A Conservative Prime Minister increasing taxes to the highest levels in half a century has caused little short of apoplexy amongst Tories, especially those with fond memories of Margaret Thatcher. Daily Telegraph columnists are crying ”betrayal”. Yet Boris Johnson says this extraordinary tax hike, which has left Keir Starmer speechless, is to prevent wealthy pensioners having to sell their homes for elderly care. The question everyone has been asking is: why?
When did housing wealth become sacrosanct? Well, when some three million home owners, mainly in the South of England became property millionaires, along with another three million or so in houses worth over £500,000. Boris Johnson seems to regard them as his people who must be placated. They have been told they will not have to pay more than £86,000 for their care in old age. The 1.5 million households in Scotland with no housing wealth, or less than that in housing equity, will be somewhat less ecstatic at paying this plutocrat’s poll tax.
The Health and Social Care Levy is criticised as a bung to the over 65s, but it is a lot more than that. It is in fact a bung to Millennials and Zoomers who will soon inherit the money. These are the very middle class graduates who populate Twitter and claim to be passionately interested in social justice and equity. Too right. Equity of around £7 trillion in housing wealth is likely to be transferred to them in the next couple of decades as elderly Boomers pass away.
It is an extraordinary intergenerational transfer of wealth that will deepen Britain’s class divide and boost inequality. Many of those internet radicals, who are forever complaining about not being able to afford a house, may suddenly find that wealth inequality is not so bad after all. Nothing transforms political attitudes faster than having a few hundred thousand pounds drop into your bank account.
Which makes it all the more extraordinary that Labour seems to have no answer to Boris Johnson’s wealth-tax-in-reverse. Keir Starmer was left umming and ahhing about “those with the greatest shoulders paying the cost” without any concrete proposals for making them. This is because he and his own Shadow Social Care Secretary, Liz Kendall, have also called for a cap on care costs so that people “don’t have to sell their homes”. Ms Kendall also talked supportively of the 2014 Barker Review on Social Care which called for an increase in National Insurance.
Unlike many in his party, Keir Starmer doesn’t want to call for yet more taxation now it is rising faster than under any recent Labour government. Boris Johnson has shot his social democratic fox. The Labour leader can’t call for income tax because he knows that working families favour that even less than NI. He could have called for a wealth tax or a mansion tax, but Starmer is afraid of sounding like Jeremy Corbyn.
Boris Johnson could hardly contain his glee at seeing Sir Keir left tongue tied. There is likely to be serious ructions at the Labour conference later this month. Labour-supporters like the Guardian’s Owen Jones are furious that he has missed a political opportunity for a bit of class war politics. Working class people already suffer from endemic inflation in house prices and rents, which will be made worse by Boris Johnson’s redistribution to the new rich. Whatever it is, this is not levelling up.
Even many Conservatives think that the government is making a fundamental mistake elevating property values above other assets. High prices and rents distort the market. It quarantines wealth in unproductive housing and deprives the real economy – the bit that makes stuff – of much needed investment. High rents and debt also depresses high street spending, which will inhibit economic recovery from the pandemic. The 2.5 percentage point increase in National Insurance is a direct tax on jobs which will stifle growth.
So Johnson has succeeded in uniting left and right – in opposition to the Boris Levy. The plan seems to make little economic sense, yet he seems to be getting away with it. This is partly because he has made the tax rise first of all about health. Most of the money raised by the Health and Social Care Levy, £12bn in the first year, will go towards meeting the backlog in elective operations.
It’s not just a matter of lengthening waiting lists. As last week’s First Minister’s Questions revealed, the waiting times for ambulances to arrive at emergencies have become totally unacceptable and now pose a very real risk to life. Recent polls show that the NHS is seen as a far greater priority than independence for voters in Scotland, and Nicola Sturgeon is insisting, rightly, that there is a staffing crisis north and south of the border.
The NHS is chronically short of funds and has an almost insatiable demand for new cash. This is because health, like social care, is labour-intensive. The NHS is one of the largest employers in the world with 1.3 million staff. Unlike, say, manufacturing, it cannot introduce machinery to reduce labour costs, which are rising fast anyway because of Brexit. Pay is rising faster in the Scottish NHS than in England because of more generous pay awards to doctors and nurses – not to mention the gold plated defined benefit pensions.
There is a very real risk that the vast majority of the £36 billion raised by the levy will be absorbed by NHS staffing costs. Indeed, the social care part doesn’t kick in until 2023 at the earliest. The next general election will by then be on the horizon. Boris Johnson wants to go into that election claiming that he has sorted the long running social care problem, even if he hasn’t, and also that he has saved the National Health Service from collapsing under the weight of Covid. He will challenge Labour to offer its alternative.
This is a problem also for Nicola Sturgeon. Last week, the UK Health and Social Care Secretary, Sajid Javid, cheekily suggested that if the First Minister isn’t happy with the tax increases, she can lower income tax in Scotland to make it more in line with England. Her voters are having to dig into their pockets even though personal care is supposedly free in Scotland. But of course, most of us know that it isn’t really free. Many Scots still have to sell their homes – and those wealth home-owing voters in England may soon find that it’s the same there.
Labour has been knocked sideways by the sheer scale of the tax increases and will be very reluctant to promise yet more tax rises on top of the Johnson tax grab. Nor will Keir Starmer be in a position to reverse the National Insurance increases, for all his talk today about how it hammers working people. It does. But so would income tax. With the tax burden at its highest for six decades, there is going to be very little room for high-spending promises from Labour in future. The economics may be bonkers, but there is a political method to Boris Johnson’s madness.