Councils could offer loans to homeowners in Dilnot report proposal

Councils could offer loans to homeowners in Dilnot report proposal

Commission will suggest fund-raising changes allowing local authorities to lend money against the value of property

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  • The Guardian, Monday 4 July 2011
  • Andrew Dilnot
    Andrew Dilnot’s report into old age care reform will offer local councils the power to lend to homeowners entering residential care. Photograph: David Levene

    Local councils are poised to take on a major financial services role under proposed reforms to be unveiled on Monday of the funding system for the care of elderly and disabled people.

    Under the scheme, local authorities will be empowered to make a loan at a preferential rate against the value of a property owned by someone entering a care home. The loan would be redeemed on the sale of the property after the person dies.

    The plan is part of a series of ideas drawn up by a government commission led by the economist Andrew Dilnot. The proposals seek to inject more funding into the care system by tapping into people’s assets. The typical 55- to 64-year-old in the UK has a total wealth of £200,000.

    Although the centrepiece of Dilnot’s report will be a recommended cap of about £35,000 on individual liability for care costs, which would require underwriting by the government, other proposals will seek to make it easier for people to draw on their assets without having to sell their home during their lifetime.

    According to the Joseph Rowntree Foundation, about a million elderly homeowners have properties worth more than £100,000 yet qualify for means-tested benefits.

    Charities and welfare groups are calling on the government and Labour to seize the opportunity presented by Dilnot to begin a shakeup of the care funding system. An open letter from 26 leading charities declared on Sunday: “We expect all parties to deliver on this.”

    Ed Miliband, the Labour leader, has reiterated his offer to engage in cross-party talks on the Dilnot proposals with an “open mind”, setting aside his party’s previous policy of a national care service.

    However, there are fears that the issue will again be kicked into the long grass because of the potential cost to the Treasury – perhaps £2bn to underwrite the cap, plus as much again if ministers accept a recommendation to raise significantly the ceiling of £23,250 personal assets above which the state currently offers no assistance with care costs. With the government committed to cutting borrowing, such a cost would have to be funded by taxation or spending cuts elsewhere.

    In a BBC interview, the health secretary, Andrew Lansley, promised “a very positive response” to Dilnot. But he added: “We are going to treat it as the basis for engagement … it is part of the overall questions that need to be answered.”

    In a blog on the Liberal Democrat Voice website, the care services minister, Paul Burstow, said: “Don’t expect to hear the government’s final word on social care. The Dilnot report will mark an important milestone on the road to reform, but there are other questions and more milestones to come.” A No 10 source said the report was something to be looked at “very carefully”. There would not be a detailed government response straight away.

    An estimated 20,000 people sell their home each year to pay for their care costs, which for one in four people exceed £50,000, and for one in 10 run to more than £100,000. So-called hotel costs, meaning accommodation and food in care homes, come on top of this. One of the key issues in Monday’s report, which applies to England and Wales, will be what Dilnot says about these extra costs, which can be as much again as the bill for care alone.

    The proposal for councils to lend to homeowners entering residential care represents a radical development of a little-known existing provision for deferred payment of care home fees.

    Under the Health and Social Care Act 2001, councils can make a deferred payment arrangement by taking a charge on an individual’s property. But interest is not levied until 56 days after the person’s death, making the scheme unattractive for councils. The key difference under the new plan is that the council would make a return on the loan from day one, being able to charge interest straight away.

    The Local Government Association reported last year that demand for such arrangements had almost doubled over 18 months because the housing market slump had made it hard to sell property. It said at the time restrictions could be considered if such requests kept increasing. A spokesman was at the weekend unable to say if councils had begun to limit the number of arrangements.

    Another scheme studied by the Dilnot commission is the Rowntree Foundation’s “home cash plan” pilot, run with a financial services company and three councils. It enables homeowners to free up money from the value of their property to pay for care at home. Under the scheme, in Maidstone, Kent, and in the London boroughs of Kensington and Chelsea, and Islington, people can borrow an initial £5,000 and further instalments up to a £30,000 ceiling. However, the arrangements carry fees of about £1,000.

    http://www.guardian.co.uk/politics/2011/jul/03/old-age-care-reforms-dilnot