The long-term problem for "generation rent"

We need to stop relying on home-ownership as the only way to build wealth if we're to have an adequa

It's been a bad few weeks for social care. First the faltering of Southern Cross, then Panorama's revelations about abuse at residential homes. Now, the Equalities and Human Rights Commission reveals shocking levels of neglect among older people cared for at home.

Coming on top of a set of daunting demographic trends, it all means Andrew Dilnot's review of social care funding - due out in early July - could not be more timely. As things stand, Dilnot's proposals don't offer the sustainable solution they claim to. That's because they're based on an assumption of home ownership that's becoming obsolete for many ordinary families.

One of Dilnot's central recommendations is expected to be that individuals should pay for their own social care up to a lifetime cap of around £50,000. After that, the government will step in to insure people against catastrophic costs. Analysis by researchers at the University of Kent estimates average lifetime costs for residential and community-based social care at around £18,650 for men and £41,350 for women. In other words, in most cases, government won't be called on at all. As in the current social care system, under Dilnot, most people will pay for the care they need themselves.

Because few people have ready access to £50,000 in savings, Dilnot's recommendation is predicated on people releasing equity from their homes. On the upside, this means people can stay in their own home into old age while making use of their house as an asset and relieving the government of some expense. As today's asset-rich baby boomer generation nears retirement, that all seems sensible. The question is: how many of the old in future generations will have a home to draw on?

Far fewer than today. One million new households have become renters since 2005. That brings the total number of households in the private rented sector to nearly 3.5m. Although most older people on low-to-middle incomes still their own home, the percentage under 35 who are renting has tripled since 1998.

No-one can predict what will happen to house prices in the long term, but trends like these make it is possible that we are at the beginning of a major shift away from home ownership. In line with other European economies, long-term renting could become far more common. That poses a major problem for a care policy premised on equity-release from a home.

Housing is only one type of asset that people could use to pay for their social care. Other assets, from pensions to savings, could do the same job. Today, few ordinary families have much in the way of these non-physical assets. In 2008, just over a quarter of people on low-to-middle incomes reported having a pension. Less than half made regular monthly savings. For those who did, the average amount saved was less than £200 a month.

As a proud, property-owning democracy, we've come to rely on home-ownership as the way to build wealth. We've backed that up with a tax system that treats housing more favourably than other kinds of assets. But if current trends in the housing market continue, the gap between home owners and long-term renters will affect far more than the housing market. If something isn't done to boost other forms of asset-ownership, it could also bring down the social care financing system that we're about to put in place.

 

Vidhya Alakeson is Director of Research at the Resolution Foundation

Vidhya Alakeson is deputy chief executive of the Resolution Foundation

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.