Recently, Eluned Morgan, one of Labour’s new AMs, put forward an argument for a new Welsh tax to pay for care costs of the elderly. The problem she highlights is a very real one; the population is ageing, and as people live longer they will need more care which will add to costs. She also, entirely correctly, identified the additional problem that we face in Wales of people retiring here, usually from England. And although such people may well have paid taxes to central government for many years, care costs fall on local authorities, so effectively Wales gets the costs without the income to pay for them. I agree with that analysis of the problem, and the specific budgetary issue of cross-border retirement is something I’ve discussed before.
However, I’m not convinced about the argument for a specific Welsh tax to pay for care. The first reason for saying that is that I’m not a fan of hypothecated taxation in any event. Whilst telling people that tax A is a tax to pay for something that they agree we need is superficially an attractive way of selling that tax, it implicitly assumes that there is no scope for altering the priorities within current tax revenues and therefore diverts attention away from that question of priorities. It also assumes that governments cannot be trusted to spend the money raised in the right way unless their hands are tied. That might be a fair assumption, actually, but ring-fencing won’t necessarily stop them. National Insurance was supposed to be a hypothecated tax, but the money simply goes into the same account as everything else.
The second question, though, is about what sort of tax this would be. I assume that it can’t be an addition to income tax, given the categorical promise by Carwyn Jones that a Welsh Labour Government would not increase that tax. So what does that leave? The proposal of a special tax is not new nor is it unique to Wales; back in July last year, Andy Burnham suggested taxing the monies left when people die to cover the costs of care, and I wondered whether that might be what Eluned Morgan is hinting at here.
It’s an idea not without merit, although it’s unlikely to be popular. Having said that, unpopularity is hardly a sound reason in itself to reject any specific tax; we’d have no taxes at all if that were the main criterion. But the basic problem such an idea faces is that most people believe that the costs of looking after them in later years are part of what they’re already paying for through National Insurance contributions. And that’s where the failure of successive governments to establish a proper system of insurance based on the ‘premiums’ that people thought they were paying comes back to bite them.We do indeed need a sensible conversation about how we pay for care, sickness, unemployment and all the other things that NI was supposed to cover; but the core of that needs to be about how we move to a proper system of insurance rather than simply adding a new tax.