Funding of Care and Support

Lord Desai Excerpts

Thursday 24th November 2011 Lords Chamber

[Lord Desai]

My Lords, first, I must say that Andrew Dilnot has written a good report, but I am going to be more critical of the proposal than most noble Lords have been so far. That is not because I do not recognise that there is a great and growing need, and that a civilised society should of course take care of people in need. But we have to face the fact that we are at a juncture where we have severe problems in our public finances. It is not just the coalition Government who have done this thing. We have undersaved for practically a generation. We—not just the UK but the developed economies as a whole—now face a serious crisis in that, unless we tackle undersaving, we will not be able to survive further into the 21st century. Our dependency ratio will rise. Noble Lords have already pointed out how many more people will be aged over 65 and how many people will live to 100. That is all very good, but the working population in proportion to the people to be taken care off will be small, and if we continue to have this ludicrous policy on immigration, it will not get any better internally.

My noble friend Lady Bakewell said, as often people say, “I have paid taxes all my life, why can't I be taken care of?”. The bad news is that your taxes are not adequate to take care of you when you need help. I am sorry about that. That is the reality. We find the same crisis in pensions. The pension that you have accumulated over a working life is no longer adequate to pay for the long after-work life that you will have. Once upon a time, when Beveridge put in his proposals, the working man lived three years beyond retirement. It was easy and the pension funds were flush with money. Now, you probably work for say 35 years and live for another 25 to 30 years. It is difficult to devise a system of pensions unless you have saved a lot of money to begin with, which will make it feasible for you to have a comfortable life later on. Somebody has to be the hard man and I will choose to be the hard man here.

At the very least, the cap should be indexed. I will come on to what my noble friend Lord Lipsey said, but we should make it quite clear that the cap of £35,000 cannot be kept constant. It will have to be indexed either to prices or earnings; whichever the Government find more money-saving.

Secondly, my noble friend Lord Lipsey said some very good things about this. There is a market failure in the social care insurance business. Of course, as many noble Lords have already said, it is because people confuse social care with health and they think that health is taken care of. Therefore they think, “Why am I not looked after for this?”.

We have to incentivise the buying of social care insurance at a very young age by people. The way to incentivise it, although I have not worked it out, would be that the amount of cap you get later would be related to how much preparation you have made earlier. If you have actually taken care of some of your needs, then we will help you along. That is not to say that we will not help other people, but ultimately this proposal, as many noble Lords have said, is benefiting the better off. To the better off we will say, “Prepare early on. You may be only 25 now, but if you recognise that you will face problems when you are 70, there will be schemes and there could be some government help for you”.

One of the other problems that we will have is that while we have not saved very much, we have been beguiled into thinking that buying a house is buying an appreciating asset. If you buy a car, you do not think that the car will appreciate as an asset. Why do we all think that a house should appreciate because of inflation? Asset price inflation will not go on. A house will not be the kind of wealth that will support you. It ought not to. We ought not to be living with the continuous asset price inflation that we have seen. Equity release will not be a way out in the future.

Given all these problems, I hope that the Government will accept some version of Andrew Dilnot’s report because we cannot again kick the problem into the long grass and come back to it in several years. That is not possible. We have to start with Dilnot and examine whether £35,000 is the right amount and whether we should index it, or whether £100,000 is the right amount and should we reduce it, especially given that the rich not only have more assets than the poor but they live longer. Both ways, there is this kind of regressive redistribution.

Therefore, we have to be very careful and examine the long-run economics, and the projections in Dilnot are not enough. The long-run economics in the general macroeconomic context are what we can afford and who will pay what in a carefully humane way. But let us not get carried away and let us not land ourselves with yet another bankruptcy-making proposal.