Make the Dead Pay

Sometimes in politics reason must bow to pragmatism. When a steamroller is trundling briskly down Whitehall it is wise to take evasive action. This week Scotland introduced free nursing home care for the elderly, regardless of means. Wales would like to but lacks the powers. Only England stands firm against the grey battalions - or, to be more precise, against their middle-aged offspring angry at spending their inheritance on their parents' care.

A Tory/tabloid row over 108-year-old Alice Knight, who died after being moved when her nursing home closed, ought to be a separate issue. Like many others, her private home closed as it made too little profit on the rates government pays per patient (selling up in the property boom often pays better). Campaigners have cunningly elided the shortage of money for care of the old with their own demand to free the better-off from paying any fees.

At a protest meeting in Westminster this week, on the day the Scottish free system began, this steamroller came a little nearer Downing Street's door. It is essentially a protest by the propertied classes: 70% of old people are too poor to attract any charges for their care. But when plummy-voiced old officers in regimental ties get up and talk about a land fit for heroes at a meeting organised by Unison it looks like a dangerous coalition.

A brief history: right from 1948 people got free NHS care but always had to pay according to means for home help or a nursing-home bed. Some 70,000 people a year going into residential care have to sell their homes to cover fees, paying until they only have £18,500 left. Labour has already relaxed the fee system, so why the groundswell of anger now? In 1948 most frail old people went into geriatric hospital, often grim and miserable warehouses: I once visited an old woman in a geriatric hospital in the East End converted from the same workhouse where she had been born. These were NHS beds, free for everyone but most were closed down.

When few people were homeowners, charging touched only the top echelons, but now two-thirds own property it rankles with those on middling incomes who planned to leave wealth to children. The average 26 months spent in a residential home takes £32,000 off children's inheritances. After the royal commission on long-term care recommended all care should be free for everyone, the government cobbled up a compromise: as from last year all nursing care is paid by the state. But this has produced an absurdity: the care an Alzheimer's patient needs who cannot feed or wash himself is called "personal" not "nursing" care. Trying to divide the nursing from the personal is near impossible and this line may not hold.

The founding principle was right: NHS care should be free, while residential home fees should be means-tested. But the well-off wanting to hand something to their children argue that if they are not charged when they use welfare, state schools, libraries or GPs, why sting them when they need long-term care? Now that Scotland has free care they protest at a "postcode lottery": it cuts no ice with them to point out that the whole point of devolution is difference.

Universal free care would, according to the IPPR and LSE model, cost an extra £1.7bn a year. It would also generate more demand, costing another half billion over a few years. That money certainly cannot be squeezed from desperately overstretched care budgets. Mrs Thatcher's wholesale privatisation of care beds has left the state dependent on private home owners, with little reliable stock of its own. Some homes are low quality, but owners complain that new regulations demanding better conditions are forcing them out of the market. They say the minimum wage hit them hard, but that shows how underpaid are care staff on whom the whole rickety privatised system depends. (Why is Unison busying itself with free care for middle-class residents, instead of spending all its energy organising the largely non-unionised and exploited care home workers?) Meanwhile several thousand hospital beds are blocked by people waiting for care home beds so NHS waiting lists suffer too. Analysts say residential care is already underfunded by £1bn, so there is no spare money there.

If pressure for free care becomes irresistible, where will the money come from? The Tories found private insurance schemes for long-term care far too expensive. But if the state picks up the whole bill, that will be money paid straight into the pockets of middle-aged children of the elderly, cruise-money once mortgages are paid and their own children grown. Is that a sensible priority for government funds?

There is an answer. If the elderly and their children find it insufferable that the tragedy of Alzheimer's should rob some of them randomly of their inheritance plans, they could spread the risk. One in six men and one in three women ends their days in a nursing home, but that risk could be shared evenly among everyone with property to bequeath. If inheritance tax were raised by enough to cover the cost of universal free care, it would pool the risk and ensure the burden fell fairly on the heaviest shoulders.

This would be a chance to reform the whole flawed inheritance tax system, which has almost collapsed. Currently all the richest people with good accountants - like Princess Margaret - avoid tax by making gifts seven years ahead of their death, but those with no financial advice pay 40% on everything over £250,000.

The threshold could be lowered and the rate tapered upwards: tax could be transferred to legatees. The only way to make the very rich pay fairly is by taxing all life-time gifts and making recipients pay cumulatively. The chancellor regards inheritance tax as lethal old Labour stuff, though the government's own performance and innovation unit, in a report on the lack of social mobility, did recommend raising inheritance tax, arguing that unless the children of the rich can fall, the children of the poor cannot rise.

However, the government can stand back from this debate.They could consult property owners and let them decide. Would they prefer the present lottery whereby a couple have a 1-in-4.5 chance of having to pay for their care and see their children lose out? Or would they rather see a fairer inheritance tax spreading the risk evenly among all property owners, and enjoy free care? A white paper could lay out the choice and extensive polling among property owners could decide. But either way, the money would not come from funds urgently needed to improve other services, as it did profligately in Scotland where other budgets were raided.

Perhaps all this can still be resisted. For in the language of priorities, if an extra £2.2bn fell out of the sky who would choose to spend it on making sure elderly property owners could pass on their wealth? Much better spend it on lifting the life chances of children.

p.toynbee@guardian.co.uk