Sam Bowman

The Conservatives’ new proposals still penalise savers. A system of insurance would be best

The Tories may have made a political mess out of it this time, but finding a long-term way to pay for social care is essential. As a nation, we’re not getting any younger, and costs are rising thanks to policies like the National Living Wage and the drive to cut unskilled immigration, on which many care services are reliant.

The original plan, contained in the Conservative manifesto, was not all bad. It was right to include housing in the measure of wealth used to determine whether people would have to pay care costs themselves. We do not want to encourage people to put their money into the value of their home instead of investing in their pension or family business.

But it also had enormous design flaws. Means-testing what people must pay for social care based on their assets and savings creates a huge incentive either to save much less for old age, or to not save at all. This is the opposite of what we want.

For one thing, it is unfair. Savers are the ones who stayed in on Friday nights and spent their summers at National Trust parks, while their neighbours ate at expensive restaurants in Dubai. But it’s even more important than that. Your savings are loaned out to businesses and entrepreneurs whose investments raise the living standards of the whole country. Penalising savers hurts everyone.

We already have huge savings penalties in Britain, like inheritance tax, which explain why we have some of the lowest investment levels in the developed world. And even after yesterday’s announcement of a cap on the total that people must pay, the Tory plan for social care builds such savings disincentives into the system.

But a savings-based approach would not solve the problem entirely, because social care costs fall so unevenly and unpredictably. Half of people aged 65 will spend less than £20,000 on care throughout the rest of their lives, while one in 10 will spend over £100,000.

Insurance would seem to be the obvious solution, though insuring things decades into the future can be difficult. This was why the Dilnot Commission on social care recommended a cap on user costs, with the remainder picked up by the state, in the hope that insurance markets would cover the costs bearable by individuals.

The now-modified Tory proposal resembles this but levies a huge burden on people in the middle who have some assets but not a lot. It still rewards those who consumed their incomes before retirement, and punishes those who saved instead.

A better model might be one of mandatory insurance plans similar to those of the Netherlands, Germany, France and Japan, combined with Singapore-style mandatory savings accounts. One or two per cent could be taken from your pay cheque throughout your working life, half of which would go on your private social care insurance, half into a savings account in your name. Those on very low incomes could be supported in these payments by the government.

The insurance element would pay for the truly enormous costs faced by the minority. The savings account would be reserved for the predictable costs of old age care, with what’s left over passed down to our loved ones.

This would solve many of the problems other systems have faced. The so-called dementia lottery would be addressed with insurance, but we would pay the predictable costs that most of us face ourselves, with an incentive to spend as little as possible.

Transitioning to this kind of system would require government support for those who are already well on their way to retirement. Here, political “realities” cannot remain so: the state owns hundreds of billions of pounds of assets that it could sell off to fund such a transition. Even small auctions of planning permits by the government in high-growth areas near London, Oxford and Cambridge could raise billions.

This would be a system that forced us to be prudent, and would be a far cry from the laissez-faire approach that liberals like me would prefer. But as we have learnt this week, politics is the art of the possible – and here, the boldest solution may also be the most sensible.