Why we should pay for our own social care

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

  • FourTuna

    I hear and understand what you say. Yes, calling it a tax is a fun bit of “Tory-bashing” akin to the “bedroom tax”. But there are some things that are paid for collectively such as health care, the state pension. Should not social care be one of those things? If you are unlucky and get cancer, the NHS pay for your treatment (although NICE may restrict the drugs you get). Dementia is another thing you may get. Why is that different. Perhaps older people should pay for their prescriptions, pay for any medical treatment they have to undergo, pay full price for their bus travel, not get discounts for entry to historic buildings. Pay for all those things until they have £100,000 left as that is a sensible amount for an old person to be able to leave to their children. Would you support that suggestion too?

    • rory

      Exactly! Dementia is a disease and if you don’t think so, then I strongly recommend you go and see someone die of it. To palm off dementia treatment as social care is disingenuous to be polite. When every hospital bed has a ‘hotel service’ charge attached to it, and the rest of the social ‘illnesses’ e.g. obesity, smoking, alcohol related accidents, etc currently bringing the NHS to its knees, are charged to the patients concerned; then we can discuss dementia sufferers paying for their medical treatment; sorry ‘care’.

      • FourTuna

        I see it all changed this morning anyway. Apparently Theresa May always meant to have a cap (like hell she did – even Boris Johnson had to try and justify the £100k you’d have left as being reasonable on Newsnight last night). I shan’t be voting for them this time..


      Person A wealth £ 2,5M 8 years “Dementia costs” balance remaining £2,1M
      Person B wealth £0,5M 8 years “Dementia costs” ————————-£0.1M
      A democratic, caring society????

      • FourTuna

        Good point – so it hits the poor harder than the better off. But we are going to get a green paper now and it will propose a cap apparently but they won’t say how much. They’d like us to vote for them too.

  • Kath Wood

    I agree. Nobody who has wealth likes to part with it easily, unless its to pay for a
    cruise, however it is increasingly clear that the State can no longer pick up the tab. Pay for it and be grateful that you have the money to do so! The alternative in my opinion will be a modern day workhouse.

  • Dan C

    Brave article Merryn – thank you.

    You may find this interesting: https://www.coppolacomment.com/2017/05/intergenerational-unfairness.html

    • rory

      Brave, you’re joking. Doctors are currently treating patients in hospital @ £400 per bed per day because they are so fat they can’t breath. A brave article would question the funding for this, not an awful disease of no fault of the sufferers.

  • Simon

    I agree with FourTuna, what is the difference between one ailment requiring care and another, dementia is a disease no different to heart disease, diabetes, parkinsons, MS. Charging dementia sufferers is the thin end of the wedge; will we start charging those with MS, do we start to attach blame and charge those requiring treatment for HIV? Maybe you believe that all care should be paid for, in which case state your position and be honest about it.
    This is also quite rich coming from one who lives in Scotland where like prescription charges social care will be free and paid for by taxation south of the border.

  • the pigman

    surely there is something of a paradox here
    How can those cruel politicians think of depriving me(one of the poor) of my winter fuel allowance?
    how can those cruel politicians think of making me use some of the equity tied up in the property i own to keep me when i am old and take me down to my last £100,000.
    all old people are not on their uppers nor do they all have some form of dementia.
    it should be remembered that, at its conception, the old age pension was never meant to be a living wage, it was meant to top up savings that was until politicians saw it as a means to “buy”votes ,

    • FourTuna

      This obviously sounds to you like a whine from those with money (why else would we perusing this site). Of course there is an aspect of that. I have no objection to my winter fuel allowance being stopped. I have little problem with my bus pass being stopped. I have enough money to pay for these things and I do see the unfairness of these being given to me. But I do object to having the potential of the majority of my money being “confiscated” down to the last £100k. I regard that as unfair and pernicious as per the discussions above. Anyway, it’s all moot now as they have backtracked. But it does cast some doubt on their competence and their motives. They won’t be getting my vote this time.

      • the pigman

        i was joking! i should never have had a winter fuel allowance as far as i am concerned it never should have been introduced in the first place all benefits should be means tested and all welfare should be carefully targeted to those who really need it i even question bus passes

  • Banst

    Means testing is unfair as it encourages people to achieve less. Means testing on assets rather than income is especially unfair, it punishes people for not taking that cruise or enjoying a new car or going on a shopping spree. Yes, people in their 60s would be advised to transfer assets to children in 60s to ensure they are not drained of them through extortionate care costs. Ideal solution assign rights to the house (for example) to children but retain the right to live there for the rest of the life. This way the asset is given away and does not count for means testing yet the pensioner has full use of the asset for the rest of their life.

  • Banst

    Furthermore, myself hopefully half a century away from requiring care I can attest that excessively progressive, attack on wealth preservation such as capital gains tax (as “gains” are measured in inflationary fiat currency with indexation aboloished 20 years ago it is not just tax on speculative gains that played out right, it is tax on wealth), means testing – all of that ensure that I make no attempt to break £100k per year barrier while could do it years ago. May be for Americans or Chinese it makes sense to try hard, in the UK it makes sense to just plod along.

  • laserfish

    Just as we expect to pay for our starter home, family home, retirement bungalow as our needs change through life, unless we qualify for Council or Housing Association support, so we should also pay for the accomodation element of any care home charges. These should be set locally to be the equivalent of the rental costs of a one bedroom studio flat plus an allowance for food and utilities and should apply to persons who are blocking a bed in hospital when they are medically fit to leave just as much as someone in a state care home.

    Just as we expect to be looked after if we fall sick, are disabled or infirm either in a hospital or in the community so we we should expect that all the costs of the care element will be paid by the state and funded through general taxation no matter how old we are.

    We are told that there is insufficient tax revenue to cover the latter so raise more. Increasing Inheritance tax from 40% to 45% will help as will raising VAT from 20% to 22%.

    The charge should be the same for individuals as for local councils.

    Job done.

    • rory

      Where I live, all-in accommodation (incl cleaning) in a very smart new single student flat comes in at around £600pm, add in £200 for food and that is ~ £800pm rather than the £3,000pm + that a care home costs. So what you are saying is that the NHS pays 75% of care home fees – fair do’s.

  • Jim8888

    What gets me is the total poverty of ideas and imagination shown by our political class when it comes to raising money. Merryn has posted a couple of ideas elsewhere on her blog on how money could be raised for social care, ideas I never hear espoused by politicians (who are no doubt focused on a good non-exec role on a charity board in future.) Within ten seconds of reading about this manifesto proposal anyone with half a brain knew it was an utter stinker with zero appeal to the middle classes. How did the government not see it? Just how out of touch are they?