The row over how to fund social care threatens to engulf Labour this weekend as Keir Starmer faces pressure from across the party to commit to taxing the wealthy as a way to provide a system fit for the 21st century.
Before the conference season, and as the government prepares to announce within days a hugely controversial increase in national insurance (NI) to fund better care, the TUC leads the charge, calling instead for an increase in capital gains tax (CGT) to meet the costs of reform, and higher wages for care workers.
Senior figures across all wings of the Labour movement believe the debate over social care funding gives Starmer – whose party is lagging five points behind the Conservatives in the latest Opinium poll for the Observer – an opportunity to open a clear philosophical dividing line with the Tories.
Many want him to at least embrace the principle of making the richest pay for social care improvements, at a time when Boris Johnson’s government is preparing to hit millions who are in low-paid work – as well as businesses – with a manifesto-breaking NI rise. They point out that the Democrats in the US and the Social Democrats in Germany appear increasingly ready to back wealth taxes.
Over recent weeks Labour has come out against the idea of NI rises to pay for social care but has declined to say how they would otherwise pay for reform. Senior party sources indicated it was too early to announce any tax or funding plans.
The mayor of Greater Manchester, Andy Burnham, seen by many as a potential successor to Starmer, also attacks the NI rise as a means of funding social care and, like the TUC, calls for reform to be paid for taxes on the better off.
“How can it be right to ask ‘generation rent’, already saddled with student debt, to pay for the care of a generation more likely to have generous pensions and to own their own homes?” he said.
“The fairest way of providing social care is on NHS terms through a national care service, and the fairest way of raising the funding to pay for it is by taxing wealth, not work. The government should be looking at reforming taxes and reliefs on assets, land, pensions, property and excessive earnings and profits before hitting younger, low-paid workers with the bill.”
Social care is becoming a service only the rich or lucky can access. Growing demand for care, particularly for older people, means some providers are turning away those in need because they have no more staff or space. By the end of the year, providers expect there will be 170,000 unfilled job vacancies.
Those with assets above £23,250 are expected to pay for their own social care. Someone with dementia typically spends £32,000 a year to receive the care they need, according to the Alzheimer’s Society. Social care campaigners say it is unfair that someone with vascular heart disease will receive all their treatment free from the NHS, but someone with vascular brain disease will not.
A new report by the TUC – whose annual congress Starmer will address on Tuesday – says increasing capital gains tax so the rates are similar to income tax could raise £17bn a year and pay for an increase in pay for all care workers to at least £10 an hour.
Writing for the Observer online, the general secretary, Frances O’Grady, says: “Young and low-paid workers – who have already borne the brunt of this pandemic – would see a disproportionate hit from an NI hike. It’s not right to hit them when ministers are leaving the wealthy untouched.”
She adds: “It is plain wrong that the government’s social care plans will see a low-paid social care worker paying extra to fund the social care system while the private equity magnate who profits from asset-stripping care homes to sell on sees no change.
“It’s time to raise taxes on wealth to fund social care properly, and guarantee decent pay for all social care workers.”
Treasury officials have rebuffed calls for wealth taxes, arguing that they are expensive to collect and easier to avoid than income taxes.
A recent analysis of wealth taxes by the Organisation for Economic Co-operation and Development agreed that they were tricky to implement and often raised much less than hoped for, but concluded the wealth gap was too large and governments should increase inheritance tax in the first instance.
The idea of raising CGT has also been endorsed as a serious option by the Tony Blair Institute. In a recent article on funding social care reform, its head of work, income and inequality, James Browne, wrote: “Capital gains are among the least heavily taxed form of income anywhere in the tax system: they are taxed less heavily than other forms of capital income, and far less than income from work.
“Whereas most forms of income are taxed at rates of 20%, 40% and 45% and may be subject to NICs as well, capital gains are taxed at rates between 10% and 28% depending on the type of asset. There is therefore a strong incentive for those who are able to do so to receive remuneration in this form.”
George Dibb, head of the Centre for Economic Justice at the centre-left Institute of Public Policy Research (IPPR) thinktank, said: “It is deeply unfair that under the current UK tax system those who work for their living are taxed more highly than those whose income is derived from wealth.
“IPPR has for a long time advocated equalising capital gains tax with income tax, and removing the allowances that enable the wealthy to pay less tax on their income than working people.”