if possible negated. As mentioned above, there are separate groups for whom engagement and activism within the social care sector are how they make a living. An optimal system needs certain constraints:

  a) It should not allow politicians to create electoral gains from promises based on dispersed taxpayer payables funding special-interest spending.

  b) It should not allow third-sector players to infiltrate the policy’s processes through a self-interest in developing their own entities’ relevance and importance to social care delivery.

  c) Either as payers for, or recipients of, social care support, a majoritarian collective should not be allowed to bully its way to blindly pressuring the central state into extracting undue sums from the wealthier.
  
  Again, in short, the policy goal should be to create a depoliticised system.
  

• Equity cannot be ignored. While it is possible to seek out the most classically liberal, market-driven forms of provision for social care, this in itself would be seen as an expression of politicisation; that is, expressing values of stout self-reliance with non-egalitarian goals. Ignoring the reality that some people, through no fault of their own, have hugely costly needs would not be morally worthy.

  The reality is that social care needs are both expensive and often include financially catastrophic consequences. In a society where “fairness and equality” is an embedded ethical driver for “the way we should live”, no new social care policy implementation will succeed without a deep and visible concern for equity and the equalisation measures which can deliver that.

  At the same time, as political economists we have a duty to point out that there are important disincentives induced through any drive for equity. The dulling effect of socialised dependency is well known: a price of non-self-reliance that leaves many in an unvalued wayside with little chance of improvement through their life’s journey. And as we know in the UK today, when dependency becomes widespread, public compassion tends to wane and support policies become divisive.

  The consensus being sought over the funding of social care must again try to minimise these antagonisms. Social care in essence is a personal insurance problem that needs an assurance platform or, put simply, how do we share risks fairly without bankrupting either individuals or taxpayers?

Interests and incentives revisited

If an Overton window exists, any policy that proposes change that does not align with the incentives of those interest groups affected will not succeed. In what way does the SPA Scheme match the incentives of the interest groups orbiting social care provision?

Consumers of social care

For families and individuals:

• Family wealth is accrued and protected across generations for all levels of income.

• The importance of family integrity is championed and incentivised, providing enhanced social stability across generations.

• It creates a maximum ceiling for personal risk to limit the chance of bankruptcy.

• Social compassion and personal security are not neutered by a need to preserve capital for unanticipated risks, and where maximum accruals are reached, social giving is enhanced.

Producers of social care

• The interest of social care providers to provide a high-quality, diverse social care offering is enhanced through competition.

• SPA Treasury Administrators are incentivised to innovate their offer. Flexibility for consumers is thereby optimised.

• Third-sector entities are encouraged to focus on their service through “private and individual” funding, rather than promoting their objectives through political actions.

• There is the prospect of greater funding from high-wealth individuals who reach the maximum accrual.

For economists – and politicians who can count:

• It makes social care provision sustainable through the capitalisation of the social care sector. This reduces public spending and its tax burden.

• It offers a way to depoliticise decision-making … creating a rule-based system in which the rules have some flexibility for political values to be expressed.

• It creates the prospect of a successful change and the removal of the “political problem” of how social care is to be funded.

• The element of inheritance tax relief is likely to lower long-term interest rates, helping to reduce government debt and increase the level of economic activity in the social care economy.

• The risks of state-centric policy failure are reduced.

For politicians (left and right) seeking votes:

• It offers an explicit equalisation measure through which equity can be championed.
  It provides a fair settlement for the less well-off, with the potential for growing redistributions through time.

• It offers a safety net through which no-one can fall into destitution.

• Catastrophic assurance is still provided, but at lower costs.

• It offers transparency in accrual performance and redistributions that can be monitored. The policy can be seen to be responsible.

• It is a policy for all, mandated for all, using individuation embedded in a collective whole.

• Knowledge about who is struggling and who has security is more visible; specific support targeting is made easier.

Now and tomorrow – where to start

The total cost today of long-term adult social care public spending in England is around £29bn. This is split between working-age adults (£11.5bn, 2024/25) and older people (around £12bn, 2024/25). The rest is a mix of operational, infrastructure and administrative costs.

Attempting to replace the entire expenditure within one initially comprehensive policy measure would, in the author’s view, be a mistake; the SPA Scheme proposes targeting care for the elderly initially to create an initial sustainable and latterly expandable solution for wider purposes. It offers a pragmatic and mathematically defensible position for the aspirational sentiments of the majority of people: what Adam Smith called justice and beneficence.

There are echoes here of the original instigation of friendly societies, many of which were worker-led institutions ameliorating destitution of young widows following deaths or injury at work. A nationalised welfare state led to the collapse of many of these thrift organisations.

At root, friendly societies were an expression and recognition of moral responsibility and obligations within communities, genuinely devolved people-centric institutions. The future cost-range and type-diversity of risks associated with social care needs in the elderly, the disabled and those lacking mental capacity – all of which can have variations over the longer term – create, in Hayekian terms, a dynamic and spontaneous market in needs that is too complex to plan for.

Optimal acceptable solutions to social care needs are more likely to be found, faster, by families and wider mutual institutions. Individual ownership of the Scheme and the introduction of administrative mutuals will mean the removal of rent-seeking by well-meaning but interfering third parties. Through the Equalisation Levy, the central state retains a collective support mechanism for catastrophic support.

Based on these advantages (family ownership, competing mutuals and depoliticised rules) and one safety-net requirement, a core SPA Scheme could develop with a cross-party acceptance. In time, it would cost a great deal less than any National Care Service while providing its own internal incentives to reduce over-burdens generated by “free nationalised care”.