In Britain now, about 10 million people are aged over 65, traditionally time to retire from paid work. In 2017 these ranks are swelled by those born in 1952 - men and women who turned eleven in 1963, the year the Beatles began their string of chart-topping hits.
Welcome, generation Please Please Me, first fruits of the post-war welfare state. It is a good time to join us!
Since 2008, the real household incomes of over-65s have risen by around 10%, while the rest have mostly flat-lined. One reason is a transfer from workers to pensioners through a political promise called the ‘triple lock,’ implemented by the 2010-15 Coalition government: this guarantees an annual increase in the state pension by the greatest of price or wage inflation or 2.5%.
Politicians long ago worked out that the way to win elections was to please the older people who are much more likely to vote than younger generations.
In 2015, for the first time in 23 years, and somewhat against expectations, the Conservative party won an election outright. One momentous outcome was the referendum leading to Brexit, hence the fall of David Cameron as Prime Minister, his replacement by Theresa May, and the ‘Brexit election’ called for June 8th, 2017. The original scale of expectations for this poll can be measured by the fact that the Opposition leader’s principal backer, head of Britain’s largest trade union, told a reporter that for Labour to win 200 seats in Parliament would be satisfactory: a result which would be the worst for Labour since 1935, leaving May with a mandate as big as was enjoyed by Tony Blair.
On May 18th, May presented her manifesto, and Conservative expectations took a dip. After much speculation about the ‘triple lock,’ the decision to replace it with a ‘double lock’ from 2020 was no big surprise. This still guarantees a state pension rise of the greater of either price or wage inflation, which (with real incomes now falling again) could well mean a continuing transfer from workers to retirees. The ‘winter fuel allowance’ would henceforth be ‘means tested’ – this tax-free bonus (usually £200) is paid to all pensioners, supposedly to counter extra heating costs met by older people, even the ones who pass their winters on the shores of the Mediterranean. Again, no huge shock.
The surprise, landing May in the most serious political trouble she has yet faced as Prime Minister, was to reverse the Cameron government’s policy on funding care for elderly people. Opponents dubbed her proposal a ‘dementia tax’; she countered that a review was needed because of the growing elderly population. Neither of these is, I suggest, a particularly illuminating analysis.
What are we dealing with here? According to figures from Age Concern, about 400,000 people over 65 live in residential care homes, and another 372,000 get substantial amounts of care at home – so little more that 7% of the age group rely on such care (even among over-85s, only one in six lives in a care home). This all costs about £22bn a year, of which about £8bn is paid by the state. This is ‘social care’ and unlike health care (a fine and contested line) it is means-tested. The great majority of pensioners are debt-free home-owners, so have average household wealth around £200,000, the product of rising house values. If they go into residential care, the value of their home is used to fund their stay, down to a ‘savings floor’ which is usually £23,250. If they stay in their own home, its value is not considered part of their wealth. In twenty years’ time, forecasts are for a 40% growth in the numbers of over-65s including a doubling in over-85s. How many of these will need social care is a matter more of guesswork than informed judgment. But we do know that most will, as now, be debt-free home owners, with wealth enough to cover the need (the implications for the Health Service are another matter).
The problem is not so much the numbers as the politics. Old people want to pass their homes to their families, and the random way in which a disabling condition can wipe out this value is experienced as deeply unfair. The Coalition government passed the problem to an Oxford economist, Andrew Dilnot. His committee proposed that the savings floor be increased to £100,000, and that users be expected to pay for their care only up to the value of a cap, suggested as £35,000 for total costs over a lifetime. This, he thought, would add £2bn to public costs annually – a significant increase in the cost of social care, but a trifle against the cost of the National Health Service (NHS), which takes between four and five days to burn its way through £2bn.
The 2015 Conservative manifesto promised to implement Dilnot but with a higher cap - about £70,000 – and with the existing, rather than a raised, savings floor. Payment could be deferred until death so that ‘no one has to sell their own home’ and all would be ‘protected from unlimited costs.’ They also promised to introduce these changes in 2016. Having won the election, they deferred the changes to 2020.
Quite unexpectedly, May chucked all this out in her manifesto for the Brexit election. The preceding proposals, it said, ‘benefited a small number of wealthier people.’ Instead, she offered the full Dilnot floor of £100,000 – but there would be no cap, and care at home would be subject to the same savings floor test as residential care, with the cost charged to the estate at death. Four days later, May announced that there would, after all, be a cap to be set after consultation, and there things rest for now.
Labour’s manifesto – presumably written on the assumption that the Cameron plans would go ahead in 2020 - suggests no early changes to the payment system. It wants to add £3bn to care budgets, mainly to pay for better terms for staff and meet less acute needs. For the long term it talks about a ‘National Care Service’ integrated with the NHS, with funding to be a matter for consultation.
Theresa May’s surprising pledge seems to reveal significant instincts in the team of close advisers said to have thought it up. The idea that a pensioner with housing equity above £100,000 is ‘relatively wealthy’ challenges the compact with the middle class that has underpinned democratic politics since 1945. Under ‘Maycare’ a modest level of protection is to be assured – this is the good the state can do – at the expense of more lavish protection shared by the middling majority. Putting such detail into a manifesto can only have been done with the intention of securing this principle against all comers in government: in conceding a possible cap, May has insisted that the ‘principle’ is what stands. If so, what next for health, education, and the rest run on the opposite principle – that the modern, democratic state is a vehicle for all citizens to share the costs of services that meet the aspirations of the ‘relatively wealthy’ majority?
So what is the answer? The central principle here is that of ‘social insurance.’ A proportion of us will face huge costs of care in the closing years of life. We do not know how many will be impacted or at what cost, making the risk uninsurable in the private market unless politicians do something to contain the long-term risk. There is an upside to this, at any rate for the next forty years or so – most of those facing the risk have, or will have, substantial equity in residential property. So what makes sense? If we do not want to share the risk, so be it – leave us with a smallish cushion and let the losers take the hit. If we do want to share the risk, then we can pay more tax. The obvious source is inheritance tax (IHT). The most recent annual figures show that, of 267,000 estates valued for IHT, 248,000 paid no tax at all. On a total worth of £80bn, the government collected little more than £4bn in tax. Housing equity amounted to £40bn, but no tax was paid on housing assets of £33bn. For me, an IHT levy to build a dedicated fund to compensate for exceptional care costs in later life is the logical way to meet the challenge. But of course, I am not the first to suggest this – when the politician Andy Burnham floated the idea, he was accused of charging a ‘death tax’ and no party has dared put it forward since.
But what, exactly, is wrong with a death tax? As someone once said, let the dead bury the dead.