Dementia Tax…

The 2017 Conservative manifesto includes a commitment to funding social care through individual payments, capped so that nobody is left with less than £100,000.

This policy, widely condemned as a “Dementia tax” is deeply unfair. It would in effect mean that someone with a long term illness would face a tax rate of 100% on assets (including property) over £100,000. Inheritance tax currently stands at 40% on assets above a variable threshold, between £325,000 and £850,000.

In other words, Conservative tax policy will penalise anyone with a long-term, condition.

This, of course, has sparked backlash, as well it should. It is therfore unsurprising that today saw a Conservative u-turn. Theresa May announced that alongside this level of assets below which a person will not have to pay for care, there will be an absolute cap on the contributions any person will be required to make to pay for their social care.

I’ve blogged about u-turns in the past, and continue to believe they can be a public good. I’m glad Theresa May’s Conservatives have realised that their proposals for funding social care were deeply unfair. I’m glad they have announced this policy change, capping the amount anyone will be required to pay (though they have not specified what that cap will be). Im glad they are willing to change their position when flaws are highlighted (if we are going to have another Tory government, I’d rather it were one which changes its mind when presented with new evidence),

But this policy change does not go far enough. A system which makes an individual pay for their own care, regardless of how it is capped, is inherently unfair. Rather than sharing the burden of unforcosts and uncontrollable medical costs fairly across society, it penalises people for being ill. Let me repeat that. The Conservative policy forces ill people to pay for their care. This is entirely antithetical to the principles of the NHS. It is fundamentally unfair that two otherwise identical people will pay vastly different sums due to an accident of health.

A fair system would see everyone contributing to the country’s social care needs, in proportion to their ability to pay (it’s unpopular, but I increasingly see a larger role for inheritance tax in meeting care needs). This system does not do that. It makes some people pay through the nose, while others get away with paying nothing. This is not a way to build a more cohesive society. It may be that we need to use people’s housing wealth to cover care costs, but if that is the case, it should come out of everyone’s houses.

Don’t let the Conservatives fool you. They may have tweaked their policy, but in doing so they have only made it a bit less bad!

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7 thoughts on “Dementia Tax…

  1. Not only are they making I’ll people pay for their own care, rather than spreading it across the country, but actually the revised policy is, if anything, worse than the original one as it discriminates against the less well off. Those who have little will have it all taken (down to the last £100K), while those with millions will only have to pay up to the cap, which will probably still leave them with millions!

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    1. From an income perspective it is true that under the initial proposals, a very rich person would pay more than someone whose assets were near £100,000 (assuming two people with identical, long-term conditions and high care costs), making them in a sense progressive, and that the revised policy would in effect mean those with lower assets pay a potentially greater percentage of their assets than those who are rich. The problem is that that you cannot guarantee someone with high assets is also going to get an illness with high care costs. Indeed, given the income distribution in the country, most people with illnesses with high care costs will have lower or middle level assets. You cannot guarantee that a system which determines someone’s contributions based first of all on their health will be progressive. It may be, but it may not.

      From a social point on view, any funding system which relies on people paying proportionately to their care needs is going to be unfair. Someone who has dementia should not be disproportionately punished relative to someone with, for example, cancer, even if they are wealthier. This is why raising the threshold to pay for care from £14,250 (the current level at which you start being liable for SOME of your care) to £100,000, and capping individual contributions (at £35,000) were key recommendations.

      So yes, income-wise the new proposals are less progressive, but they are better for social cohesion.

      Perhaps a better option would be to have a progressive cap on what you pay, based on the value of your assets. Which sounds rather like a tax, except that only ill people have to pay. So it’s still inherently questionable. And it will never fully cover costs, because nobody is required to pay more than the cost of their own care, and some people pay less.

      And that is why we need to scrap individual payment for care costs, and hike up inheritance tax.

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      1. Or better still increase income tax for those who can afford it, and close a lot of loop-holes. Inheritance tax is normally at least double taxation – first when the initial wealth is acquired and then each time it is passed on.The only exception to this double taxation is if the initial wealth is tax-free (e g from a large Premium Bond win), and the capital is only passed on once before it is spent. This is one reason why it is so disliked.
        The fact that, as you say, “given the income distribution in the country, most people with illnesses with high care costs will have lower or middle level assets” does not make basing the care charges levied on the income of the individual unprogressive, any more than tax bands charging more for people with high income would not be progressive. They are. The percentage of people with high income who get dementia or cancer is likely to be the same across the income bands, even if the total number will be biased more towards the low-to-middle bands.
        But I agree, individuals paying for their health costs (as opposed to a ‘national insurance’ scheme) is invidious.

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  2. I would argue that income tax is more unfair than inheritance tax, because dead people don’t need their money, and regardless of what we may feel is owed to us, nobody has an absolute right to inherit wealth: everybody can decide how their assets are disposed of at their death . In other words, if you are going to increase tax, do it to the people least in need (i.e. the dead).

    You object to inheritance tax on the basis that it has already been taxed, but what in real terms, is the basis between taxing wealth once at a higher rate or twice at a lower rate? In fact, taxing assets is arguably fairer than taxing income, as it helps reduce inherited inequality, and prevents people hiding their wealth through non-monetary assets, taking income as capital gains etc.

    I explicitly said that, in tax term, the original proposals were more progressive – if two people have the same care needs, making the more wealthy person pay more is progressive. But determining what is paid on the grounds of health first and foremost, and wealth secondaries is not socially progressive.

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    1. One objection to death taxes is that they are in effect a stealth tax, in that you don’t know, when you actually acquire the money, at what rate it will eventually be taxed – just income tax, income tax + 1 lot of inheritance tax, or income + multiple inheritance taxes…. They are also already at a far higher level than income tax, and furthermore it is likely not to be only taxed one time more than income tax but several as the money is passed through the generations. In addition it is raised at a time when the recipients are emotionally very vulnerable.
      I accept that the dead are least in need of the wealth, but still feel that inheritance tax is not a good way of doing this sort of redistribution for the reasons given (and incidentally, nobody ‘needs’ an income in millions/year, so it could be argued that they are no more in need of the excess money than the dead are).
      Regarding your last paragraph, I agreed with all these points!

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  3. I don’t see a problem per se with not knowing what rate you will be taxed at. Nor do I see a problem with it being at a higher level. The whole point of inheritance tax is to prevent disproportionate inherited advantage, so it being taxed multiple times down the generations certainly seems fair. And you’ve fallen into the rhetoric of talking about ‘recipients’. Receiving inheritance is a privilege, not a right. So I don’t really agree with your criticisms.

    And yes, people don’t need millions/year, but they can at least use it, in a way which the dead cannot. Yes taxation should be progressive – but I would argue that applies just as much to inherited wealth as to income.

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