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General Election 2017: Forget the Outrage, Prime Minister Theresa May Should Not Have U-Turned on Social Care

23 May 2017

Ryan Bourne

When is a U-turn not a U-turn? When it’s made by strong
and stable Prime Minister Theresa May, of course, who insisted
yesterday that her sudden pledge to cap the amount of money people
will pay towards their social care was in no way a change of
tack.

The Tory leader put on an impressive show of defiance, but is
fooling no one. While the move is understandable, and will ease
political pressure on her campaign, it is a shame she didn’t
stick to her guns.

The original manifesto proposal was a reasonable conservative
compromise to the UK’s social care dilemma, and a simple
evolution of what has been the case for years.

While the move is
understandable, and will ease political pressure on her campaign,
it is a shame she didn’t stick to her guns.

Right now, individuals who move into a residential home finance
their social care costs themselves by depleting their assets down
to a floor of £23,250. Below that, the state pays.

But after the publication of a report by Andrew Dilnot in 2011,
there has been well-orchestrated pressure to shift the burden of
financing away from individuals to taxpayers. Campaigners wail
about old people “losing their homes” as cover for the
self-entitled demands of those set to inherit.

Dilnot’s solution to this perceived problem was to impose
a total lifetime social care cost cap of £35,000 per individual.
Once your social care costs exceed that, taxpayers would pay. The
government had planned a somewhat higher £72,000 cap starting in
2020. But the major financial implication of capping at all was
taxpayer protection of the “children’s”
inheritances, particularly those of the very wealthy, who tend to
stay in social care for longest.

In last week’s manifesto, the Conservatives rightly
abandoned this overhaul, sticking with the “safety net”
approach, rather than broader taxpayer insurance. They would
equalize the means tests for residential and home-based social
care, increase the generosity of the asset floor to £100,000 (from
£23,250) and enable all to defer payment until death.

This looked like a fair (but still generous) compromise. It
would maintain a significant safety net for an individual requiring
social care, and his or her family. For the taxpayer, it prevents
an expensive new commitment to an unfunded liability, important
given demographic trends. And it entrenches the idea the first port
of call for paying for care should not be the state, but
individuals themselves.

Given most potential inheritees will themselves tend to be older
with large assets and numerous options, including paying for care
out of their income, renting out the parent’s home or using
equity release, this is reasonable.

One can see why the left-wing nationalisers - who want to grow
the NHS by integrating social care - would object, but what are the
conservative gripes, aside from naked self-interest?’

Some say it is unjust because outcomes are determined by luck or
chance. Have a heart attack or cancer, your family gets to keep the
full estate. Suffer dementia for years and then pass away, and the
assets are depleted to £100,000, eroding the inheritance.

But life itself is a lottery. Many factors which contribute to
wealth accumulation owe something to luck. Homeowners have been
lucky, for example, that policymakers have imposed tight planning
laws that drive up house prices. Government cannot correct for all
instances of luck and should not try.

Another objection is that this approach discourages saving. Some
believe it will encourage people to spend, dish out their wealth
through gifts earlier in life, engage in behaviour that will make
quick death more likely, whilst those who do “the right
thing” will be penalised.

Certainly there are some perverse incentives, but the instances
of those living it up and then falling back on the taxpayer are the
price you pay for a safety net. The alternatives are no safety net
whatsoever or a hugely expensive nationalisation of care
funding.

The policy was not perfectly constructed, but its motivations
were rational, coherent, pro-individual freedom and fiscally
sensible. While the wish and hope of having more money to inherit
is understandable, it is not the taxpayer’s job to provide
it, and the Prime Minister should not have bowed to pressure.

Ryan Bourne
occupies the R Evan Scharf Chair in the Public Understanding of
Economics at the Cato Institute in Washington DC.

Click here to view the full article which appeared in CATO Journal