Let’s talk about old age. You don’t much want to. I don’t either. But it will come to most of us (for which we should be heartily grateful). And when it does we might need a little help — social care, perhaps.
That has an upside: it keeps humans in work. But it has a huge downside too — it is really expensive. Age UK reckons that by 2020-21 the UK will be £5bn short on its social care bill. So someone has to pay. But who?
Governments have been dancing round their handbags on this one for years. Theresa May has stopped the music. Mostly, she says, it’s going to be you. Her manifesto suggests that subject to a floor of £100,000, which you will get to keep, everyone should pay for their own care out of their assets – and that the definition of their assets should include their house.
This is unpopular with almost everyone. It shouldn’t be. To see why, I’m going to tell you what the policy isn’t – and then what it actually is.
It isn’t a tax. One smartypants started referring to the policy online as the “dementia tax”. That’s clever, but also nonsense. A tax is a cash contribution to the state’s coffers, taken directly from your income or tacked on to the cost of something you buy. It is money to be pooled to finance the needs of the population as a whole.
This instead is simply a system that helps you pay for your own needs with your own money. Start adding “tax” to the description of everything you pay for out of your net income and life quickly gets a bit silly. You pay for your own pants rather than contributing to a hypothecated underwear fund on an annual basis. But do you feel peeved about the “knicker tax” every time you go into M&S? I suspect not.
You are, after all, still a little bit of a capitalist. You agree that you should be able to keep a large percentage of the money you earn and that you should be responsible for spending it on your own welfare. You know that if the state paid for your pants it would be a welfare benefit. That they do not does not turn it into a pants tax.
That said, this is a neat way for May to make it clear that she has no David Cameron-style obsession with the inheritance of houses (note his bizarre and complicated residential nil-rate band). She is making it clear that a house is neither a deity nor an inheritance-tax-exempt entitlement. It is just an asset, one that you need to use to finance your old age in exactly the same way you use equities and bonds.
It isn’t cruel. It asks people to pay for themselves. But it doesn’t ask that anyone does so in the short term. No fire sales of houses. No forced moves during your lifetime. Instead, an extended system of what are effectively state-sponsored equity release schemes.
Local councils in England already offer “deferred payment agreements” for care. The terms vary from council to council, but the core deal is simple: the council covers the cost of your care but you agree that on your death the proceeds from the sale of the house go to pay the council back. There are admin fees involved, but the interest rate is low (it is linked to the gilt market so the maximum at the moment is about 2%). So you will have to pay for your care. But not until you are dead, at which point it won’t be much use to you either way.
It isn’t unfair on kids. Sure, this policy means that the children of those who die of a heart attack might on average inherit more than those who have more lingering deaths. But there are many other factors influencing inheritance too: starting levels of wealth; whether your parents bought a house in the north or the south (should you be set up for life because your parents bought a cheap house in Battersea 45 years ago?); the number of siblings you have; and the extent to which your parents had a fondness for cruises, gambling or donkey charities.
Inheritance is a crapshoot on which no sentient person should ever dare to dream of depending. I’d also point out that however peanutty £100,000 might seem to some FT readers, it is actually a substantial amount of money and one most kids would be pretty chuffed to find falling into their bank account through no effort of their own.
It isn’t going to encourage people to give up saving. We make our financial lives a balance between the present and the future: we use some of our money to consume now and put the rest aside to finance consumption and choice later. Care is one of the elements of that later consumption. Already, if you have nothing, the state steps in to provide — yet most people still save in any case.
As an aside I would point out that betting your retirement living standards for all of your retirement on the odds of needing long-term full-time care is a bit nuts. Only one in six people over 80 in the UK get dementia. That’s a high and distressing number but it also means you are much more likely not to get it than to get it.
Note, too, that according to Age UK “a quarter to a half” of over-85s are “frail” and so in need of some sort of care. But the Office for National Statistics tells us that the “most common age of death” in the UK for a man is 85 and for a woman is 89. You will think it is crass of me to talk about it in these terms. But my point is that it simply isn’t worth either not saving at all or giving everything away in your 60s just in case you end up being one of the (relatively few) who need care at home for many years.
So that is what the system suggested in the Tory manifesto is not — which brings us on to what it is. It is a simple solution to the problem of the cost of care. It is a neat political way to marry individual responsibility and state support.
It is also an exposure of the biggest lie in British politics: that national insurance is a separate levy which is set aside to pay for this kind of thing. It isn’t. Anyone who starts a conversation about social care with “I’ve paid in all my life” needs to get this. And finally it is a happy recognition that while there aren’t many problems in the UK to which high house prices are the obvious answer, there are some. Financing social care is one of them.
• This article was first published in the Financial Times