A few years ago, someone asked me how to fix social care costs for the elderly. One eventual idea of ours was that, at age 65, people could pledge to pay a higher level of inheritance tax as a form of insurance against social care costs. If, say, you pledged £20,000 of the value of your estate, you would receive an annuity worth perhaps £150,000 should you develop dementia or need long-term care.
This, we thought, would be appealing enough to be made voluntary. The idea was designed to align with a known property of human psychology called Prospect Theory, which shows that people much prefer a small, certain loss to a small chance of a larger loss. Put simply, people prefer a definite 80 per cent of something to risking a 7 per cent chance of getting nothing. Economists describe this as irrational, or as a bias, but it is easy to see why our brains evolved this way.
The lesson for anyone designing new policies is to talk to psychologists as well as economists. Barely a week passes when Nick Clegg does not cry out in his sleep: ‘If only we’d called it the graduate tax rather than a student loan.’ Two things which are objectively identical can be perceived very differently depending on how they are framed.
Ours might have been a better way of doing things, to be honest. Nevertheless, the level of opprobrium which met the Conservative proposals was deranged. Property owners are to the present day what the National Union of Mineworkers was to the 1970s — a group you cannot challenge on any account. If the policy had referred to assets other than property — shares, say, or stamp collections — nobody would have blinked. But any suggestion that you should surrender some of the value of your home, even after death, is electoral suicide, not helped by the fact that many journalists have parents who own property in the South East.
The tax system is already skewed by the fact that inheritance tax is easy to avoid, whereas income tax isn’t. If you want social mobility, it would seem obvious that you should tax income less and wealth more. Many people may have only two years of their life when they are in an upper tax band, but pay 40 per cent both times. Yet, if they inherit a house, they may pay nothing. How is this fair?
In understanding why it is so hard to challenge this sense of entitlement, it is enough to know the dominant narrative activity of all successful middle-class English people lies in maintaining a distorted reality field in which their success is attributable entirely to their own virtues rather than to good fortune. ‘I worked hard to buy a five-bedroom house in Clapham for £85,000.’ Yes, I’m sure you did, but people worked hard to buy a three-bedroom house in Oldham, too. Somehow the very people who deride the National Lottery believe, when the entry cost is a mortgage not a quid, it’s a game of skill.
The property fetish is essential to maintaining this bourgeois delusion of ‘earned good fortune’. I might go further and suggest that the middle-class preoccupation with university education also serves the same meritocratic myth, allowing people to present genetic or social advantages as earned accomplishment. The problem with this is that a huge amount of effort and expense is expended in creating the self-serving delusion that inherited genetic or social capital is really earned educational capital. Perfectly bright people who lack the temperament or means to go through this costly signalling process are frozen out of the job market.
But, whether it’s property or DNA, we love to pretend we earned what we in fact inherited.