Let's try an unthinkable tax

In a recent issue of Another Magazine, the very pro-free market American economist Irwin Stelzer reported a right-wing dinner-party, at which he argued for a 100 per cent inheritance tax (or, at least, a tax at near-confiscatory levels). Conservatives, he said, should support such a tax because it would ensure a level capitalist playing-field, allowing meritocracy to flourish and encouraging the young to work. Those who denounced welfare benefits because they sapped initiative and created dependency should recognise that these arguments applied with still greater force to the far more substantial sums acquired from inheritance.

It need hardly be said that there are left-wing versions of the Stelzer argument. That they are unlikely to be heard at Granita, the ICA or other left-wing meeting centres nowadays is a telling comment on what has happened to the British left. But the question of our attitude to inheritance is raised unavoidably by this week's report from the Royal Commission on Long-Term Care. The commission has tried to correct a typically British policy drift. Just as dentistry has slowly become a private service, just as the basic old-age pension has slowly become inadequate to support existence, just as state schooling has slowly become dependent on parental fund-raising and donation, so long-term nursing care has slowly moved into the private sector. In each of these cases, the transition occurred by stealth, without official announcement or debate. In the NHS, nursing care was free; in private establishments, it is means-tested. The result is that 60,000 old people a year have to sell their homes to meet their care costs.

So what, you may ask. If they are in care, they don't need homes to live in. But to many old people, it seems unfair that they should be forced to dispose of their assets and lifetime savings, rather than hand them down to their children. They do not see why they and their families should be penalised, just because they are stricken by acute illness. And this is where our attitude to inheritance becomes relevant. Since charges kick in where assets exceed £16,000 a year, and since one in four people eventually need long-term care, we already have what amounts to a severe inheritance tax but one that is levied arbitrarily, according to the accident of illness, its severity and its length. If the Stelzer tax, as it might be called, were introduced, the problem would be resolved. Either the means test could continue, since nobody could object to paying out money that would ultimately go to the state in any case. Or all nursing care could be provided free, using the substantial sums raised from the new tax. In particular, the Stelzer tax would meet the biggest objection to the present system: that while the poor pay nothing and the rich can afford the charges, those in the middle (aspirational, home-owning, electorally floating) lose everything. Under Stelzer, everybody loses, except the very poorest.

All this seems unthinkable, though Mr Stelzer has been sighted at 11 Downing Street seminars and we should remember that the same could once have been said of water privatisation. But if ministers could manage even a fraction of Mr Stelzer's ideological clarity they might find it easier to choose between the alternatives presented by the royal commission. The majority favoured changing the present system so that personal care (washing and bathing as well as nursing) becomes free to everybody while the minority favoured providing only nursing care free. Several questions emerge. Does the left favour inheritance wholeheartedly, not at all or just in smallish amounts? Should the welfare state concentrate on helping the poorest (targeting) or should it, for the sake of social solidarity, offer free services to all (universalism)? Does the left think that more of the aged and infirm should be looked after by their own relatives? How far should a sense of equity come into it? For example, many would argue, as did the majority on the royal commission, that it is unfair to spend so much more on cancer and heart patients than on Alzheimer's and Parkinson's patients simply because the latter are not usually regarded as suitable for long-term hospital treatment. Should we revive the insurance principle so that we regard people as entitled to care because they have paid for it and, as in any private scheme, disregard their means? If so, should we introduce compulsory insurance for the costs of elderly care? All Frank Dobson, the Health Secretary, could find to say was that he thoroughly agreed with the commission that "this is a complex issue and there are no easy solutions". And it is indeed hard to see how new Labour or the Third Way could answer these questions. Oh for the ideological certainties of an Irwin Stelzer!