About 100,000 fewer people die in Britain each year than health experts anticipated only 20 years ago. Such figures are a sign of rapid social progress but they are also storing up a toxic political problem for the way we care for our elderly people. This challenge is fiscally unavoidable and electorally unpalatable but it cannot be fudged a moment longer.

Cuts in local authority social care funding are already feeding through into problems in the private care market, as the Financial Times reported on Tuesday. The King’s Fund now estimates a shortfall of £1.2bn ($2bn) over the next four years. But even these figures are dwarfed by changing demographics, which will see a fifth of the population over 65 by 2020, with nearly half this group over 75.

This mix of an ageing population and rising care costs will see a funding gap of £6bn a year by 2026. This looks like a lot but is only a fraction of 1 per cent of gross domestic product – and therefore eminently fundable. But on current plans this cost will be met entirely by families, most of whom haven’t prepared and thus won’t be able to afford it. The result is not only a short-term crisis in the private care market but also the long-term prospect of citizens accepting worsening standards of care for the first time in modern history.

Resolving this conundrum strikes at the wider questions of the future affordability of Britain’s welfare state. Allowing the burden of care to fall only on families will mean fewer people of working age in employment. This will reduce the tax take, weaken the ability of those people to save for their own old age and deepen inequality. It is no accident that the highest employment rates in the rich world are in the Nordic countries, where both childcare and elderly care are provided collectively.

Given the difficulty of persuading younger people to save for their retirement, it is a stretch to think they will begin insuring themselves for long-term care. Even if they did, private insurers cannot price policies affordably if they have to cover a limited-but-expensive set of catastrophic, high-cost cases. Social care is, unfortunately, a classic example of a private market failure.

Without a move in the Nordic direction, therefore, we will remain stuck in a world where everyone hopes to be healthy enough to need a pension but prays they won’t be so unwell as to need social care.

Thankfully, forms of social insurance can help, if they force individuals to contribute to their own care and add in progressive funding from the state. Such a system could provide a clear minimum entitlement for all older people, along with greater control over the money spent on their behalf. Top of that list should be to help people stay in their own homes for longer, if that is what they wish. Indeed, once the funding issue has been fixed, questions about the quality of care, and its links with the NHS, can take centre stage.

Before this can happen, however, a political can of worms must be opened. Economic growth and higher employment can go some way to solving the care funding gap. But the rest of the cost cannot simply fall on existing and future taxpayers. Instead, the considerable wealth of ageing baby boomers must be unlocked and shared with the society that enabled it to be built up in the first place. That will mean tapping into the value of the equity locked up in their homes, or new forms of property taxation.

The long-term funding of social care was the largest piece of unfinished social reform under Labour. By the time Gordon Brown started to confront it, a general election was looming and progress stalled. To its credit, the current government has set up a commission to move the debate forward. It is due to report soon and the equation is clear: the costs of social care are rising and we can either face this risk together, or we can face it on our own. Inaction is not an option.

The writer is director of the Institute for Public Policy Research and was head of the Number 10 Policy Unit between 2008 and 2010

Get alerts on UK business & economy when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Follow the topics in this article