When a large proportion of local party volunteers announced they were unwilling to man the polling stations on Election Day, I had more than an inkling that the 2017 Conservative manifesto policy on social care had not landed well.
Everyone would have their last £100,000 of capital protected, but above that a recipient would have to pay for long-term care themselves, albeit through a charge on their property so no one would be forced to move out of their home. It was a brave and bold attempt to address a long-standing issue, but the political consequences were disastrous.
In those parts of the country where house prices had risen spectacularly in the previous 20 years, there was consternation at the possibility that social care costs might diminish inheritances (even though that was what was already happening).
One of my local councillors forwarded an email from a friend of his who expressed his outrage at the suggestion that, at some point, he might have to contribute to the costs of his own social care before he merrily declared how much he had enjoyed a recent luxury cruise. My sympathy for him was limited.
Reforming social care is hard. There are at least two questions which have to be answered, both of them very controversial. First, to what extent should social care be paid for by the recipients or the taxpayer? And second, assuming that the taxpayer will be making a bigger contribution, which taxes should be increased?
A few weeks ago, the government looked close to announcing a plan but the leaked proposals landed badly. Now, there are reports that this plan is under “review”.
Most of the focus has been on how additional public spending will be paid for: an increase in National Insurance contributions. There are many justified criticisms to be made of NICs. Of our two taxes on income, it has a narrower base – it does not tax dividends or rental income or those over the state pension age. It also kicks in at a lower level of income and, because it is assessed on a weekly rather than annual basis, it taxes occasional workers (such as students doing holiday jobs) more heavily.
An NICs increase might also worsen an existing unfairness in the tax system between the employed and self-employed. Employers’ NICs are ultimately borne by employees in lower pay, so a 1 per cent increase in employers’ NICs and employees’ NICs versus a 1 per cent increase in self-employed NICs will result in an even greater distortion in favour of the self-employed. (Of course, the Chancellor could increase self-employed NICs by 2 per cent just as he could extend NICs to those over the state pension age, but such policies come with political risks).
NICs is also, fundamentally, a con. It is not an insurance contribution; it is just another tax. Many members of the public, however, think otherwise and seem relatively relaxed about paying more of it. A cynic might argue that it is difficult to raise revenue and the temptation to exploit the delusions and ignorance of the public is hard to resist.
The charge will be made that NICs is regressive. This can be overstated (it is progressive, just not as progressive as income tax) but, in my view, the bigger problem with the government’s proposals is that the way the money is going to be spent will benefit wealthy pensioners the most – and they should make a contribution.
The challenge here is that there are two conflicting notions of fairness. The likely policy is a cap on how much people have to pay in care costs. The argument for this is that it is unfair that some people might have to pay hundreds of thousands of pounds because they need long-term social care (a “dementia tax”, if you like), whereas others might pay nothing because they end up only receiving healthcare which is free.
This is true, but the consequence is that the biggest beneficiaries of a cap are those with the most to lose. It is great news for my luxury-cruising former constituent but it is inherently regressive – and that is not fair, either.
Another approach is the Theresa May model: not a cap, but a floor that protects a minimum amount of capital so nobody loses everything. But then you are left with the “dementia tax” charge because you fail to pool the risk of needing expensive long-term care.
Is there a way to solve this dilemma? I have long favoured a solution that Peter Lilley is advocating in the House of Lords. The government should offer a voluntary insurance product to those approaching retirement age that is designed to break even. The premium could be in the form of a charge on their home payable at death. Poorer pensioners needn’t bother (they would be protected by the more generous, tax-funded floor) but wealthier pensioners could make a contribution (£16,000 on average, Lilley suggests) to funding the costs of social care without running the risk of losing the great bulk of their assets.
I have sympathy for the government trying to solve the social care challenge. Maybe a bad plan is better than no plan, but I think there is a better, fairer and more affordable solution to this longstanding problem than the one that was very nearly announced in July. The government should think again.