A few years ago, someone asked me how to fix social care costs for the elderly. One eventual idea of ours was that, at age 65, people could pledge to pay a higher level of inheritance tax as a form of insurance against social care costs. If, say, you pledged £20,000 of the value of your estate, you would receive an annuity worth perhaps £150,000 should you develop dementia or need long-term care.
This, we thought, would be appealing enough to be made voluntary. The idea was designed to align with a known property of human psychology called Prospect Theory, which shows that people much prefer a small, certain loss to a small chance of a larger loss. Put simply, people prefer a definite 80 per cent of something to risking a 7 per cent chance of getting nothing. Economists describe this as irrational, or as a bias, but it is easy to see why our brains evolved this way.
The lesson for anyone designing new policies is to talk to psychologists as well as economists. Barely a week passes when Nick Clegg does not cry out in his sleep: ‘If only we’d called it the graduate tax rather than a student loan.’ Two things which are objectively identical can be perceived very differently depending on how they are framed.
Ours might have been a better way of doing things, to be honest. Nevertheless, the level of opprobrium which met the Conservative proposals was deranged. Property owners are to the present day what the National Union of Mineworkers was to the 1970s — a group you cannot challenge on any account. If the policy had referred to assets other than property — shares, say, or stamp collections — nobody would have blinked.
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