When is an asset not an asset? When it’s your home

If the Tories aren’t going to make hard decisions and argue for fiscal discipline, it’s hard to see who will

No one likes the Government’s convoluted solution for fixing social care but it has been driven through with nary a hint of political opposition. This can partly be attributed to the lack of a functioning opposition combined with the gutlessness of Tory backbenchers. But not entirely.

Of course, Labour finds it hard to oppose a hike in national insurance and dividend tax to raise money that will mostly go to the NHS. Boris Johnson can quell dissent in his own ranks by citing the extenuating circumstances of Covid while claiming he has outflanked Keir Starmer.

But there’s more to it than that. In the cover story of this week’s Spectator, Fraser Nelson argues the Conservative Party has turned the welfare state on its head by asking the working poor to subsidise the estates of millionaires. Conversely, Allister Heath in this paper claimed Boris Johnson has converted the Tories into Blue Labour, ratcheting up tax and spending on “a welfare state in hock to the producer class”.

These views would appear to be diametrically opposed. However, there’s truth in both. The reason for that can be found in the answer to a riddle: when is an asset not an asset (or, at the very least, not considered an asset)? When it’s your home.

As Nelson points out, over six million pensioners now have household wealth of over £500,000. That’s one out of every eight people eligible to vote. But they likely don’t feel like demi-millionaires because much of their wealth is tied up in their home.

The roots of this dilemma run deep. Take, for example, Adam Gopnik’s argument in his book Angels and Ages: A Short Book about Darwin, Lincoln and Modern Life, which says the free-thinking and radical beliefs of both men was grounded in domesticity.

“The bourgeois obsession with security has its ugly side, but it also has a blessed one,” writes Gopnik.

“As Tocqueville had seen a little while before, homemaking, which ought to make people more selfish, often makes them less so; it gives them a stake in other people’s houses.

“It is not so much the establishment of a garden but the ownership of a gate that moves people from liking a society based on favours to liking one based on rights. Enclosing our garden broadens our circle of compassion.”

Similar thinking provided the impetus for Margaret Thatcher’s Right to Buy scheme. She realised that it would be hard to sell people on the idea of popular capitalism if they didn’t have any capital (although it is unlikely she envisaged the asset bubble of the last 20 years).

What we’re seeing now, though, is the flipside. Home ownership gives people a bigger stake in society. But, threaten a Briton’s castle and they’ll pull up the drawbridge. It’s loss aversion writ large. As a society we have become conditioned by ever-rising house prices of the past few decades to look at our homes as a strange combination of both nest and nest-egg. Meanwhile, healthcare free at the point of delivery has shielded us from considering the true cost of treatment.

All the while the cast-iron logic of demographics has resulted in a huge cohort of asset-rich, longer living baby boomers heading towards imminent decrepitude. In theory this should be a puzzle that solves itself: the post-war generation has stored up the wealth to pay for their own extended old age. In reality, it has created an intractable political problem.

I still bear the scars from dozens of exchanges with readers after describing baby boomers as a gilded generation. Here’s what those skirmishes have taught me: the raw numbers may say one thing but the lived experience of individuals often convinces them otherwise.

Try persuading a recently retired pensioner living in a £500,000 house that they’re wealthy and they’ll likely laugh in your face. Suggest they have sufficient wherewithal to pay for their own healthcare and, as Theresa May found to her cost, your proposal will be branded a “dementia tax” and voters will give you a massive kicking in the ballots.

The result of Johnson’s care home insurance scheme without means testing is that no one will pay more than £86,000 for their care in their old age. The vast majority of people won’t have to sell their home, no matter how rich they are.

To pay for this pledge, the Prime Minister has whacked up national insurance. The bet is that even if this infuriates business leaders and free-market economists, most voters won’t think of it as a tax on jobs (even though it is), or spot that a low-earning graduate could well be paying a higher marginal rate than their parents or worry that it might choke off the incipient economic recovery.

Is this wise? Economically, no; politically, it would appear so (at least for the time being). Is it fair? What seems fair when discussing bricks and mortar can appear grossly unfair when those homes are converted into pounds and pence. What looks like a lot of money on a spreadsheet in the Treasury doesn’t necessarily seem like a fortune when it is keeping the rain off your head.

It’s often said that the NHS is the nearest thing Britain has to a religion. However, our views on home ownership (not to mention inheritance) are held with similar evangelical fervour. Set one creed in opposition to the other and you’ll have something like the Thirty Years’ War on your hands.

What’s really needed of course is a fundamental reform of the NHS and the tax system. But the Tories know that the electorate doesn’t really trust them with such tasks and, well, it would be really quite hard work. So instead we are left with the kind of blatant triangulation that results in the Government simultaneously protecting the wealthy while also bloating the welfare state.

It does make you wonder though: if the Tories aren’t going to make the tough choices and argue for a bit of fiscal discipline, who will? And are they really right to be so sure that the older generations care so little about their children and grandchildren?