It’s a great thing that we’re all living longer, happier, and healthier lives. But this also presents a policy conundrum – what happens when we get old? Should we get social care funded by the state? And how would that be paid for – through a tax hike which would see the young pay for the care of the old, or making old taxpayers fork from their own pockets? We’ve heard talk of intergenerational tension between the young and the old, and politicians all agree that something needs to be done about accommodation, social care, and the NHS burdern in general. The problem is – nobody quite knows what to do. Fraser Nelson, editor of the Spectator, talked to Damian Green, former First Secretary of State, at a live-audience discussion sponsored by Octopus Healthcare, a leading investor in the UK healthcare industry. What follows is an edited transcript of their conversation.
FN: Ladies and gentlemen, hello and welcome to the Spectator’s first fringe of the Conservative Party Conference. So, Damian, let’s start with the problem we are seeking to remedy. How would you describe it?
DG: The problem is just a straightforward demographic one. We already have a social care system that’s under strain because we do not spend enough money on it.
FN: And people go into care homes, and local government can’t afford the costs?
DG: That’s the extreme end. Everyone thinks of care homes, but there are actually about 150,000 people in care homes, whereas there are a quarter of a million people getting some sort of publicly funded care at home as well. But that cohort of the population is going to increase massively. There are 5.3 million over-75s, and that’s going to double over the next forty years. So one of the things we have to do is find a fair way to get money into it.
FN: I guess the conundrum is, if there are people who can afford their own care ought they pay for it themselves?
DG: I think that’s exactly the nub of the problem. That one of the responses you get when you say “how are we going to fund this?” is that people say “I paid for this. I paid taxes. I paid national insurance. I get my healthcare free, why don’t I get my social care free?” To which the honest answer is: none of us has paid enough tax or national insurance to cover the care we all get through our lives. Only about one in five of us will actually need social care. So it’s an obvious human trait for four out of five people to rationally think “I might not need this so I’m not going to put anything aside for it”. That’s the root of the psychological problem. Finding ways to do it so you’ve got enough money in the system requires people to feel that if they’ve saved, they’re getting something for something.
FN: But your sense is that no matter what the solution, it’s going to be unpopular because it’s going to draw on, to an extent, people’s own personal resources?
DG: Governments only have money that the taxpayers give them. The simple solution is just to say we’ll increase taxes in some form or another. It’s always a short-term solution. But I think that in this instance actually there are other things that you can do. I feel very strongly that we need to be fair between generations. For older people we need to make sure that they get better care than they get now, but for younger people we shouldn’t say to them that if you’re working age now we’re going to increase your taxes not only so that you get better social care if you need it, but also that you’re going to pay for your parents’ social care. So one generation would pay for two generations’ care. I think the solution to the funding conundrum is that different generations will pay in different ways. I would suggest we have a care surcharge that you pay on your national insurance after the age of 40, from then until you retire that is collected from everyone and goes into a National Care Fund.
FN: In other words, the over-40s will pay more tax in the one in five chance that they will need that care?
DG: Yes. But what happens to people who are over-65 now? By-and-large, they won’t be paying National Insurance because they won’t be at work. How can we get extra money from them as well? One of the most extraordinary statistics I’ve come across since I started looking into this, is that the amount of equity in housing owned by the over-65s, who by-and-large have paid off their mortgage, is £1.7 trillion. I think you’ll have to give them something-for-something. Instead of paying National Insurance payments if you’re over-65 now, you could use some of your housing equity to pay an insurance premium. In return, you should be assured that no other part of your estate will be used for paying for social care.
FN: There is some incredible research by Octopus Healthcare and others on this that right now 2% of British pensioners live in some kind of retirement home as it were. You’re saying there’s £1.7 trillion locked up here, now we get into the generational tension where young people think “look at asset prices – I can’t afford a house. Unless I might be the beneficiaries of somebody’s will but then again people are living longer!” So you get this sense of frustration. But now this is a conundrum for government as well – if somebody works all their life for a house they might have bought at, say £200,000, and then to their amazement find it’s valued at a million or more. It’s very difficult for government to then come after them and say “OK it’s time you tax their wealth” because that’s what we see the Labour Party thinking about, trying to think of a form of a wealth tax which would certainly hit that demographic. So you’ll be thinking of Conservative solutions to this, but what are you thinking? How do you coax someone into selling and relinquishing some of this £1.7 trillion and get something else?
DG: If you make it so that effectively you’re using a bit of [your house] to buy an insurance policy, that is the Conservative solution. But, the other point you raise is indeed an equal problem – there is not enough supply. We’ve talked about the demand-side about how do you pay for it, but what about the supply-side of how do you get this housing? How do you free up the housing market so you don’t get individual old-people living in big houses unsuitable for them? That’s the key and indeed one of the things that Octopus Healthcare does are retirement villages. You’re right, we’re way behind other similar countries in building really good houses. I shamelessly steal a phrase I read in an Octopus Healthcare document which is that “your last home should be your best home”.
One of the things we’re failing to do as a country is building enough of the types of housing, whether it’s in retirement communities, or if it’s specially adapted so you can get care, that will actually make people say “this is exactly what I need, it’s top of the range, it’s desirable and it’s in the right place”. This will require better planning systems as well, because one of the things that is very difficult to get is planning permission for these types of places in the middle of towns. Quite a lot of people don’t want to live miles away in the countryside. They want to be close to shops and things like that if they’re no longer able to drive. Also, you need them to be built to a high specification. If you’re a homeowner, you’re used to controlling your own life and doing all the things we as Conservatives applaud. You’ll want to be somewhere where you’ll want to be, not somewhere where you feel you have to be because “I need to live in this home”.
FN: [But] one of the problems with the market isn’t that the resale value for most houses goes up; for retirement homes quite often you can get significantly less than you bought it for.
DG: That’s right. There are certain models of funding for it that mean that you don’t have much of a market. So yes, you lose some of the value. There are many companies coming into this market and I think it is a classically conservative solution that we need more competition in this market. We need private sector funds coming in. That’s what Octopus do, they raise money and work in their various sectors of the economy. If you do that, you will have more housing, better housing and a larger market for people to sell into.
FN: And in a market that might retain its value?
DG: Yes. The other thing, of course, is that location will matter.
FN: I suspect I know why Theresa May did what she did with the Dementia Tax policy, which made sense to me: if you’ve got six-figure sum of assets then you can expect to buy [social care] yourself, less than six-figures and the government will help you out. But the thing is, I have to confess that the [phrase] Dementia Tax was not invented by the Labour Party. It was invented by this guy who sits opposite me at work; his concern was that he was rather looking forward to inheritance and under this plan he might have the indignity of a five-figure inheritance rather than a six-figure inheritance. Surely a five-figure inheritance is not the worst fate to befall a chap?
DG: That’s exactly right. Depending on where you cut the cake then some people will think “what are you complaining about?” I was canvassing in Doncaster I think, I was doing a tour of Yorkshire seats where to some extent they were slightly bemused by all of this and saying “actually, £100,000 is quite a lot of the value of the majority of houses around here”. It was less of a toxic issue than I discovered it was when I returned to my delightful Kentish constituency and found that people were not thrilled by this. So I think there’s a certain amount of sensible politics in this, but you need to cut that knot and say “you will have a specific sum of money that you can buy that acts as insurance policy”.
FN: Is there a review or something like that going on?
DG: What’s happening next is that the Government is producing a Green Paper which will come out in the next couple of months or so.
FN: Well, things are changing. Ladies and gentlemen, please join me in thanking Damian Green and Octopus Healthcare.
This article is free to read
To unlock more articles, subscribe to get 3 months of unlimited access for just $5
Comments
Join the debate for just $5 for 3 months
Be part of the conversation with other Spectator readers by getting your first three months for $5.
UNLOCK ACCESS Just $5 for 3 monthsAlready a subscriber? Log in