Wednesday, 8 September 2021

Which 'crisis' are they really trying to solve?


In the light of yesterday’s announcement of a hike in National Insurance contributions, some have claimed that this is an example of what they call ‘intergenerational unfairness’, since it means that those in work are paying for the care of retirees. Indeed, even some Labour figures are echoing the same line. This is, though, to misunderstand the way NI works. It has always been the case that people in work pay in during their working years to support today’s retirees, on the understanding that tomorrow’s workers would support them in the same way. That’s the deal, the contract; it’s why people say with legitimacy that they’ve ‘paid in all their lives’ and are now entitled to the benefits which were promised to them. That’s the way NI has always worked. It’s not a bug, nor a problem; it’s a feature. It’s the way it was designed to work. It only becomes a matter of ‘intergenerational unfairness’ if someone suggests that the contract will be broken, and that those paying in today will not receive the benefits when their turn comes.

Whether it’s the right way or the best way of doing things is another matter entirely. It’s always been actuarially unsound in that the money paid in has never been put aside to pay future benefits, but is instead simply added to the general tax take and spent as the government wishes. But that doesn’t matter: as long as the government stands by the promise to pay, the scheme remains sustainable. The problem arises when a government wants to renege on the promises made by its predecessors (or in the case of Boris Johnson, even those it made itself) and avoid providing the promised benefits for which people were led to believe that they had spent up to 50 years contributing. Whether honouring that promise, that contract between the state and its citizens, depends on tax rises or not depends on a number of factors, and those factors vary over time. They also vary according to ideology. But let us accept, for the sake of argument, that increasing longevity coupled with increasing needs for care means that the government needs to raise taxes in some form to meet the costs: what is the best and fairest way to do that?

One of the problems with NI is that it is not a progressive tax; higher earners pay proportionately less than lower earners. Adding a levy to income tax would be a far more progressive way of achieving the same thing. (A tax on wealth would be another.) The government seems to have shied away from that option for two reasons. The first is that their focus groups and opinion polls have told them that it will be easier to ‘sell’ a hike in NI than an income tax hike, particularly if people can be persuaded that the money is going to a specific purpose of which they approve. (It isn’t, of course: it’s just going to be added to general government revenue, and after the first year, any relationship between the size of the levy and the spend in the relevant area will be entirely arbitrary.) The second is that, because employers’ NI is also being increased, the amount of the increase appearing on payslips as an additional deduction will look lower for NI than it would for income tax. This does, of course, assume that people will not understand the relationship between increased employers’ NI on the one hand and price increases and reduced wage increases on the other; any increase in taxation on businesses will eventually come out of the pockets of the employees and customers. Sadly, it’s probably an accurate assumption on the part of the government.

The bigger problem with yesterday’s announcement is that the crisis that it is intended to solve isn’t the one that the government says it is. One has only to consider who the real beneficiaries are to realise that. By and large, those who will benefit from steps taken to avoid the need for the elderly moving into care to sell their home to pay for it aren’t those elderly people themselves, but those who stand to inherit those homes on the deaths of the owners. (There are, of course, exceptions to that, such as situations where one or more of those caring for an individual live in the same home and have no other, but that isn’t the most usual situation.) What that means is that the main beneficiaries from any policy designed to avoid having to sell houses to pay for care tend to be middle-aged; and the wealthier their parents are, the more they stand to gain. The crisis being solved here isn’t the crisis of paying for care, it is the ‘crisis’ of largely Tory voters (not to say donors) facing the loss (or attrition in the value) of the inheritance which they see as being rightly theirs. Professor Richard Murphy put that in stark terms this morning: Yesterday’s tax plans were all about capturing tax revenues for private gain to the wealthy at cost to working people”.

We do face a care crisis; quality care in later life is increasingly out of reach for far too many people. The causes of that are many and varied, but they are certainly not helped by a government which has deliberately reduced the availability of carers, and a succession of governments which have attempted to privatise and cut spending. The economic story of recent decades has been about the increasing transfer of wealth from the many to the few; paying properly for care depends on reversing that process, not promoting it. The UK, as one of the world’s richest countries, has the resources to provide proper quality care for all those who need it, but has chosen not to. Nothing in yesterday’s announcement comes near to the fundamental change of approach which is needed. It might, though, benefit the Tories financially and electorally, despite the crocodile tears of some of their MPs.

1 comment:

dafis said...

The care crisis is a microcosm of much that is wrong with modern society. Many of those wrongs have been caused or at least enabled by narrowly focussed (or unfocussed) government policies over the past 50+ years.

People have lived to an old age for a long time. In my youth old folk were cared for by their extended families. Typically granpa would die of hard work anywhere between 65 and 72 and gran would last well into her 70's even 80's. The survivor would spend her last years either with or near to her offspring. There were exceptions but they could rely on either the community or extended family to "pop in" and help out.

A number of things have changed with bad consequences. Geographical mobility dispersed families far more. Economic growth (and attendant greed) meant people became more focussed on earning and acquiring things paying less attention to their kinfolk. Improvements in "health" have not always been what they claim to be. Perhaps they should be called "avoidance/supression of terminal illness" instead. Far too many of our old people are living to advanced ages maintained on a steady feed of drugs and procedures which don't enable quality of life just enabling survival. Governments have talked about "health promotion" and other game changing initiatives yet shy away at banning substances, or taxing them punitively as that would deprive people of their liberty. What ?- the freedom to cripple themselves, and become dependent on some care system ? Why not?

As for that inter generational conflict, now that is a construct designed by people with malicious intent. They either wish to create a stalemate which could be used to justify inaction - unfairness and all that, or it is aimed at seriously undermining the fine balance between every generation in society. I paid NI all my working life.As you say in your opening paragraph :
"It has always been the case that people in work pay in during their working years to support today’s retirees, on the understanding that tomorrow’s workers would support them in the same way. That’s the deal, the contract;"

That is a mutual bond, it may not be utterly fair down to the last pound but it's probably as good as it gets.

And on that point of fairness we conveniently get distracted from the failure of successive governments to nail the problems of avoidance, evasion, "mitigation" and all the other opaque terms used to cover what is really an unwillingness on the part of some seriously rich individuals and numerous corporates to pay their fair share of TAX ! Crack that one and there shoud be ample funds to make a decent fist of bridging that gap in our performance.