It’s a brave political party that takes on the pensioner vote in the UK.
It’s a foolhardy one that challenges the privileged position of property as the premier savings vehicle, investment asset, and gilt-edged conveyor of unearned wealth to the next generation.
The Conservative party has just done both.
And you just need to look at what’s happened to their poll lead to see why most parties avoid it.
The silent generation war
There has been something of a silent generation war going on for a few years now.
Young ‘uns (I believe the term these days is “millennials”, m’lud) have been seething about the unfair benefits that old people (largely their grandparents and parents) have enjoyed.
They took all the best jobs. They enjoyed final salary pensions and are still bleeding the host companies dry, absorbing money that should instead be spent on investment and higher wages for current workers. They were alive in the days when houses were still cheap. They were able to go to university on a grant (most of them didn’t go, of course, but they’re not the parents of the cohort of millennials who are moaning).
To pour salt in the wounds, pensioners – grasping old swines that they are – have been protected from austerity too. The “triple-lock” – introduced in a fit of compassionate conservatism by Dave Cameron and Nick Clegg in 2010 – meant that the state pension would rise by the higher of 2.5%, wage inflation, or price inflation every single year. As a result, pensioners got pay increases when everyone else was facing real-terms pay cuts.
It’s all so unfair! (Stamps foot, walks off).
OK, enough joking around. Whatever you think of these policies, the triple lock is expensive and unsustainable. So the Tories are right to dump it.
Of course, they’re only replacing it with a “double lock” – they are dropping the 2.5% floor. This is at a time when inflation is rising. So chances are, pay rises and inflation will be above 2.5% anyway, and pensioners won’t lose out (and the deal won’t be any less expensive).
That might seem odd – to propose an unpopular change that won’t have any impact on the costs in practice. However, it’s a step along the way to getting rid of it altogether.
The winter fuel payment will now be means tested as well, which means Lord Alan Sugar won’t have to bother with the hassle of trying to pay his back every year. Again, this doesn’t seem desperately controversial – it’s just another demonstration of how hard it is to take something away from people once you’ve handed it out to them.
But the most controversial story is the proposed change to social care costs. At the moment, if you need social care, then the government expects you to fund it unless you have less than £23,250 (it’s more complicated than this and a lot of it depends on your local council’s rules as well, but that’s the upshot). However, that doesn’t include the value of your house.
Now, the Conservatives have decided that if you have less than £100,000, then the government will pay. However, this includes the value of your house.
Now, no one will get thrown out of their home. You are – in theory, though apparently many councils aren’t doing it in practice, which will have to be addressed – allowed to defer payments with the council taking it out of your estate after you die.
But that’s a pretty big change. Once upon a time, the idea was to cap liability for costs to around £72,000. So once you’d shelled out that much, you could keep whatever was left.
Of course, a cap of £72,000 on costs is of greater benefit to the moderately well off and above, while the less wealthy end up having all disposable wealth eaten up. On the other hand, being left with £100,000 is bad news for the wealthy, but less punishing for the not-so-wealthy.
I can see why a lot of people would prefer it to be capped. I can see why people don’t like the idea of spending their money on funding a depressing and unfair and frightening dying process. And the administration of all of this will be a nightmare (although that’s no different to the current process).
But if nothing else, this solution is at least fair, and in a manner that many people struggle to associate with the Conservative party. The wealthier you are, the more you pay.
As for the “dementia tax” argument – that you only pay if you are unlucky enough to need care – that’s something for a canny insurer to start looking at.
You have a risk that affects a minority of people. You have an explicit liability to cover (your wealth minus £100,000). You have a large potential market of people who fear this risk. Maybe an actuary would disagree, but to me, given a bit of political stability, that sounds like an opportunity.
The Tories are still going to win this election
None of this has proved particularly popular with the papers, and I don’t think Conservatives are too chuffed about it either. Theresa May’s brand of Conservatism is about as far away from Margaret Thatcher’s as you can get while still wearing a blue jersey.
It’s not the sort of conservatism I’d opt for either, but the great political pendulum is swinging, and if you’re going to be stuffed by a bunch of populists, I guess this is the least bad option on the table right now.
The Tory lead has apparently been cut right back, according to the latest polls. Is this likely to send the election Labour’s way? I struggle to see it.
On the one hand, you have Jeremy Corbyn declaring that any worker on an earned income of £80,000 is “rich”, while on the other, he’s trying to exude empathy for people who will only be able to give a mere £100,000 of unearned wealth to their children when they die. Something about that rings a little hollow.
More to the point, if you look at the polls more closely, it’s not so much that the Tories have lost ground as that Labour has gained it. People are dumping Ukip and the Lib Dems in favour of the two main parties. That would be ironic, eh? If this election marks the return to the good old-fashioned two-horse race we always used to moan about. So much for the death of Labour and the two-party system.
From an investment point of view, what’s all this mean? In the short term, if you are a currency trader (and if you want to make money over the long term, you almost certainly shouldn’t be), then the pound will fluctuate with every pip of ground the Tories give up.
In the longer term, the Tories are still likely to win. And this unapologetic manifesto shows that they are not going to be afraid to push through some unpopular changes.
You’re going to get a far more interventionist government one way or the other. We’ll be looking in closer detail at what this might mean in MoneyWeek magazine after the election. If you’re not already a subscriber, sign up here now.