Some problems are intractable because there are too many competing interests. Some are hard to solve because they’re hard to predict. And then there’s social care, which is very straightforward. It may be terrifying to plot our ageing population’s needs into the future – local authorities used to call it “the graph of doom” – but it’s not difficult. All a government needs to do is to work out how to pay for it.
The Conservatives won an election on the promise that they had adult social care all figured out. It wasn’t the greatest of 2019’s falsities – it probably wasn’t even the least true thing Boris Johnson said that day – but it was inevitably going to bite him. Even to keep the system in England going as it is, held together by an unlovely patchwork of exploited carers and private equity investment, £4bn is needed immediately. No meaningful reforms or moves to integrate social care and the NHS can be made without significant investment. The government, backed into a corner by its own promises, came out with its big idea earlier this month: to find the money by raising national insurance.
Rarely has a tax rise been shot down so fast. Plainly, to fund one demographic entirely on the taxes of another, taking no account of the relative wealth of those age brackets, went against any principle of tax justice. The idea was so poorly constructed, it managed to launch a side-controversy about national insurance, which is a regressive tax whatever you spend it on, paid at the same flat rate by everyone from the low paid up to those on £50,000, dropping to a much lower rate for high earners. Following a slightly chaotic cabinet revolt, the whole plan was kicked into the autumn.
There is a blindingly obvious way to fund social care, which is with inheritance tax. As it stands at the moment, the system is an informal inheritance tax by lottery; anyone whose parents have had significant care needs in the runup to their deaths will be unlikely to have much estate left afterwards. Theresa May’s plan was to formalise that: howls that her idea was a tax on dementia were, of course, true. What she should have said was: “There’s a tax on dementia right now, you doughnuts, at least my way there’ll be an upper limit.” But she was never much good at the pivot.
Most people would understand a more distributed arrangement – where everyone paid more inheritance tax to pool the risk of having nothing to inherit – as not only just but sensible.
There is considerable headroom in the system, post George Osborne’s inheritance tax reforms, announced the same day in 2015 as yet more cuts to welfare, which in retrospect looks like a deliberate provocation. He raised the threshold for couples from £650,000 to £1m, in order to “take the family home out of inheritance tax for all but the richest”.
Luckily for those richest, they had already found a workaround – research in 2019 found that beneficiaries of estates worth more than £10m paid an average of 10% in tax, thanks to a “kitbag” of avoidance strategies, which usually start with a family trust established before death; those inheriting estates worth £2m to £3m paid 20% in tax. Who exactly pays this tax at the 40% it’s technically levied at is unclear – suffice it to say there can’t be many of them.
It’s well understood, even on the right, that if you want to address inequality, you have to find a way to tax wealth rather than income. Inheritance is a major driver of wealth inequality – one in 10 adults born in the 80s will inherit more than half as much from their parents as the average person earns in a lifetime. It is psychologically the least painful way to redistribute: whatever yarns people spin for themselves about their wealth and how it was accrued – through their own backbreaking toil and brute strength – nobody seriously thinks they earned their parents’ money.
The necessary reforms and their order of priority are clear: close the loopholes for the high-net-worths; reverse Osborne’s changes; reintroduce a progressive sliding scale. Until the estate duty was abolished in 1975 the highest marginal rate, for estates worth over £750,000 (in 60s money), was 85%. People may have griped, but you didn’t see the Beatles writing any songs about it. One thing, however, remains a puzzle: how did this all become unsayable? Osborne scored one easy win back in 2007, making the promise that he went on to keep (he was an old-school Conservative in that sense), and it was enough to spook Gordon Brown out of calling a snap election in his honeymoon period.
It became a political truism that the tax is unpopular with voters, setting off the alarm systems around their homes and their parents’ homes, which are their emotional castles. Up to a point, that’s true: the majority of voters do hate the idea, even though only 5% of estates will ever pay it. There’s an argument that, as well as paying for social care and addressing wealth inequality, inheritance tax could be a useful inflection point for progressive politics, the matter on which it stopped capitulating to daft opinions and started trying to change them.