If you were asked to come up with the most unjust way to fund the gaping hole in adult social care, the government’s reported proposal to hike national insurance contributions by 1 per cent would be top of the list.
Whenever I write about the issue of intergenerational inequality, I am inundated with furious comments by people who don’t seem to read the part of the article where I list the numbers. So on this occasion I am putting the numbers first.
To start with, pensioner poverty is real. According to a recent study by the charity Independent Age based on the latest figures, 18 per cent of pensioners were living in poverty after paying their housing costs in 2020.
This is clearly a problem, especially as pensioner poverty is rising. However, when compared to the UK as a whole, it turns out that poverty among pensioners is actually slightly lower than across the general population (22 per cent after housing costs), and significantly lower than among children (31 per cent). You are therefore one and a half times more likely to be living in poverty if you are a child in this country than if you are retired.
Second, while it is vital not to dismiss the 2.1 million pensioners now living in poverty, we need to look at the other end of the scale too. According to a 2018 report by the Office for National Statistics, 22 per cent of pensioner households – just over one in five – are millionaires when housing wealth and other assets are taken into account. This compares to 17 per cent for the 45-54 age bracket, six per cent for 35-44, and essentially zero per cent for 25-34.
In other words, pensioners have a statistically higher chance of being millionaires than living in poverty, and are more likely to have assets worth over £1m than any group other than those aged 55-64.
This does not mean (as I am often accused of suggesting) that all pensioners are wealthy. But it does mean that a significant proportion of those who are now or will soon be in need of social care have been fortunate enough to amass substantial assets, through decades of dramatic house price growth that has left young people unable to afford to get on the property ladder combined with generous defined-benefit pensions which are virtually extinct. Indeed, almost half of the UK’s total housing wealth is now in the hands of the over-65s.
That there is a social care crisis that requires an urgent solution is in no doubt. According to the Health Foundation, the gap between funding and demand is already £1bn and the shortfall will hit £6.1bn at the very lowest by 2030/31. The present system is a lottery in which how much people pay depends in part on what health conditions they have, with quality varying hugely and record numbers of older people going without the care they need.
But against the backdrop of generational wealth inequality, it is not unreasonable to ask whether at least some of the money for social care could come from those who will actually be using it, and who can evidently afford it more than their children and grandchildren can.
Instead, the plan hatched by Boris Johnson and Chancellor Rishi Sunak looks set to do the exact opposite: increasing the rate of national insurance by 1p. Raising income tax across the board would be bad enough, but national insurance is uniquely a tax on working people – those above the age of 66 do not pay it, even if they are in work and are staggeringly well-paid. In contrast, someone who is self-employed can make as little as £6,515 per year (a third less than the state pension) and still be required to pay national insurance. National insurance is already particularly regressive, as it is levied at just two per cent on earnings above £50,270 but 12 per cent on earnings below that (employees pay from £9,568 upwards).
The defence of this policy, which was reported in the Times and is now due to be formally announced this autumn, seems to be that it is simple. This is true, but it is also deeply unjust. The argument so often used of pensioner welfare – that those receiving it paid into the system all their lives to fund similar benefits for the generations above – does not hold here: this would be a new tax increase imposed on the very poorest in society, to fund the care of a cohort that is comparably one of the wealthiest and did not have to pay similar costs to their own parents and grandparents.
There are other ways to plug the social care funding gap that recognise this reality. One would be a wealth tax – researchers at the LSE estimate a one-off wealth tax on millionaire couples could raise £260bn. Another would be reforming inheritance tax breaks, which give £666m a year to some of the country’s wealthiest families, according to research by the think tank Tax Justice, or raising the rate of capital gains tax. In the longer term, some form of social insurance scheme would help spread the costs and enable people to save for their own care over a lifetime, but that still leaves the problem of what to do for the generation that needs care right now.
By far the fairest approach would be to consider ways the substantial housing wealth amassed by a not insignificant proportion of pensioners could contribute to their care costs. Obviously, a fund must be available for those without personal assets, but setting a wealth “floor” above which recipients are expected to contribute would protect the poorest pensioners while ensuring the wealthiest pay their share, rather than burdening struggling taxpayers.
This is essentially what Theresa May’s much-maligned plan during the 2017 general election campaign attempted to do. It would have enabled those with property wealth to defer making payments until after their death, so they wouldn’t have to sell their homes while still living. Instead of a cap on individual care costs (which would benefit the very wealthy by enabling them to keep a much higher proportion of their wealth), the proposals would have protected up to £100,000 from each person’s estate for them to pass on to their descendants. Vilified at the time as a “dementia tax”, this would actually have been a tax on the inheritance their children could hope to receive.
For some unfathomable reason, May’s proposal was considered deeply unfair. And yet demanding low-income taxpayers who will never be able to afford their own property subsidise the inheritance of the wealthy is somehow considered acceptable.
It is not surprising the Conservatives have gone down this route – older people tend to vote Tory while the young vote Labour, so a national insurance rise is effectively a tax on their opponent’s base to fund benefits for their own. But just because it is politically expedient for a Tory government to saddle the working young with a deeply regressive tax rise, that doesn’t make it right. And they should be called out for what they are doing.
Everyone wants to find a solution to the social care crisis and end the misery that the current system inflicts on older people and their families. Now the government claims to have come up with an answer, it would be easy to sigh with relief and ignore the details.
But let’s be honest about what this plan is: the wealthiest in society being subsidised by the poorest.