Macroeconomic aggregates are by their nature silent about the distribution of income. The need to develop distributional measures of income in the System of National Accounts was brought to the fore by the Commission on the Measurement of Economic Performance and Social Progress (the Stiglitz-Sen-Fitoussi Commission), soon after the Great Financial Crisis. We propose a methodology to impute social transfers in kind of adult social care to individuals, thereby filling a gap in the distributional statistics produced by ONS.
Statistical agencies in different countries produce two estimates of household income: one through the national accounts using aggregate data, and the other through the distributional statistics using micro data. In principle, both aggregate and distributional income statistics
should include social transfers in kind. These are goods and services provided by government and non-profit institutions that benefit individuals but are provided free or at subsidised prices. The major items in the UK are health, education and adult social care. Prior to this project, the UK national accounts included all of these and other items, whereas the distributional statistics made allowance only for health and education. The aim of this project was to suggest a methodology for incorporating the social transfers in kind of adult social care within the distributional statistics produced by ONS.
Broadly, our approach aimed to allocate actual spending on adult social care, using data from NHS Digital, to people on the Living Costs and Food (LCF) dataset. The LCF collects information on spending patterns and the cost of living that reflect household budgets. It is conducted throughout the year, across the whole of the UK, and is the most significant survey on household spending in the UK. Only data for England is available, requiring further work to gross up to a UK total, and the survey does not cover people living in institutional households, such as residential care homes and prisons.
Our preferred approach would have been to adopt an insurance-based allocation, similar to the method used to allocate NHS spending. The nature of adult social care provision makes this more complicated. Unlike health care, social care services in the UK are not provided free of charge for everyone. In England, local authorities provide assistance to adults who have insufficient financial means to fund their own use of care services. The consequence of the means-tested arrangement for adult social care funding is that detailed information on people’s assets is required to understand which people are not covered under an insurance-style allocation. Unfortunately, the LCF does not currently contain the required level of detail to estimate the value of household assets. As such, we recommended a hybrid approach where 20% of adult social care is allocated via an insurance approach and 80% via estimated consumption.
The LCF does not currently contain any information on whether a respondent has been a recipient of adult social care provision. Therefore, the consumption element of adult social care spending is allocated to individuals based on the LCF, according to whether they receive any of the following: Attendance Allowance, Incapacity Benefit, Carer’s Allowance, Severe Disablement Allowance, or Disability Living Allowance.
Our preferred imputation method produces an allocation that is materially related to income, reflecting the means testing of the benefit. This is not the result found in other countries, where the allocation across the income distribution is fairly flat. A question remains as to whether our preferred result is a genuine reflection of how adult social care spending is allocated across the income distribution in the UK, or simply a function of our chosen imputation method. The inclusion of additional questions in the LCF, to identify directly the beneficiaries of spending on adult social care, would address this issue.
The methodology developed in this project has been fully implemented by ONS into its National Statistics and published in the ‘Effects of Taxes and Benefits on Household Income: Financial Year Ending 2018’ ONS statistical bulletin. This has been a key step in the improvement of these data.