It’s a strange world we live in where the Tory Prime Minister scraps a subsidy for wealthy families and Labour complains that it’s terribly unfair.
But that’s what has happened last week with the Tory manifesto’s unexpected move on social care, where Theresa May ditched the idea of capping the amounts an individual has to contribute before the state picks up the remaining tab.
It wasn’t just Labour that didn’t like it. Some Tory candidates are beginning to grumble, perhaps unsurprisingly given their natural support base. But the heavyweight intellectual opposition came from Sir Andrew Dilnot, the distinguished economist who chaired a major review of social care for the Coalition, who told the BBC that the removal of the cap means the system “is not providing insurance” and will “leave people helpless”.
Yet “insurance” here requires some definition. What Dilnot meant is that without a cap on out-of-pocket care costs it will prove impossible for private insurance firms to design a product which will enable individuals to insure themselves against the possibility they will require expensive care in old age.
However, another element of the Conservative proposals guarantees that at least £100,000 of an individual’s wealth will be ring-fenced from being used up in care charges. That seems a rather generous state insurance of assets, certainly relative to the existing effective protection of around £23,000.
The Conservative proposal may not be facilitating the type of insurance on individual care expenditure that Dilnot thinks is appropriate. But that’s a case to be made, not a conclusion to be simply asserted.
It helps to look at the numbers. Around one in 10 elderly people will need to spend more than £100,000 on their care costs, with some facing costs as high as £300,000. But the median wealth of people in their seventies, the age when they are most likely to need social care, is only around £150,000. Under the Conservative reforms, the majority of elderly people who need extensive care towards the end of their life would not face any significant out-of-pocket payments. The state would end up providing for them.
What Dilnot is lamenting is the dent to hopes of seeing the creation of a private insurance market that would primarily be of benefit to those with significant assets, mainly high-value houses in the South of England. One might wonder whether providing state-sponsored risk pooling for Home Counties pensioners ought to be a Government priority. But let’s imagine it was. Providing that support certainly wouldn’t be free.
Dilnot proposed a £35,000 cap on out-of-pocket costs that would have required around £2bn a year of additional taxpayer funding. The Dilnot Commission’s own estimates show that the biggest beneficiaries of the cap would be the wealthiest fifth of pensioners by income.
But who would pay? Perhaps it might be funded by an increase in inheritance tax, as various think tanks have proposed. This would be socially equitable since the ones footing the bill – rich families in the South – would also be the beneficiaries of the social care reform. Remember, people cannot take their wealth with them when they die. The “insurance” we are talking about is, in the main, insurance of their children’s inheritances.
Yet political reality intrudes here. There’s nothing in the Conservative Party manifesto about inheritance tax. And new rules introduced by David Cameron and George Osborne mean that people will relatively soon be able to pass homes worth up to £1m to their children entirely tax-free.
For all their redistributive fervour, there’s actually nothing in the Labour manifesto about inheritance tax either. It’s not on the political agenda. This is not an irrelevant detail. It has a direct bearing on the distributional impact of any government policy that subsidises social care for the better off.
Policies should not be evaluated in isolation. The bottom line is that socialisation of the risk of large care bills, as Dilnot is urging, in the absence of any increase in inheritance tax will mean larger inheritances: an increase in the flow of expensive homes passed down tax-free from parents to children.
A taxpayer-funded subsidy to the rich is objectionable enough. A subsidy that will have the effect of increasing already high levels of wealth inequality and which feeds our damaging national obsession with inherited property would be even more so. Unless she is going to reform inheritance tax, we should be relieved that May has chosen the less regressive option on social care.