Three wheels on May’s wagon…

Campaigning resumes today in the British general election after three days of self-imposed reflection following the abominable events in Manchester last Monday night. Those who thought that it was a one horse race are in for a shock. According to a You.Gov poll last night the Tory lead over Labour is down to five percent. Moreover, Mr Corbyn has assumed an air of credibility that has hitherto eluded him; while the Tories look as if they are making it all up as they go along. How would the markets respond to yet another spectacular electoral upset?

Corporate culture

In this week’s Spectator my Facebook friend Rod Liddle describes the Tories’ 2017 election campaign as the “worst ever”. Until last weekend I found the Tory’s pitch since the election was launched on Easter Monday lacklustre. Last week I described the Tory manifesto as unambitious. Then it all started to go pear shaped with a supposed U-turn on “social care” and recrimination about the scrapping of the pension triple lock and winter fuel payments to pensioners.

This is partly a presentational problem – but there is also something strategically awry as well. By making herself the central theme of the election campaign (her battle bus bears her name in huge letters with the word Conservatives in tiny script underneath), Mrs May has not only taken an unnecessary risk but she has also deprived the party of the campaigning skills of her cabinet colleagues. Her presidential style was apparent at the launch of the Tory party manifesto – “Forward Together” – on 18 May in Bradford. Mrs May declaimed from the podium while the cabinet sat in the front row of the grateful multitude affording their leader frequent bursts of non-spontaneous applause, like the clapped-out politburo of a single-party state.


Mrs May works within not so much an inner circle as an inner triangle. We are told that her two special advisors, Nick Timothy and Fiona Hill (no relation) guard access to her person and control the flow of information in both directions. They seem to have formed a very poor opinion of Chancellor Hammond in particular. Amber Rudd, the Home Secretary, has been visible in the media as well as Work and Pensions Minister Damien Green (who has known Theresa May well since their shared days at Oxford). But the big beasts of this Tory government – Messrs Johnson, Hammond and Davis have been conspicuous by their absence.

It is evident that decisions about the contents of the Tory manifesto have not been made in a collegiate way. Nor have they been adequately stress-tested by the policy wonks. This brings to mind the embarrassing volte face after last March’s budget when the Chancellor was forced to cancel his flagship proposal to hike national insurance contributions for the self-employed. If, as now seems quite possible, there is a systemic problem in the decision-making processes of Mrs May’s government – its corporate culture, if you will – that bodes ill for the future, regardless of the size of her majority on 09 June.

Social snare

The term social care has only recently become the catch-all hygienic euphemism for how we finance the long-term care of the elderly. It is not as if the problem has emerged ex nihilo: it has been looming for some time.

As longevity increases (a good thing) more and more of us will fall prey to the degenerative diseases of old age, amongst which Alzheimer’s and other forms of dementia (a bad thing). What has propelled the issue to the fore is that the National Health Service (NHS), already creaking at the seams as demand for its services rises faster than resources, has experienced a huge increase in the number of elderly patients languishing in hospital when they should rightfully be in residential care homes.

This problem is more intractable than it looks. An elderly relative of mine spent three weeks in hospital recently further to an operation. Still of sound mind, she was determined to convalesce in a suitable residential care home at her own expense. But she was unable to find a place to accommodate her anywhere in the county. There is a shortage of care home places for the elderly in the UK – period.

There is a shortage of care home places for the elderly in the UK – period.

By the way, you might have thought that a big NHS hospital, anxious to move the bed-blockers on, would have somebody on hand to liaise with care homes in the locality. Not a bit of it. All the leg work had to be done by members of the extended family. Nor could we find a website that listed available care home places. (For my techie readers – here’s a business concept for you – it could be the next unicorn on silicon roundabout!)

While many care homes do a wonderful job, some leave a lot to be desired, and there have been documented cases of abuse. Care homes tend to be stand-alone privately owned businesses, though there are a few chains around. As for the cost, the most Spartan care home will charge £500 a week while a very salubrious one might charge £1,000 a week or more.

Now the conundrum of social care is this. If you get cancer, you may reasonably expect that you will be treated by the NHS at state expense. But if you get Alzheimer’s – or if you just become infirm in old age – and you and your family decide that you should go into residential care, state assistance is means-tested. If your capital (not including your home) and income is above £23,250 you’re likely to have to pay all of your care home fees. If your capital and income is below that threshold then you might get some help from the local authority, but you may still need to pay some fees.

Obviously, relatively few people have the cash resources to pay the requisite £30,000 to £50,000 per year for the rest of their lives – and there are many people who go into care in their 80s and live well into their 90s – without selling their home, assuming they have one. So most middle class people who go into care are forced to sell their homes; and most if not all of the cash proceeds are consumed by care home bills.


That means that their children get a diminutive inheritance. That is generally thought to be tough luck. The argument against more generous state funding of social care for the relatively well-off has always been something like: Why should middle class, mid-life adults have their inheritance protected by the state when they probably own a home of their own already? I have had personal experience of this issue – and I do have my own answer to that question.

Since April 2015 people have had a legal right to enter into agreements with their local council whereby the council pays for their care home bills but takes a charge on their estate after their death. The Times reported on Monday[i] that Royal London, the insurer, sent out freedom of information requests to 140 councils across England. It turned out that some councils such as Essex and Southampton are entering into hundreds of such agreements every year; but that ten authorities including Lambeth, Blackburn and Luton had failed to strike a single agreement of this type. Steve Webb, the former Liberal Democrat pensions minister during the Coalition government, who is now director of policy at Royal London, said that the system was “a lottery”.

The fact is that cash-strapped councils (except of course in Bonnie Scotland which still manages to defy fiscal gravity) have cut their social care budgets in response to funding cuts (austerity) since 2010 – while Council Tax increases have been pegged. Let us be clear: they have not done so at the behest of central government but because they have chosen not to prioritise social care above parks, libraries, refuse collection and all the other things for which they are responsible.

It is supremely ironic that proto-Marxist Labour now defends the right of middle class people to inherit more property from their parents while the Conservatives have, de facto, been raising inheritance tax.

So the big, shiny new policy that the Tories unveiled on 18 May was that the value of peoples’ homes should be included in the means test for whether people are liable to contribute to their care home fees: but that the last £100,000 of their net worth would be exempted so that they could be sure to pass on at least that much to their heirs. On the face of it this looked like a shrewd compromise. The state would not open itself up to an exorbitant hike in the cost of social care; but Rupert and Samantha will still get £50k each when Mummy pops her clogs.

Damien Green assured Andrew Marr last Sunday that this policy would not change before the government green paper on social care is published in the summer. Yet within 24 hours the lumbering Tory policy machine had gone into retreat in the face of a frenzy of Labour-inspired opposition to the policy.

It is supremely ironic that proto-Marxist Labour now defends the right of middle class people to inherit more property from their parents (they are against a dementia tax) while the Conservatives have, de facto, been raising inheritance tax. Mrs May, in a speech in Wrexham, responded that “We will make sure nobody has to sell their family home to pay for care…We will make sure there’s an absolute limit on what people need to pay.” Confusion all round.

Don’t get me wrong: I have nothing against inherited wealth – it is a splendid thing (though sadly something which seems to have eluded me). I just believe that the point of owning assets – financial and property – is to finance one’s needs. Once an Englishman’s home was his castle; then the Englishman’s home became his pension; now an Englishman’s home is his one-way ticket to the Sunnybank Care Home.

The problem will only get worse

According to a study in The Lancet published on Tuesday there will be a 49 percent rise in the number of people being diagnosed with Alzheimer’s over the coming decade. Moreover, these Alzheimer sufferers will live longer. Another study from UCL suggests that there will be 2.5 million in need of care home places in 2027 in England and Wales alone[ii].

Why has the care home business been so difficult to invest in?

Sadly, care home chains have not had a happy time on the UK stock market. Southern Cross was the largest provider of care home places in the UK, operating over 750 care homes with more than 37,000 residents and employing around 41,000 staff. In 2004, Blackstone Capital took a controlling stake and financed rapid expansion by the sale and lease-back of its properties. This was a strategy to suck capital out of the company. The company’s shares fell 98 percent between 2008 and 2011. Another major private equity house, Terra Firma Partners, run by Guy Hands, bought out Four Seasons Care Homes.

One reason why care home chains have not prospered unlike, say, hotel chains, is the revenue model. Some kind of compulsory social care insurance scheme would transform their prospects – but no political party is even near advocating that, as yet.

Triple locks and winter warmers

The Tories also announced in their manifesto that they would scrap the triple lock – a flagship policy of the 2010-15 Coalition government. This guarantees that the state retirement pension will rise by the minimum of the retail price index (RPI – i.e. inflation), average earnings or 2.5 percent. So even if prices and earnings were stable, and regardless of the size of the deficit, pensions would still rise by 2.5 percent. This was another of those tablets-of-stone policies, like the commitment to fix overseas aid at 0.7 percent of GDP (regardless of economic conditions) of which the Cameron-Osborne pantomime horse was so fond.

The guaranteed 2.5 percent part of the triangle is now to be abandoned. Sensible, grown-up governments should never bind themselves by ideology-driven future spending. The Tory manifesto commitment is good as it goes – but I see nothing to give me confidence that the budget will finally be balanced: an aspiration that has been postponed (again) to 2025.


And I have previously expressed my view in these pages that it is obnoxious that Lord Sugar, HRH The Prince of Wales and Sir Richard Branson pick up a cheque from the doormat before Christmas each year for £300 (£400 when they reach 80). I had assumed that depriving plutocrats of excessive state largesse – as the Tories have now promised – would go down well with the masses. Not so: Labour managed, somehow, to frame this as an attack on all pensioners – who will now be cruelly means tested.

This morning the Institute of Fiscal Studies has piped up to say that the impact on government finances of the new double lock and the cut-back in winter fuel payments will be “trivial”. That’s partly because of the demographics: there’s going to be a huge increase in the number of over-65s claiming state pensions during the next parliament.

What the markets make of it all

When Mrs May spoke in Wrexham on Monday afternoon, only to be torn apart by the assembled pack of journalistic wolves who apparently value consistency above all else – paragons like the BBC’s Laura Kuenssberg and Channel 4’s Michael Crick – the Pound actually dipped below US$1.30. Political psycho-drama has economic consequences.

Mr Sanders in the USA and Mr Corbyn over here have assured Marxism a future.

There is now a small downside chance that 09 June will yield a Brexit squared moment – in which case the markets will go into convulsions. In the last weeks Mr Corbyn has made himself a fixture of British politics who will continue to haunt the airwaves long after Labour’s still likely defeat. The battle-ground after 09 June is now taking shape: more “austerity” from the Tories against a background of Brexit uncertainty and deteriorating public finances. While the FTSE-100 soars into the stratosphere for now, it will soon re-adjust to more uncertain times ahead.

And over the last year something remarkable has happened in the English-speaking world. Mr Sanders in the USA and Mr Corbyn over here have assured Marxism a future. When my own time comes for Sunnybank, I shall probably have to queue up with the rest – wearing a Mao suit.

[i] Care crisis threatens to scupper May reform, by Sam Coates, The Times, 22 May 2017, page 1.

[ii] See: http://www.telegraph.co.uk/news/2017/05/24/number-pensioners-needing-care-set-rise-one-quarter-lancet/