Looking after granny shouldn’t be so taxing
Why the government should accept the Dilnot Commission’s proposals for the social care of the elderly
George Osborne’s “granny tax” – or more descriptively, George Osborne’s very gradual withdrawal of a long-standing granny-tax-break – has put intergenerational conflict in the spotlight.
Compare a 75-year-old with a 35-year-old, each on an annual income of £20,000. The younger taxpayer must pay almost £2,000 a year more in tax and national insurance, to say nothing of missing out winter fuel payments, bus passes and free television licences. Then there is the state pension, which will increase in line with wages, or inflation, or 2.5 per cent, whichever is more generous. Younger recipients of state benefits can only dream of this “triple lock”. And let’s draw a veil over who pays for higher education these days.
The standard defence of this state of affairs appears to be “Grandma, we love you”. That doesn’t seem like much of an argument, but so many voters and newspaper readers are over 60 that it is probably sufficient.
For those who like a bit more rigour, let me attempt two defences of the privileges of the elderly. One, most of us will be elderly eventually and what goes around, comes around. Two, it’s all very nice to talk about a 75-year-old on an income of £20,000 a year, but pensioners, on average, are poorer than younger people, especially at a time when quantitative easing and super-low interest rates are making it hard to live off savings or buy annuities.
Neither of these arguments is compelling. What goes around may actually not come around at all: if intergenerational transfers are too large, they will prove unsustainable at an awkward moment. Today’s young people have to pay for today’s elderly, pay the interest on a growing national debt, and yet they doubt that they will be generously treated themselves in 30 or 40 years’ time – with good reason.
As for pensioners being poorer, that is true, but those who are comfortably off get the perks anyway. Osborne introduced means-testing for child benefit but spared the ageing rich.
All this is basically a zero-sum game. What one generation gains, another loses. And the frustrating thing is that there is an important proposal currently sitting on the table that could help the elderly, and their families, out of all proportion to its cost.
I’m thinking of the Dilnot Commission’s recommendations for the social care of the elderly – such as hired help to assist with shopping, cooking, bathing, getting dressed and getting around. Andrew Dilnot’s team has reasoned as follows: such costs are typically low, but for one in 10 pensioners they are more than £100,000, sometimes much higher still. Local government provision is patchy and subsidised only for the poorest; private insurance for such costs is not available, because of the long timescales and unlimited liability involved. Therefore, people must simply live in fear of losing all their assets if infirmity strikes.
The Dilnot Commission proposes that the government should provide partial insurance, capping lifetime social care costs at £35,000
a year, and introduce more generous means testing. Private insurance markets and private savings should cover the remaining costs, which are fairly predictable consequences of not dying young.
The brilliance here is that because high social care costs are the exception rather than the rule, this government subsidy is inexpensive – Dilnot estimates the cost at less than £2bn a year, a small fraction of what is spent on pensions and on NHS services for the elderly. And for this money, a unique service is provided.
If I want to have more money when I am 80, there is a very simple way for me to do this: save more money today. But if I fear a crippling bill for care in my old age, there is nothing I can do except fret. That is why the government should accept the Dilnot Commission’s proposals.
Also published at ft.com.