Heath and Social Care 2) Damian Green: I worry that the spending switch from the NHS to social care may never happen.

8 Sep

Damian Green is Chair of the One Nation Caucus, a former First Secretary of State and is MP for Ashford.

After days of wailing about how the new money for social care was going to be raised, we can now face up to a question which matters immediately for millions of people. How will these proposals help the vulnerable people who actually receive social care?

The Government’s approach has been to recognise that sorting social care had become one of the big commitments that Boris Johnson had made. This means that he could not afford to kick the can down the road for the rest of the Parliament.

At the same time, the effect of the pandemic on the NHS has meant another huge demand on the taxpayer to put the health service on an even keel. Following the eternal advice that you should never let a crisis go to waste, the new Health and Care Levy can be sold as a way of “solving” short term pressures on the NHS, while also raising enough money to start repairing the social care system.

At the same time (reverting for a second to the weekend’s arguments) the transparent need to bail out the NHS gives the Prime Minister the chance to be almost disarmingly upfront about what he is doing.

He admitted in the Commons that he was breaking a manifesto commitment, but his very effective plea in mitigation was that no one had a global pandemic in their manifesto in 2019. This honesty will I suspect mean that the measures pass through the House relatively comfortably.

So there is one big cheer for the Government actually producing a way of raising the money, even though I would argue, as I have on this site, that it would be better to use a mixed system on the pension model, where the state funds a decent minimum care offering, and ensures the creation of a mass insurance market so that anyone with income and/or assets can pay for insurance which will provide them with peace of mind in old age.

The use of the Dilnot-style cap meaning that no one will be asked to pay more than £86,000 in care costs means that actuaries can calculate premiums, so such an insurance market would be viable. I think this would be a more Conservative solution, so my one cheer is struggling to turn into two or three.

Accepting that the Government has chosen instead to go down the taxation route, my main concern now is that the promised switch over time, where the NHS spending from the Levy is tapered down while the money going into the care system increases, will never happen. There is always a good case to be made for extra NHS spending, and there are officials within the NHS whose whole career entails making that case.

I may be unduly cynical, but I cannot envisage the circumstances in which those at the top of the NHS will agree to shaving some of their own spending so that a higher proportion of the Levy can be diverted into care.

Therefore my real fear is that in a few years’ time there will not be a visible enough improvement in the care system to justify the claim that this persistent nettle has been effectively grasped. The practical changes that are needed are obvious. We need tens of thousands of extra care workers. We need to ensure that we have the capacity to enable people to receive care in their own homes, so that they have a better quality of life for longer and minimise the huge costs of residential care. We need to build and adapt homes differently, so that people can live for longer without needing 24-hour support. We need more care places, and we need to improve the quality of care.

The Levy will raise £12 billion a year. In truth, if you wanted to address those care issues comprehensively you could use all that money. Of course the NHS has legitimate and urgent demands as well.

But those of us who follow this complex issue closely will look at three questions in the coming years. Is the talk of “integrating” health and social care actually turning into something real on the ground? Is the new integrated system actually giving a voice to social care providers which is strong as the voice of the NHS? Is access to the social care system less opaque and frightening than it has been in the past?

As the dust settles on the announcement, and the political caravan moves on, some of us will continue to pay attention. More importantly, millions of people who have not thought much about the care system will come into contact with it for the first time. The test of the Government’s policy will be if those millions do not fear the effects of engaging with the care system, but find it a proper national asset, enabling older people or those with disabilities to live in a way that reflects credit on a generous and civilised society. It is a stiff test.

Health and Social Care 3) Ryan Bourne: The battle for spending control and lower taxes appears to be lost

8 Sep

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

The Prime Minister sold his health and social care plan yesterday as one delivering “tough decisions” that previous governments have shirked. It certainly constituted major policy change, the scale of which is rarely seen outside of budgets. But Conservative MPs who study it carefully will realise it does not “sort” the social care issue in a meaningful sense.

Consequential reform required ascertaining what people want and need from social care, what barriers exist to delivering it, and then determining what taxpayers should provide. It needed to create better incentives for providers and councils to serve our needs, to consider the challenges of aging, weak productivity, aggressive minimum wage hikes, and poor quality care. It needed to acknowledge that most people want to live at home, not in a home. A durable framework meant avoiding social care going the NHS-route of becoming a political football.

The plan did not achieve those objectives. Instead, the Prime Minister, Chancellor, and Health Secretary agreed a proposal to breach their manifesto tax pledge, but in the service of providing funds to patch up our inadequate current model. The majority of money was flung, once again, at the NHS. The major social care innovation, in fact, was to pay more of some care receivers’ bills, by implementing the 2011 Dilnot Commission’s recommendation to protect inheritances from being as eaten up by care costs.

The vast majority of the initial £12 billion per year in spending would firefight the NHS’s backlog. Just £5.4 billion would go to social care over three years, of which £2.5 billion is for protecting inheritances (the costs of which will grow in time). Under this component, no individual would pay more than £86,000 in eligible lifetime social care costs. Those with assets below £100,000 will get means-tested assistance, and those with less than £20,000 will likewise have eligible costs financed. In essence, a major new age-related social insurance entitlement would be tacked on to a welfare state creaking in anticipation of a demographic tidal wave.

This would all be paid for, we are told, by a 2.5 per cent tax rise on employees (1.25 each on employee and employers’ NICs, both ultimately borne by workers). But, combined with a dividend tax rise and an equivalent levy on pensioners’ work income, these will be bundled up and spun off to become a brand new tax from 2023/24 – the so-called “health and social care levy.”

Why, then, will this plan not settle the issue?

Well, no plan failing to address productivity growth, ageing, minimum wage hikes, tailoring care to individual needs, or councils’ incentives to build more homes is going to provide a lasting settlement on social care. And this one explicitly avoids all that, saying “We expect demographic and unit cost pressures will be met through Council Tax, social care precept, and long-term efficiencies,” determined at the Spending Review. Already the sector is bemoaning that the non-Dilnot funding aspects don’t go far enough. In other words: expect more government spending and tax rise battles in the very near future.

In fact, there are plenty of reasons to expect that this plan’s approach will result in even more spending. Will the Government really allow NHS budgets to fall after backlogs are cleared to fund social care, or will this mean a permanent NHS baseline increase, with social care scrambling for funds later? To ask the question, I think, answers it.

It would be tempting for Tory MPs to consider that a problem for another day. At least this provides some relief, and gets the Daily Mail off your back, right? I’m not sure. Governments raising broad-based taxes to pump money in will create the expectation of improving social care quality. By making a big song and dance about “sorting” social care, in fact, the Conservatives will take ownership of its many failures, as James Frayne warns.

Then there’s the disappointment that will come once the contours of the “cap” become clear. Under Dilnot’s proposal (which I assume is the Government’s position too) you would still pay room and board costs throughout your care. As importantly: only the means-tested local authority rate would accumulate annually towards your ceiling.

In other words, if you want a nicer or more expensive care home, you’ll pay a top up that’s not counted eligible towards the cap, which you’d still continue paying even after the cap is reached. The practical consequence is wealth will still drain significantly for many, requiring either deferred home sales or people downgrading on their care.

This is what might, ultimately, undermine this plan politically, creating new demands for more subsidies in time. In a few years, it’s easy to imagine the Mail running stories about people still having to pay £150,000 on total care costs “despite Boris’s promise.’

In fact, there’s downside public finance risks across the board. Employee taxes are a shrinking relative tax base, while social care costs tend to be inflation-busting given weak productivity growth. Even before these inheritance subsidies, remember, social care costs were forecast to nearly double from 1.2 to 2.2 per cent GDP over the next 50 years due to aging.

In that regard, ask yourself: why might a government introduce a whole new earnings tax which, stood alone, gives the impression of having a very low rate? The answer: to create a new revenue stream which, with its fluffy connotations, makes it easier to raise taxes in future. Manifestos can return to pledging no income tax, NICs, or VAT rises again once the levy is in. In approving this tax, Tory MPs would therefore be facilitating a reform that will make the growth of government easier. They should reflect on who that helps most.

Much of the pre-announcement chatter was about their being more “progressive” ways to raise the funds. But this concedes too much—implying the spending is all good and welcome. Commentators who usually witter about distributional consequences are silent on the fact the cost cap benefits most those very wealthy care receivers, who live longer in care and have more assets to protect. While the desire to protect assets is netural, it’s not clear why protecting them is an imperative of Government policy. But that philosophical battle appears lost and will only result in spending going one way.

The real focus now is on the immediate consequences of tax-and-spend without reform. While Johnson might sell this plan as a grand solution, I suspect it will resolve little. In fact, the paradox is that the more the Prime Minister builds this up as “sorting” social care, the greater the political risks to the Government if quality doesn’t improve, the NHS eats all the money, or people realise the limited scope of the sop to inheritees.

David Gauke: There are signs that the Treasury is winning. And that more tax rises are coming.

19 Jul

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

When asked about the proposal by Henry Dimbleby that a new Salt and Sugar Reformulation Tax should be introduced, the Prime Minister responded by saying that he is ‘not attracted to extra taxes on hard working people’.

At one level, this is what one might expect him to say, given his reluctance to be the bearer of bad news. But some have taken this to be not just a holding response to the publication of the National Food Strategy, but a firm determination to hold the line against tax rises. If so, there may be problems ahead.

It was only a few months ago that Rishi Sunak delivered a tax-raising Budget, with the freezing of allowances and thresholds in the personal tax system, plus a hefty increase in the rate of Corporation Tax (which, in the end, will be paid by people because all taxes are). These increases may well be sufficient to meet the Chancellor’s fiscal rules ,but only if he maintains the current spending plans.

This looks unlikely. To take just three examples, the cost of Covid catch-up, social care reform and net zero could easily cost £10 billion a year a piece. Add to that the cost of levelling up, plus the risks that debt interest payments could increase significantly, the Chancellor’s target of current expenditure being paid for by current revenue and debt falling as a proportion of GDP looks precarious.

It would be fair to say that the cause of spending control has been strengthened in recent days. The Government saw off attempts to block the cut in overseas aid more comfortably than expected, with Sunak very heavily involved in talking round potential rebels.

The temporary uplift in Universal Credit is looking like it will indeed be temporary (although this is likely to store up problems, I suspect) and the Chancellor has – to all intents and purposes – ruled out a huge increase in the state pension, which would happen if the triple lock was applied in the normal manner. On the latter point, this is entirely sensible and has been met with little opposition.

A month ago, there were complaints from the Treasury that the Prime Minister was going around making unfunded spending commitments but Boris Johnson appears to have been reined in. Big promises on climate change seem to have been deferred to the autumn, and a supposedly big speech on levelling up involved a spending commitment of just £50 milliom. Whereas most observers considered the Coventry address to be one of the least impressive set-piece Prime Ministerial speeches ever delivered, the Treasury would have considered it a triumph.

An announcement on social care reform is imminent, but this does look like it may be properly funded by additional taxes, suggesting that ‘not attracted to extra taxes’ does not mean ‘no extra taxes’ after all. It is reported that it is the Chancellor who is sceptical about the proposed policy, although I suspect this is driven by Treasury doubts about pursuing a Dilnot-style cap on social care costs (which benefits those with the largest estates most), rather than by an objection to the principle that new spending commitments have to be paid for.

For the first time in a while, the cause of fiscal conservatism – ensuring that public finances are sustainable – is gaining the upper hand. There are two reasons for this.

First, the Chesham & Amersham by-election has caused some nervousness. The fear within Government is that high spending is all very well, but a section of the Conservative voting electorate will draw the conclusion that they are the ones who will have to pay for it. It was striking that the Prime Minister spent much of his levelling-up speech saying that he does not want to make rich places poorer, which may come as a disappointment to parts of the Red Wall, but is clearly designed to reassure the South East.

The second reason why a more cautious approach to the public finances might be pursued is the apparent return of inflation. This may be transitory as we return to some kind of normality, and adjust to Brexit frictions and labour shortages, but it may not be. If it results in higher interest rates, the costs for the exchequer in funding our debt could rise very quickly – as the Office for Budget Responsibility has pointed out. An increase in interest rates of one per cent would add £21 billion to our debt interest bill. If our fiscal policy is considered to lack credibility, our problems could be worse.

There remains, however, the question of how the Conservative Party maintains the support of the new supporters it gained in 2019, whose views on tax and spend are much closer to those of the Labour Party than the traditional Conservatives. On spending on public services in general ,plus investment in their localities, they will want to see evidence of delivery.

Boris Johnson will be given the benefit of the doubt and, I suspect, be able to retain most of the Red Wall at the next general election but the pressure to spend money – not least from Red Wall MPs – will be considerable. The Treasury has won a few battles of late, but with a Prime Minister prone to change direction like a shopping trolley (as one prominent Westminster pundit likes to put it), he may be on the other side of the aisle before long.

There is also another reason for raising taxes, as well as funding public services. Tax can be used as a lever to change behaviour. The Prime Minister has declared that he is on a mission to reduce obesity, and it is hard to see how this could be done without using tax to change behaviour.

Ultimately, this may not mean consumers paying much of a price because producers reformulate their products (as happened with the Soft Drink Industry Levy) in order to prevent consumers facing higher prices. It was an effective way of using the price mechanism to achieve a Government objective, but it did mean legislating for a new tax.

A similar argument can be made for using taxes to help achieve net zero. If we want people to consume less carbon, the most efficient way to do this is to ensure that the cost of carbon is incorporated into the price of products by using a carbon tax. (By the way, those of us who value markets as a means of allocating resources should be instinctively more sympathetic to meeting environmental objectives by using the price mechanism where possible, rather than through regulation which can be cumbersome and ill-targeted.)

In both cases, tax increases, as a behavioural stick, may be required. They are also likely to be regressive, which may mean compensating mechanisms of some description which – in turn – will need to be paid for.

All of this means that extra taxes on hard working people may be necessary to deliver sound public finances and to meet other Government objectives, however unattractive the Prime Minister considers them to be.

Ben Roback: Does controlling migration really matter to Biden and Harris? If not, what follows?

5 May

Ben Roback is Head of Trade and International Policy at Cicero Group.

There are intractable problems that seem to always dominate governments – no matter the party, Prime Minister or President in office. The age-old problem of what to do about older people and social care has evaded a hat-trick of British Prime Ministers since Andrew Dilnot’s commission published its recommendations in 2011. The United States has its fair share of such difficulties – from guns and gangs all the way to climate change and carbon emissions.

Joe Biden is seeking to take on the vast challenge of immigration and the crisis on the southern border. Sensing how problematic the predicament is, Biden has delegated the task to his Vice President, Kamala Harris.

It is set to be her most important litmus test ahead of an almost inevitable future run at the White House. Succeed, and she can claim to have fixed one of America’s most dogged political, social and humanitarian problems. Fail, and her record will be tarnished forever. The scale of the challenge means that the President has handed Harris a poisoned chalice. What better way to dampen expectations of Biden retiring in 2024 in order to gift her the presidential nomination?

If the barometer for success is reducing illegal crossings, Harris might find that the only solution is being veritably Trumpian – increased deportations, harsher rhetoric, expanded powers for Immigration and Customs Enforcement’s (ICE).

In political terms, that is unconscionable for a Democratic Vice President, in the shadow of Donald Trump. Harris must deter illegal border crossings without being too harsh on the genuine immigrants and helpless children lumped together with economic opportunists.

The White House and Harris must aim high in order to succeed where their predecessors have failed

Most presidents try deportation. According to analysis by the Migration Policy Institute, more than 12 million people were deported during the Clinton administration. More than 10 million were then removed or returned during the Bush administration.

Barack Obama struck a softer tone on immigration, but nevertheless removed or returned more than five million people, including an estimated 1.7 million people who had no criminal record. With hindsight, Biden the presidential candidate called it a “big mistake” to have deported hundreds of thousands of them.

Trump tried a wall – campaigning on the premise that a physical barrier would stem the tide through Central America. The wall’s construction was mired in funding and contractual complications, but the 45th president left office having reduced the number of refugees admitted to the United States to its lowest level in 40 years.

How much responsibility the “big, beautiful wall” bears for that is mixed. The wall unquestionably embodied the United States’ new attitude to immigration, acting as a physical deterrent to attempted entry, alongside a raft of executive orders such as the Muslim ban and a reduction in the quote of people admitted to the US as refugees each year.

Progressives have cheered Biden…so far

The numbers of people arriving on the US border have grown since Biden took office, seemingly in part owing to a softer immigration policy compared to the Trump era. The President and his team are long enough in the tooth to recognise a political crisis unfolding before their eyes, and so doing nothing on immigration is not an option. So the White House has made a series of interventions so far.

Since January, the Biden administration has reversed a policy of turning away unaccompanied children, instead choosing to process them and place them with sponsoring families in the US. More recently, the White House announced it will raise the cap on refugees to 62,500 this fiscal year.

It followed outrage amongst immigration reform advocates and progressive Democrats after the President’s initial decision to keep the Trump-era ceiling of 15,000 admissions in place. So the move allows the White House to create clear daylight between Biden and Trump. But as the President himself says, “the sad truth is that we will not achieve 62,500 admissions this year”.

Most importantly, in March, he handed his vice president a political grenade by putting her in charge of the southern border. It’s a bit like asking Priti Patel to launch her Conservative Party leadership bid after being tasked with reducing illegal boat crossings at Dover and Newhaven.

Is immigration really a priority for the White House?

The problem for Biden, and perhaps more significantly for Harris, is that while immigration is approaching crisis levels, it does not seem to be a major concern in Washington.

The Covid relief plan was an urgent necessity – an essential, albeit expensive, piece of big government legislation designed to stop the country falling to its knees

Next, the American Jobs Plan and the American Family Plan are hugely ambitious legislative packages that are a throwback to the days of Roosevelt’s New Deal and Johnson’s Great Society. In legislative terms on Capitol Hill and as the vaccine rollout continues, the full power of the US government is being felt.

John Kerry wants to lead the world on climate change. Anthony Blinken wants to reinvigorate old allegiances in order to combat the rise of China. Janet Yellen wants a global approach to corporate taxation to lower the playing field. Pete Buttigieg wants to make it easier to travel from Washington DC to Washington State.

The White House is firing on all cylinders. Is there any political or legislative oxygen left for anything else? That long and by no mean exhaustive list of political and policy priorities leaves little room for the kind of investment, attention and political capital required to deliver seismic immigration reform.

Washington will descend closer into a Congressional mid-term election overdrive soon. Democrats fear losing their razor-thin Senate majority in 2022, meaning serious policy upheaval needs to be completed sooner rather than later. With Covid relief done and infrastructure next, immigration does not appear to be anywhere near the top of the list for this administration. Time is running out.