It looks as though the Prime Minister’s gamble to boost spending on the NHS and social care by raising national insurance contributions has succeeded, at least in the short run.
When the proposal was first floated, it rapidly became clear that the optics were problematic. It looked as though younger people would pay extra to enable older people to receive expensive residential care without selling their houses – houses to which many young people cannot currently aspire. A dangerous narrative about intergenerational warfare rapidly developed.
Quick thinking has enabled the government to mitigate this. By inventing a new tax – the health and social care levy, initially based on national insurance but also paid by the 1.2 million people still working past state pension age – the burden has been spread more widely. Imposing a higher tax rate on dividend incomes, disproportionately paid to older people, also helped.
But a masterstroke was to add in the suspension of the pension triple lock. For some time the Chancellor has wanted to suspend this commitment, which would have led to an expensive leap in the real value of the state pension as a result of a statistical anomaly in earnings data. This was going to lead to a Parliamentary row and a backbench revolt. But by bundling it up with the plan for the NHS and social care, this has probably been avoided. We are left with a clumsily assembled package, a tangle of string and brown paper, which imposes a degree of misery all round.
The package, though, seems to be acceptable to Parliament and also to the wider public: initial polls suggest that a majority support the proposals, albeit they are substantially more popular with older voters than with the young.
But despite this, the scheme is still a bad one. Andrew Dilnot, whose report a decade ago proposed a cap on the amount people could have to pay for social care, is pleased to see that his recommendation has now been accepted. Yet the cap of £86,000 is still a lot of money, and misleads as it does not cover all the costs care home residents have to cover.
It is clear it particularly benefits people living in the South East where house values are high. Simulations suggest that some individuals and their families could save six figure sums, paid for in part by people on low incomes and with few assets. Meanwhile many living in poorer regions where house prices are lower may still find they have to sell their homes to cover costs.
An opportunity has been missed to develop an insurance system to protect family property, with homeowners paying premia and with no charge to the government.
There is a credibility problem with the Johnson scheme, which means extra funding going initially to help clear the NHS backlog and only later switching to support social care. It seems unlikely that queues for diagnosis and treatment – already substantial before Covid came along – will easily and quickly be ended. It is going to cost a lot of money, much of which will still need to be paid even after queues diminish. Higher pay for NHS workers, an almost certain consequence, will be baked into future costs.
When – if – money does come towards social care, it must not all be dissipated on cutting the costs of residential care for the elderly. Adult social care has a wider brief, covering much younger people both in residential care and in their homes. And there is a need for investment in improving the quality of care by building better accommodation and recruiting and training better-qualified staff. The proposals in Build Back Better can only be the beginning of a plausible plan for social care.
After breaching the Conservative Party’s commitment not to raise national insurance, and bringing us the highest rate of taxation since the War, the government has stored up trouble for itself. If its credibility is not to be completely lost, the Johnson scheme needs to succeed in practice, not simply as a piece of political jiggery-pokery.
Professor Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.