Social Care

Lord Desai Excerpts

Thursday 28th October 2021 Grand Committee

[Lord Desai (Non-Afl)]

My Lords, this is a very simple problem but the solution is very difficult. For a long time, economists have talked about what is called the life-cycle hypothesis—how families or individuals rearrange their consumption pattern over a lifetime by transferring some of the future income to the present, as we do in the student loan system and when we buy a house through a mortgage. Mortgages are interesting; all Chancellors stand up and say, “The debt-to-GDP ratio is really very high. Every family that starts with one of at least 300% will have a mortgage.” Everybody knows how to do that.

Our problem is that people do not know how to do the backward transfer. People do not know how to transfer the present value to the future. That is a matter of incentives. Ultimately, there have to be incentives. Building societies evaluate you and give you the money and you pay it off. I spoke on this when we were discussing the extra tax for social care. By and large, the better-off middle classes have a house. The house is congealed capital gains. The question is how you melt that capital gain to make it available without melting it so much that it flows away. I was at that time proposing some form of council tax, which I will not repeat now.

Interestingly, families have assets which they do not want to sell and realise because they want to pass them on. That is one incentive. We have to give them some sort of scheme whereby they would say, “I want to pass on the money that I have to my children, but I don’t want to pass all of it on. I will split it.” How can we give families an incentive to split? Whenever I get up, I propose a new tax, so I will do that. We treat asset transfers to children very lightly; we do not tax them. If we were to say that passing your house to your children would be fine but we would tax it at 40%, which is the higher rate of income tax, or even 20%, the family would ask itself whether it would be better not to preserve the house but to sell it beforehand and split the equity between the family.

I am always autobiographical, so I will say that I am about move to downsize. I have a house in Camberwell that I am about to sell and I shall move to County Hall, which will be easy for inviting all my friends to come to have a drink at my place. That will release cash for me to keep, which is not taxed under current regulations. That is all right; I can do whatever I like. But if, for example, I were to stay in my house and then transfer it, it would not release cash in my lifetime but it would release cash to my children. If the Government said, “That’s fine, but if your children get it you will pay 20% tax”, I would be more encouraged to downsize while living than to wait until I die for my children to get it. This is a very simple thing. We have to give some kind of incentive or disincentive for people to unfreeze their frozen capital gains. If you look at the wealth distribution, that is the largest amount of wealth people have. It is a matter of ingenuity by people who think about taxation.

My noble friend Lord Lipsey, whom I thank for obtaining this debate, spoke about equity release. If you watch television on Saturday and Sunday afternoons, there are adverts for equity release, funeral insurance and that sort of stuff, so there is a market, but I do not think it is a very efficient market. We have to see why that is. What incentives can we give for the market to be more lively? Is there anything we can give to the sellers so that they come up with interesting products? Right now, all they are talking about is how you can be healthy and enjoy the money while you exist and run around in gardens.

A house is a frozen sum of money. How can you melt it, share it with your children and pay for your care? Everybody should be told about this: you are going to need care and you had therefore better provide for it. This is a harsh thing to say, but the existence of the NHS has discouraged saving. We have begun to believe that we do not need to do anything about our health, because it is taken care of. We do not realise that social care is not included in what the NHS does. We can either merge the two and provide them with more money or clearly separate them and tell people that it is not possible to have social care in hospital. It is a different kind of problem.

This is not strictly to do with assets, but about the running costs of social care. It is a slightly tricky business, but many people are cared for by their own family. This is done on a voluntary basis, usually by women. Women end up looking after their husbands, often because they live beyond them anyway, and they do it unpaid. It is extremely hard work, although they may be able to hire people in. Is there any way in which we can create a social dividend income, so that people taking care of an elderly person, even if they are a relative, would get something? It could be like a universal credit or pension payment, but it would be some sort of sustainable payment. We know that carers for the disabled and so on have problems taking holidays and things like that. We know that this happens so, if somebody, whether a man or a woman, can show that they are taking care of their relative, they would get some compensation for doing it and saving the state money. It is basically giving them the money the state saves.