Death taxes, the Conservative manifesto, and the changing politics of intergenerational fairness

Published on Incomes and Inequality, Intergenerational Commission

Today we got sight of the Conservative Party’s Theresa May’s manifesto. Just two short years since the last Tory manifesto was presented to the British public, this 2017 offering is a very different beast. The personality shift is all too obvious as Mayism well and truly buries the Cameron/Osborne era of combining rhetorical focus on the deficit with unsustainable promises not to raise major taxes. Promises of big reductions in migration are the one point of continuity.

But stepping back from the personalities and policy weeds, this manifesto also marks a simply huge shift in the intergenerational politics that has underpinned much of the last decade. In place of the cast iron rule that older voters must be entirely protected from the pain that post-financial crisis Britain faced is a recognition that ‘a restored contract between the generations’ is one of the five giant challenges facing Britain – requiring older people to contribute, and be seen to contribute. Nowhere is this big political shift more apparent than in the manifesto’s proposals for social care.

Since the late 2000s it has been abundantly clear that we are failing as a country to deliver either the volume of social care our ageing society required or an equitable way of financing it. Too many people that needed care went without, and some of those that did receive it felt hugely let down when they discovered that they would foot the bill for the bad luck of requiring very expensive care.

Underpinning that failure has been the challenge of reconciling the need for extra funding for care with a political unwillingness to ask old people to pay more for it. Now that reticence was to some degree understandable for three reasons: there are a growing number of old people, they are much more likely to vote than younger generations and across the 2000s they increasingly voted Conservative.

The same political logic gave us the triple lock on state pension rises (that today’s manifesto proposes scrapping) and turned the protection of all pensioner benefits from the impact of fiscal consolidation into something of an ideological redline for David Cameron at the same time as he was proposing big cuts in support for the working age population.

The difficulty of making progress on social care also ran up against in many ways the most emotionally charged part of intergenerational discussions – the tension between families wanting to pass wealth down to their children and what might make sense from a broader, collective perspective on intergenerational fairness. When almost 80 per cent of the currently retiring baby boomer generation are homeowners it’s not surprising that this dominated debate. When the last Labour government simply floated the idea of an estate tax at the end of their term, George Osborne exploited it with billboards proclaiming a death tax. His view of where the politics lay also hamstrung the coalition government from acting on social care: he (wrongly) expected Labour to repay the death tax campaign favour and so stopped progress on plans in the last parliament.

Today marks a big shift away from that world of Conservative politics. On pensioner benefits the manifesto not only proposes means testing Winter Fuel Payments, but doing so aggressively to raise significant sums. In 2015 Labour symbolically called for the payments to be withdrawn from the richest pensioners with incomes of over £43,000, raising just £100 million. Theresa May is proposing to go much further, restricting the payments to “the least well-off pensioners”. The manifesto avoids spelling out what this means, but if done within the current system of pensioner support that looks set to restrict the payments to the very poorest 2 million pensioners entitled to pensions credit, saving in the region of £1.7 billion by taking the benefit away from 10 million pensioners.

This benefit change is relatively simple, though there will be serious challenges about the low take up of pensions credit to address. In contrast, the manifesto proposals on the social care funding system are anything but. Complex is an understatement, with two key elements – a big takeaway and a much smaller giveaway.

  • The takeaway: those with housing wealth are being asked to contribute much more towards the cost of social care they receive in their own home. In the technical jargon this means including the value of your house in the calculation of your assets for the means-test that determines how much you pay for domiciliary care – matching the current approach for residential care.
  • The giveaway: the amount of people’s assets that will be protected from being used to pay for social care will increase from £23,250 to £100,000. The effect of this is both to increase the number of poorer people that receive free care and to reduce the worst case for individuals in how much of their assets are swallowed up by care costs.

From an intergenerational perspective the big move here is that extra resources for social care are coming exclusively from older people (and their children). David Cameron would never have announced this package.

How you view the substance of the package however slightly depends on what your counterfactual is – the world as it stands today, or the world that (until today) the Conservatives’ were promising with the implementation of a £72,000 cap on the maximum contribution individuals would be asked to make towards their care costs (the so called Dilnot proposals, named after Sir Andrew Dilnot’s review on this for the coalition government).

Against the world as it stands today these plans are a clear improvement – addressing one of the two big problems of the current system: massive unmet need where people who need care do not receive it. Simply putting more money into the system matters a lot from this perspective. The new system will also be more progressive with those with assets under £100,000 doing much better, and those with the highest care needs requiring residential care also winning. The biggest losers are those with significant housing but little wider wealth who require expensive care in their own home for a long period of time. They have gone from having their housing wealth entirely protected to all of it over £100,000 being at risk. Technically it might be unfair to call this a death tax, but it’s certainly a death charge paid by homeowners unlucky enough to need care.

But against the benchmark of the previously promised system the assessment of the Conservative proposal becomes more complex. Dumping the Dilnot cap amounts to a decision to give up on a wider social insurance, with no limit on the costs you may have to bear for your social care if you have the means to pay for them – something that Sir Andrew convincingly argued against for economic and moral reasons. Just as now, the new proposals will mean individuals (and their families) bearing the financial risk of being unlucky enough to require very expensive care. Dementia will not only cost you the full enjoyment of later life but your ability to pass on to your children more than £100,000 of inheritance. That said, simply implementing the Dilnot cap without addressing the lack of funding and need for a higher means test that today’s package amounts to was also deeply unsatisfactory as it focused resources on better off households with high care needs.

The ideal care system would incorporate both the social insurance of Dilnot with the additional resources and progressive protection that today’s proposals amount to. On this, as with so much in life, it turns out you can’t have it all. The same applies to the politics of this shift, where Theresa May could not both be the person protecting housing wealth and the person offering an answer to one of the big challenges of our time. She has chosen the latter. For today most of the press has supported her, including the Daily Mail and the Express, but only a fool would assume that will continue once the losers move from the spreadsheets to those living in comfy homes on Britain’s streets.

After all the big picture today is that Theresa May is proposing to significantly change our social care system to increase the volume of care people receive and is asking people with housing wealth to pay more for it. That marks the end of an era both for the Conservative Party and possibly for the wider politics of intergenerational fairness.