Wealthier homeowners should be asked to make a voluntary payment of up to £30,000 for their care needs in old age, a new report argues.
The Centre for Policy Studies proposes a system in which everyone receives a state-funded weekly care payment.
Those able to downsize or release equity from their homes would also be encouraged to contribute more to plug the current funding gap.
But critics say it would not be enough to address the £7bn shortfall.
Former work and pensions secretary Damian Green, the report’s author, told the BBC that if “just a sliver” of the equity tied up in property could be released, it would inject substantial amounts of funding.
Attempts by successive governments to reform social care in England have foundered amid political disagreements and concerns over the financial costs involved.
The Conservatives dropped plans in 2017 to make people receiving care at home liable for the full cost if they were worth at least £100,000 following a political outcry.
Theresa May was accused of trying to introduce a “dementia tax” by charities and pensioner groups who said people would no longer be able to pass their homes down to their children if property values were taken into account when calculating care costs.
In its new report, the Centre for Policy Studies – a conservative think tank – said the current system was “financially and politically unsustainable” and discouraged the 150 councils who operate it from investing in care.
The system needs an immediate injection of funding as a matter of urgency, it said.
How does the social care system work currently?
Social care for the elderly covers non-medical needs such as support washing, dressing and eating.
To be entitled to state support in England, an individual is judged on two criteria – means and needs.
Everyone with more than £23,250 has to pay for support. Below that threshold, they contribute to the cost – with the amount paid based on means-testing of both savings and income.
Those with savings and capital of between £14,250 and £23,250 have those assets taken into account when their contribution is assessed. Below £14,250, only a person’s income is considered.
If an individual needs a care home place, the £23,250 threshold also includes the value of their property unless they also have a partner who will continue living in the property.
This has created a situation where some people have been forced to sell the family home.
Those who qualify for help through means-testing are then assessed for need. Councils are obliged to provide care only if applicants meet a certain threshold.
There are four thresholds – low, moderate, substantial and critical. It is up to councils to decide which standard they want to set depending on their finances.
Mr Green’s report says taxes will need to go up to address the rising costs of care, with one option to plug the short-term gap being to ask over-50s to pay more National Insurance contributions.
Other possibilities for a quick fix include taxing the winter fuel allowance or allocating more money in this autumn’s Spending Review.
Longer-term though, he argues, a radical overhaul is needed, bringing in a Universal Care payment each week for everyone regardless of their wealth.
This would be similar to the state pension allowance and be paid for out of taxes.
On top of this, extra funding would then be generated through an annual care supplement, in which homeowners could choose to make voluntary contributions of either £10,000, £20,000 or £30,000, either through downsizing or releasing equity.
Mr Green told Radio 4’s Today that his plan would tap into the £1.6 trillion in estimated wealth tied up in property.
He said “many millions” of people would be able to buy what he described as an “insurance policy” although, unlike previous proposals, they would not be forced to.
“Given you have this huge raft of wealth, particularly in housing, a sliver of that used for social care would buy peace of mind for people in their old age and would get more money into the social care system,” he said.
“I think that would be fairer because the big divide in our society is not between old and young, it is between those who have owned homes for 20 or 30 years and those who don’t and potentially never will.”
Politicians, he said, had to be honest with the public that an ageing society meant the country having to spend far more on social care.
But he dismissed calls for the entire care system to be nationalised – with retirement homes entirely state run and paid for from a single tax – saying it would likely be “inefficient”.
The Local Government Association said a debate on a long-term solution was “desperately needed” and urged political parties to put aside their differences.
“With people living longer and more people with disabilities needing support, increases in costs and decreases in funding, the current system of adult social care is at breaking point,” said Ian Hudspeth, head of its Community Wellbeing Board
But The Kings Fund, a leading health tank, said the £2bn to £3bn likely to be raised through Mr Green’s plan would simply not be enough to deal with the pressure on the system and more than twice that would be required to put it on a sound financial footing.