On the “dementia tax”

Alexander Adamou, 26 May 2017

After watching an unusually shallow discussion of the so-called “dementia tax” on This Week last night, I want to give my take on it. Sadly I have some personal experience of social care in England. My mother has a constellation of dementias and other conditions which require round-the clock care costing £100,000 per year. She is 64 – ill, not old. Until recently, she was self-funding all her care from the sale of her £400,000 house. I have a good idea of how the system works.

What’s all the fuss about?

First, let me summarise the current situation and the changes proposed in the Conservative manifesto. Currently someone who needs social care has their assets assessed by their local authority. Those with assets exceeding £23,250 must self-fund all of their care. The big question is usually whether the person’s house, if they own it, is included in the assessment. If the house is also inhabited by a spouse or a dependent, or if the care is to be provided at home, then it is not. Otherwise it is. In my mother’s case, she needed residential care and I was the only other person in the house, so it was not exempt and had to be sold to fund her care.

The Conservatives propose to change this system by always including the house in the assessment of assets and by always allowing payment of costs to be deferred until death. At present the latter is at the discretion of the local authority. These changes would shift a huge amount of the responsibility for care from the state to the individual, since they would eliminate the state-funded care provided when the house is an exempt asset. To soften the blow, the asset floor would be raised from £23,250 to £100,000 – drop below £100,000 and local government starts picking up the tab again.

The Conservative manifesto explicitly ruled out the recommendation in Sir Andrew Dilnot’s report that individuals pay their care costs up to some “cap” (Dilnot suggested £35,000). After this the state would step in, regardless of the person’s means. The Labour manifesto promises a cap as part of a National Care Service, although it doesn’t specify the level.

The Conservatives’ proposal was so badly received by the public that, within days, they reversed their manifesto commitment to no cap. It seems that placing many families in the position of receiving large and unknown bills, should one of their members become seriously debilitated through illness or old age, was not a vote-winner. Theresa May has said she will now consider a cap as part of a wider consultation.

It’s not really a tax

I dislike the characterisation of the Conservative policy as a “dementia tax”. It might look like a tax when the final bill lands on the doormat, but logically it’s not a tax at all. Rather it’s the payment by individuals of costs which society has declined to collectivise. This makes it quite the opposite of a tax – it’s a failure to tax.

Using tax as a pejorative creates a politically disabling narrative in which all taxation is evil. This prevents grown-up discussion because it allows policies to be demolished by simply labelling them “a tax on X”. Too frequently we fail to see government as what it is fundamentally: the business of collectivising some of our resources and activities. That a dementia tax – in the strict sense of a levy to provide funds to treat dementia – must be something nasty is a facile idea. Many would be happy to pay a dementia tax, if it meant that those of us, our families, and our friends who get dementia will be well looked after. The question deserves a higher quality of debate.

But, if it is a tax, it’s not a good one

However, I’m going to run with the popular characterisation because it seems to have stuck. If, then, we treat the Conservative policy as a tax, what sort of tax is it? Answer: a random inheritance tax. According to the government’s 2015 impact assessment, 1 in 6 people will, at random, incur catastrophic care costs exceeding the then-proposed cap of £72,000. My mother is one of them. Indeed, even under the current system, she is incurring catastrophic costs, simply because she happened to be divorced when she got ill. The remaining 5 out of 6 will pay less. Some will pay nothing at all.

This arrangement creates a “health lottery” with winners and losers. The losers not only live out their days in dismal condition but also lose a large fraction of their estates. The winners who stay largely healthy contribute much less. Proponents of this setup – including Michael Portillo and Alan Johnson on This Week – argue that it this is fair because old people are sitting on trillions of pounds of unearned housing wealth. They say that it would be unfair for workers on low and stagnant wages to fund the care of millionaire property owners. Portillo gave an additional reason: he approves ideologically of the transfer of such responsibilities from state to individual.

I agree with their point that we ought to start reallocating housing wealth, which is a major cause of economic inequality and social immobility in this country. However, their argument has two major flaws. The first is the idea that we can choose only between care funded by income tax and care paid for by individuals at the point of use. This is a false dichotomy. We have many other options, but we are so used to taxing only income that we don’t see them. The second is to conflate the injustices caused by housing wealth with the provision of social care. The two are not intrinsically linked. The way to reduce wealth inequality is to reallocate wealth through wealth taxes. The way to provide social care is, well, a matter of the nation’s political taste. It can be collectivised or left to the individual, or something in-between. In the UK, we have chosen already to share the costs of health care. Given that social care is extremely similar, my suspicion – confirmed perhaps by the dementia tax backlash – is that the national taste is to pool these risks too. Portillo has a different ideological palate. We can find out which prevails by having the debate, but only if we delineate the issues cleanly.

The benefits of risk sharing

If we must have a proposal in which estate wealth is used to fund social care, it need not be as prima facie unfair as what we face now. The problem is perfectly amenable to a collectivised solution. In 2010 Labour proposed one: an additional levy on estates to fund a National Care Service, which it scrapped after George Osborne labelled it a “death tax” (see my earlier remark). The current Labour manifesto resurrects the idea of a National Care Service, including the possibility of funding it through a wealth tax. A collectivised approach in which everyone pays in and everyone is covered would, by eliminating risk, give families greater certainty over their future finances.

It would also be much easier to administer. One big problem I see with the Conservative proposal is that a personal tally of all costs incurred will have to be maintained for each person’s state-funded care, so that the correct invoice can be raised on their death. My personal experience is that care providers have enough paperwork already, mostly documenting care that they are too busy documenting to give.

It is bad enough that self-funding creates unpalatable risks, but the incentives it creates are even worse. Our history teaches us this. Before we nationalised the health service in the 1940s, being treated by a doctor for a serious illness could wipe out a poor family. Many people chose, therefore, not to take themselves or their loved ones to the doctor. Result: people died from or were disabled by treatable conditions. At some point society decided this was no longer tolerable and collectivised medical costs. It did this in the face of considerable opposition from the Conservatives of the day. Indeed, one of Churchill’s first acts after his 1951 election victory was to introduce prescription charges, which we still pay.

By not sharing social care costs we will create the same horrors. Some aged and infirm parents will, under the pressure of expectations or through their own ambitions as providers, delay their acceptance of much-needed care. They and their families may start to resent every extra day of life that will be totted up on the final invoice. Most worrying of all, people who have made economic sacrifices to look after their parents at home, sometimes for many years, face being made homeless after they have discharged their duties. This recent phone-in on LBC radio tells you how distraught they feel. And it’s all so needless.

What is a public service?

We should consider where the logic of Portillo and Johnson stops. If we run a personal account of dementia and similar costs to be settled at death, then why not costs for medical treatment, road accidents, house fires, policing, defence, and so on? Why should workers pay for millionaires’ heart attacks? Why not extend the doctrine of paying only for what you use to all public services? Fundamentally, this debate is over which activities we, the British, believe belong in the realm of public services. Is looking after people who are too old or – like my mother – too sick to look after themselves one of them?