Opinionomics | 14 May 2012

Must-read comment and analysis, featuring pasty-tax funded investment and much Eurocrisis.

1. As European Austerity Ends, So Could the Euro (Bloomberg View)

The euro currency is a malady that condemns at least a generation of Greeks, Italians, Spaniards, Portuguese and Irish to the economic infirmary, writes Peter Boone and Simon Johnson

2. The pasty tax could pay for a £30 billion infrastructure programme: four charts show why history will judge us harshly (Not the Treasury View)

Jonathan Portes writes that a £30bn infrastructure programme would cost just £150m a year, thanks to historically low gilt yields: that is the revenue raised by the pasty tax.

3. What history tells us about a potential Greek exit (Pragmatic Capitalism)

David Schawel asks what an exit from the euro would look like, and how it would be accomplished.

4. The recession deniers have gone strangely quiet this month (The Independent)

We are in the slowest recovery for a century, with no end in sight, writes David Blanchflower

5. World edges closer to deflationary slump as money contracts in China (Telegraph)

Ambrose Evans-Pritchard argues that more and more signifiers point to depression hitting not just the developed world but the BRICS as well - and China could be the first to go.

Greek President Carolos Papoulias holds a newspaper in his office in Athens. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Theresa May's U-Turn may have just traded one problem for another

The problems of the policy have been moved, not eradicated. 

That didn’t take long. Theresa May has U-Turned on her plan to make people personally liable for the costs of social care until they have just £100,000 worth of assets, including property, left.

As the average home is valued at £317,000, in practice, that meant that most property owners would have to remortgage their house in order to pay for the cost of their social care. That upwards of 75 per cent of baby boomers – the largest group in the UK, both in terms of raw numbers and their higher tendency to vote – own their homes made the proposal politically toxic.

(The political pain is more acute when you remember that, on the whole, the properties owned by the elderly are worth more than those owned by the young. Why? Because most first-time buyers purchase small flats and most retirees are in large family homes.)

The proposal would have meant that while people who in old age fall foul of long-term degenerative illnesses like Alzheimers would in practice face an inheritance tax threshold of £100,000, people who die suddenly would face one of £1m, ten times higher than that paid by those requiring longer-term care. Small wonder the proposal was swiftly dubbed a “dementia tax”.

The Conservatives are now proposing “an absolute limit on the amount people have to pay for their care costs”. The actual amount is TBD, and will be the subject of a consultation should the Tories win the election. May went further, laying out the following guarantees:

“We are proposing the right funding model for social care.  We will make sure nobody has to sell their family home to pay for care.  We will make sure there’s an absolute limit on what people need to pay. And you will never have to go below £100,000 of your savings, so you will always have something to pass on to your family.”

There are a couple of problems here. The proposed policy already had a cap of sorts –on the amount you were allowed to have left over from meeting your own care costs, ie, under £100,000. Although the system – effectively an inheritance tax by lottery – displeased practically everyone and spooked elderly voters, it was at least progressive, in that the lottery was paid by people with assets above £100,000.

Under the new proposal, the lottery remains in place – if you die quickly or don’t require expensive social care, you get to keep all your assets, large or small – but the losers are the poorest pensioners. (Put simply, if there is a cap on costs at £25,000, then people with assets below that in value will see them swallowed up, but people with assets above that value will have them protected.)  That is compounded still further if home-owners are allowed to retain their homes.

So it’s still a dementia tax – it’s just a regressive dementia tax.

It also means that the Conservatives have traded going into the election’s final weeks facing accusations that they will force people to sell their own homes for going into the election facing questions over what a “reasonable” cap on care costs is, and you don’t have to be very imaginative to see how that could cause them trouble.

They’ve U-Turned alright, but they may simply have swerved away from one collision into another.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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