Rushed, muddled, half-baked and inadequate though it is, the new Health and Social Care Levy represents a watershed in Conservative thinking about taxation. Before they were against it. Now, reluctantly, they’re for it – at least as a means of shoring up the fiscal flood defences against the tide of demographic ageing.
By effectively creating the first new tax since VAT was introduced in 1973, based on National Insurance but hypothecated to the NHS and social care, the Tories have established three new principles.
First, there will be no free or universal care system for the elderly and disabled; the user will pay and their assets will be liquidated in the process. Second, general taxation will not rise, nor will it be used to force the rich to bear the biggest burden. Third, that the wealth of the richest will be protected – both by the cap on lifetime payments and by the refusal to contemplate taxing wealth to stop the funding gap.
Over time this will lead, as Boris Johnson boasted, to “profoundly conservative” outcomes. The property wealth of elderly, middle-class people in southern England will be saved; the incomes of the working-age population will be raided. Worse, as the NHS and social care systems are forced to integrate, the “user pays” principle can be extended, as can hypothecation.
In the face of this, Labour has not only struggled to propose an alternative, despite dropping heavy hints; it has failed to spell out the social-democratic objection clearly. So, here goes.
Social care is a universal human need. Strokes, dementia and cancer, though they may prey on people whose health has been destroyed by work, pollution or poverty, strike across class lines. So do autism and Down’s syndrome. So does the simple frailty that comes with living longer.
But this universal human need faces obstacles both of inequality and scale. Most people whose working lives were lived on average incomes do not have enough wealth, or property, to pay for individual personal care on the scale needed. Even a relatively affluent family could see its wealth consumed by the costs.
Hence society assumes the burden. But in what form? In the current form, which does not work, the social care provided is inadequate: its workforce underpaid and subject to high turnover; its private-sector providers systemically fragile; its council administrators struggling to cope.
In addition, the poorest consumers and their families pay the highest proportional cost. That remains true even under the new £86,000 cap on costs and the new floor of £20,000, which provides care free to anyone with less accumulated wealth (and subsidises those with less than £100,000). And the two tiers of provision – basic, public care and enhanced privately provided care – remain.
You do not have to be a socialist, but simply a Rawlsian liberal, to recognise the inequity – even before we come to the distributional impact of the new levy. Under Rawls’s theory of justice, inequality may be seen as just if, (a) it stems from a free competition open to all and, (b) it benefits the poorest most.
The current care system fails both tests catastrophically. In Leigh, where I come from, you can pick up a dilapidated 19th-century terraced house, devoid of amenities and exactly the kind of property lived in by an elderly person, for £80,000 or less. In Vauxhall, where I live, there are apartments on sale for £1m, with about the same floor space as a 19th-century terrace.
The difference in lifetime accumulated wealth between a retired miner in Leigh and a 40-something currency trader in Vauxhall are the result of capitalism’s systemic inequalities. Rawls’s first demand is out of the window. And the current system benefits the poorest least.
The current care system, then, represents systematic social injustice. To set it right, Labour has to work from its own principles, which from the year dot have been that universal needs are met from general taxation, which must be progressive.
Indeed, by inventing a specific tax, which is regressive, and moving parts of NHS spending into it, Johnson has laid down a much bigger challenge than many Labour MPs realise. Because the NHS and social care systems need to integrate, and one will be based on user-pays while the other is free at the point of use, this move allows the social-care funding model to be transferred to the NHS.
Over time, the government could hypothecate the entire NHS and social care budget, move it into a separate but limited funding stream, which would create the early form of a social insurance system, replete with systemic private provision and inequalities of care provision.
That’s why Labour needs to advocate – as it did in 2019 – a free and universal personal care system, available to all, independent of the level of their assets. Sure, on top of that, rich people could spend their savings on a deluxe version, just as they do with private medicine, private mental health treatment or physiotherapy. But the principle would be: free to all at the point of use.
Nobody is demanding Labour thrash out the details of this on the back of an envelope – indeed, even the 2019 manifesto, which contained the promise of free personal care, only stood at the foothills of this task. What we can state are the principles behind an alternative model. Since the majority of the levy is to be spent on the NHS, on Covid-related catch-up spending, this could legitimately come from the same borrowing that funded the multibillion Tory giveaways to their mates in the PPE and testing industry.
However, if redistribution is the aim, then the arguments proposed by Labour in 2019 remain strong.
Capital gains and dividends should be taxed at the same rates as income, which for a significant number will be 40 per cent. This policy, Labour calculated in its 2019 “Grey Book”, could raise as much as £18bn, or £14bn with a strong allowance for behavioural change as the rich look to avoid higher tax. Fourteen billion pounds a year is not enough to fund a truly adequate social care system, but it would go a long way towards doing so.
Despite its chaotic design, the rushed debate in parliament, and the clear hit on working-class family incomes it involves, the levy could put Johnson’s government at an advantage. This is not because people earning £30,000 like paying £255 extra a year in tax to fund a service that will not improve and that favours wealthy southern pensioners, but because it is, at least, clear in its intent.
Labour’s reluctance to articulate detailed fiscal alternatives may look strategically sensible: the UK has already borrowed to the hilt and Rishi Sunak’s planned increase in corporation tax removes a potential revenue raiser for a new government. But such caution doesn’t resonate with the average voter. When asked, “How would you pay for something?” in their everyday lives, most people do not say, “I will have to see what’s happened and what my overall spending plans are in two years’ time.” They give a provisional answer based on tough choices.
The bottom line is that, if the government is raising an extra £12bn a year to spend on health and social care, there is a Labour way of doing so: through taxes on incomes and taxes on wealth. And it should be the incomes of the rich, through dividends, capital gains and financial transactions, that pay for the righting of an acute social injustice.