In defence of universality

Writing for the Independent, Ben Chu is not happy about proposals to extend public support for social care to the asset-rich. Universality, it seems, is terribly unfair. Ben’s main complaint is that it will help a generation of asset-rich pensioners to pass on even more, exacerbating the increased importance of inheritance recently highlighted by the IFS. I get Ben’s concerns, but his argument is muddled and he ends up attacking ideas I think he should support.

Before I explain why, let’s separate two issues. Ben is right to point out that demand for social care is projected to rise and that this will cost more money. It’s actually worse than Ben lets on, since the Treasury has been slashing local government funding. Social care budgets are falling at a time when they need to be rising. This does not seem like a sustainable situation.

However, I’m not sure anyone is suggesting that the “solution to the crisis is to scrap means testing and to load more costs on to taxpayers in order to protect the inflated housing inheritances of the already well-off”. Whether more support should be provided to people who currently use their assets to pay for care is a separate question, and this is where Ben’s article misses the point.

Risk pooling

To see this, we need to address a concept that is fundamental to this question, but is entirely missing from Ben’s piece: risk-pooling. This is best illustrated by an example.

Ben tells us that one in ten older people will face costs of over £100,000 in their lifetime. For simplicity let’s imagine that out of every ten older people, one will spend a few years in a care home costing £100,000 while the other nine will die without any significant care costs.

Now take ten people who each retire with £150,000 in housing assets. Under the current system whichever of these people gets sick enough to end up in a care home will have to sell their house and spend two-thirds of the value on care home fees, while the others will not have to pay a penny. Since social care needs are unpredictable, none of them know ahead of time if they will be the unlucky one.

Now imagine another system where each of these people agrees to pay £10,000, either up-front or from their estate after death. This money will be used to pay the social care costs of whichever of them ends up in a care home. Economists usually assume that people prefer this option because they are risk averse. Indeed, this is why we buy insurance in other areas of our lives and why we pool the risk of health care costs through the NHS.

We can buy many types of insurance privately, but others are best provided publicly. Health insurance is the classic example: a set of well-known market failures mean that private health insurance works badly, so all advanced countries (except the USA) provide it primarily via the state. Social care insurance has some similar characteristics. In fact, it’s virtually impossible to buy at the moment because there are very few products on the market in the UK. So if the government can help people to pool their risks, surely this is a good thing.

This is what Andrew Dilnot’s proposals are about. In fact, he proposed a rather modest version whereby risk pooling only applies to people who have already spent tens of thousands on social care. As Ben notes, these proposals have a (fairly modest) cost.

This is all predicted to cost around £6bn to the public purse over five years. And remember: those billions of pounds would otherwise have been extracted from the property assets of pensioners.

There’s a word missing from that last sentence. The billions of pounds will be extracted from the property assets of sick pensioners. Pensioners who don’t end up in care homes won’t have anything extracted from their property assets.

Distributional consequences

Notice that in my example above there is no distributional impact. I’ve taken ten equally rich people and shared a risk between them. The total amount of money passed on as inheritance hasn’t increased, it’s just more evenly distributed. Things are a bit more complicated in reality, but it is important to remember that the Dilnot proposals are about how to structure a risk-pooling scheme, not where to get the money from to pay for it.

So when Ben says:

That’s a £28,000 boost to the inheritance of the children, ultimately courtesy of the taxpayer.

I’m not quite sure who the “taxpayer” is. If we are talking about the people that pay the most income tax, then (insofar as there is a correlation in earning between generations) we are talking about many of the same people who stand to inherit significant wealth from their parents.

But who says we have to fund this from income tax? It may be politically toxic, but if you are worried about the increasing importance of inheritance, you could argue for increasing inheritance tax. This would get you pretty close to my example above – in fact, it would be much more redistributive, as inheritance tax is only paid by the very richest. Alternatively, you might want to suggest changing the tax rules around pension lump sums. These possibilities get only a passing reference in Ben’s article.

Political constraints notwithstanding, we can get pretty much any distributional effect we want by choosing where the money comes from to pay for reform. But we really shouldn’t be trying to solve our distributional problems through the social care system. This system is there to make sure that people get the care they need and to limit the financial disadvantages they face as result of becoming sick. As a way of getting at the assets of old people it is pretty terrible. If we care about distributional effects (and we should) we would better off looking at the tax system.

Taxing wealth is hard. It’s tough to figure out how much people have when they are alive and inheritance tax is unpopular. The IFS tells us that the importance of inheritance is increasing, which is hard to see as a good thing. But – at risk of repeating myself – letting the one in ten old people who become severely dependent spend down their assets while letting the other 90% keep everything is a shoddy way of dealing with it.

An assault on universality

The arguments in Ben’s article aren’t specific to social care. The same arguments can be used to attack universality in all its forms. Ben could have made all of the same arguments against universal coverage for health costs – after all, it is mostly old people who use NHS services and mostly working age people who pay for it. Why not ask them to sell their homes to contribute the cost of their latest operation? Except I don’t think that Ben, or many other people, would make that argument.

Universality does involve governments providing services and support to people who have money. It’s not how most of the public sector works in the UK, but it is not “pro-rich” – in fact, it’s probably the opposite. Its corollary is higher taxes, so the rich pay for it, while the main beneficiaries are the people who fall just outside the criteria of means-tested systems. It is no accident that the countries that we see as the most “progressive” – such as the Nordics – have a wide range of universal benefits and high taxes. It is also arguable that means-testing is divisive, splitting people into those that pay into the state and those that take out.

Priorities – a caveat

In defending universality, I don’t mean to say that it is always better. By all means give me an argument that political limits on taxation make means-testing necessary to achieve certain distributional aims. Please, tell me that wealth taxation is so hard and inheritance such a problem that letting the sickest 10% of old people use up their assets is the lesser of two evils. I am listening.

Nor do I mean to say that universal coverage is the priority for the social care system. Cuts to budgets mean that councils are struggling to fund even the means-tested system that we have now. If we can’t even support the poorest in society then a lack of risk-pooling may not be our most pressing problem.

But if we are going to talk about universality, let’s be clear about what it means. It is not a hand-out to the rich and it is not about protecting people’s inheritances – any more than the NHS is either of those things. Coupled with a fair tax system, it is a progressive goal and one worth defending. I invite Ben to reconsider which side of the argument he is on.

3 thoughts on “In defence of universality

  1. MurrayMint

    One inequality that is seldom addressed in Britain is the education/intelligence/awareness inequality. As an Anglican clergyman, I would argue that it is not acceptable for spiritual things to be so bound up with high levels of literacy and appreciation of classical/high-brow music that less educated people can’t really access the life of the Church. This is a form of discrimination. Yet most bishops I have spoken to think that people should be ‘educated’ into the life of the Church in all its wonderful richness etc.

    Something similar is true in terms of tax, benefits etc. If you don’t know/understand certain things, you can’t take advantage of them. So poorer older people tend to be much less aware of their options, and of ways of maximising the tax/money system to their advantage. When my mother-in-law was very ill, and my father-in-law frail, and both needed to go into care of some sort, my wife and I sorted out a home that would take both of them, organised the best sale of the house, and (crucially in terms of inheritance) helped them change their wills so that when mum died in May her assets did not pass automatically to dad, but rather got distributed to her adult children. If we had not been educated enough to do that, the whole value of their (ex Council) house would have ended up in dad’s bank account and been spent down until he reached the magic £23.5k. Richer people are aware of such things, and routinely arrange a solicitor or accountant to help them with the issues. This exacerbates the inequality between rich and poor, as the poorer elements of society are almost always less well educated and often simply unable to take such things on board. So the truth is that the situations you describe are even worse in practice than they are on paper.

    A similar complication pertains to my own mother’s situation. When my father died some 17 years ago, he left everything to her (so that she would be secure). If she ever goes into a care home, the whole of their joint assets will be taken into account in terms of who is going to pay for what when. My father probably needed some clever solicitor’s arrangement by which half their joint assets were left to their children on his death but only became available to them on my mother’s death so that she could continue to live in the house regardless. But I don’t suppose he ever thought about that. The rich make sure that they have much better arrangements! Even the stupid rich employ clever people to look out for them.

    Until the State arranges to maximise everyone’s entitlement in some way, rather than relying on individuals to ‘claim’ particular entitlements and arrangements, these kinds of situations will keep on happening. Probably the very poor do get this kind of help from Benefits offices and CABs, but lots of lower middle class folk never darken the doors of such places.


  2. Dan Dennis

    The thing is, if you have a universal system, meaning that service X is free at the point of delivery, then more X will be consumed than if either a) X had to be paid for at point of delivery (whether in full or a percentage of its value) or b) individuals have to choose whether to pay for insurance, where the insurance will pay for X if it is needed.

    Thus, in the case of social care, if it is free at the point of delivery, paid through taxation, then far more social care will be consumed than if the client had to pay (some or all) of the cost of it, and than if the individual had to take out insurance to pay for it. Two reasons.

    Firstly, the individual is more likely to build up a network of family and friends, and choose to live in location where they can provide some or all of the care needed. For instance, if the choice is either i) granny stays in her home and gets social care there or ii) granny comes to live with son and daughter-in-law, then if the social care is free then more families will choose i than if the social care has to be paid for out of granny’s estate. Likewise if the options are i) granny stays in her home and gets social care from professionals or ii) granny stays in her home and offspring regularly drives ten minutes to help granny so less/no professional help is needed.

    Second reason is that the individual is more likely to choose Euthanasia if he has to pay for his own care than if it is paid for by others. Many people I know say that they would rather opt for Euthanasia than stay alive with serious dementia, severe motor neurone disease etc; and they think that this is the morally right choice, both because of the emotional trauma it would inflict on them and their beloved’s and because then the resources that would otherwise be spent on their care can benefit their children or be spent on schools, healthcare, etc in the UK and/or in the Third World. For these ways of using scarce resources are better for mankind. (I know euthanasia is not legal in the UK currently, but it may become so in future – and a trip to Dignitas only costs the same as a few weeks social care).


  3. MurrayMint

    You assume that less consumption of social care is a good thing. It depends. When the scheme for funding NHS dental care changed some years back, it certainly saved the public purse quite a bit. Overall much less dentistry has been done, which also helped solve the problem of a shortage of NHS dentists as they could each take on more patients. But the public’s teeth are now in much worse shape. As my father used to say, someone can always do it a little bit cheaper and a little bit worse.

    As for social care: yes, we can suppress the use of public funds and get people to care for each other more. But if someone is to be eligible for state funded social care (either at home and even more so residential), they need to meet certain criteria of need, and looking after them is then a lot of work. It’s not just a matter of dropping in now and then. That often means those who care for them dropping out of the workforce, or at least working less, and that has an economic impact on the economy. Social care also provides paid employment, especially into the lower skilled workforce who might otherwise be on benefits. Then in residential care there is the social benefit of being in a shared home with other people, rather than living on your own in your own home. My father in law is in one at the moment, and loving it. More expense for better quality of life is surely worth it.



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