HOUSING GOLD MINE TO PAY FOR LONG-TERM CARE

In December 2016 I wrote a piece for Money Marketing saying that the way to pay for care home fees was to use the value of the family home for one or for both partners' care costs. 

It is now Conservative policy - see p.65 of the Conservative Manifesto 2017. 

That is slightly ambiguous but the Conservative press office has confirmed to me today 18 May that the value of the family home would be counted as an asset for the means test for someone who went into care even if they had a spouse still living there. At the moment it is ignored. It is only counted when the house is left empty or with non-relatives or people under 60 living there.

The policy in the Conservative Manifesto is that the value of the home will also be counted when the means-test for care AT home is assessed. It means that the value of the family home could be used to fund the care costs of a couple, leaving less for the heirs. There is a guarantee that at least £100,000 will always be left for them.

My 1 December 2016 piece in Money Marketing:

Changes in the way long-term care is paid for was the dog that did not bark in Chancellor Philip Hammond’s first Autumn Statement. It failed to get even a mention, despite many telling us there is a crisis in long-term care for older people.

There have been calls for tax subsidies for those who save up for their own care or take out insurance to pay for it. In other words, those who could afford to pay for it would get a subsidy from other taxpayers to do so. There is a much better solution.

Let me tell you about my neighbour Marjorie. When I moved into my house in 2001, Marjorie was already well into her 80s. She had one hip operation, then another, but still could not get about and her condition deteriorated.

She had been living in the house since the 1940s, inheriting it when her father died. She had no children and when she could no longer live alone she used the money from the house to buy herself care in a home she wanted to go into in a part of the country near her friends.

It would have been completely wrong if the £485,000 value of that house had been protected and hard-working millennials, who spend half the week keeping their landlord and the other half keeping themselves, had their taxes used to pay for her care.

But if Marjorie had been married that is exactly what would have happened. While her husband lived in the house, its value would have been protected and the local council would have paid for almost all the cost of her care. If this imaginary husband had died a few months after she passed away the whole value of the home would have been intact, to be left to whatever heirs he had.

The care home fee rules ignore the value of the resident’s home as long as their spouse or partner – or any elderly relative aged 60 or more – lives in it. But why?

Society has more right than the heirs sitting thinking: ‘Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house’

The Miras mirage

The losers are not the people who need the care; they will be dead when it is all sorted out. It is the middle-aged children who complain. They expect to inherit the whole value of the house. Of course, many parents want to leave that legacy to their children. “It’s my home,” they say. “I worked hard for it. Why shouldn’t I pass it on as I choose?”

They may have worked hard to pay the mortgage but they rarely pay anything like its full value.

I bought my first house in 1975 for £9,350 (that was more than 3.5 times my earnings). I did my job and worked some evenings to earn more. My wife worked too.

We paid the mortgage. We kept our three children. And eventually the mortgage was paid off. Today that house is worth £325,000. We paid perhaps £20,000 for it, including interest. Where did the rest of the value come from?

Some came from other taxpayers. Between 1969 and 2000 mortgage interest relief at source meant I did not pay tax on the interest I was paying on my mortgage. That saved me 35 per cent off the bill in the early days.

If I had paid higher rate tax (a dream of mine then) I would have got even more Miras: anything from 40 per cent to 83 per cent off the interest cost. So society – all those other taxpayers, many of whom could not afford to buy their own home – helped pay for mine. Thank you very much.

But that is just the start. Allowing for RPI inflation, the price of £9,350 in 1975 is equivalent to around £75,000 now. Where did the other £250,000 of its current value come from?

It was created by the way society works. By a shortage of housing. By that Miras subsidy. By a growing population. By those who buy more than one home. So there is an argument that society has a right to its share of that windfall gain.

They have more right than the heirs sitting there thinking: “Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house.”

That is why I say the value of a home should be taken into account when the local council considers the means test to pay for care. That happens now if there is no one left living there.

It should also happen even if there is a spouse or elderly relative in it. Of course, they could stay there for their lifetime, but when they died the cost of their spouse’s care would be taken from the estate and paid to the local council.

The average cost of a nursing home is around £39,000 a year and the average life in care is two-and-a- half years. This means the total cost averages around £100,000. The average price of a home in the UK is £218,000.

So there is enough value in the average home to fund the care for two people at the end of their life. If it does run out, then the council would pay the cost, as now.

When the problem of paying for care was looked at under the coalition government, the Social Care Funding Commission chairman Lord Warner said, in the fashionable phrase of the time, that there was no silver bullet to solve it.

But there is a pile of gold – perhaps a trillion pounds’ worth – sitting in the unused assets of homes owned by the elderly. That is the same amount as the total gold reserves of the top 40 gold-owning countries in the world. It is serious wealth and it should be put to work.

First published 1 December 2016 in Money Marketing

18 May 2017