Millions of middle income families are facing a 10 per cent ‘death tax’ levy to pay for social care of the elderly.
Health Secretary Andy Burnham yesterday said he wanted to see those with bigger houses pay more to provide for the old.
Up to 17million families would be forced to pay the tax – whether or not their loved one had required any care.
A 10 per cent tax raid would leave the relatives of middle income earners with estates worth £500,000 with a £50,000 bill when their relatives die.
This would be on top of an inheritance tax bill of £70,000.
Critics condemned the plans – saying they would penalise those who had saved all their lives.
The Tories warned the true tax bill could be even higher, because a 10 per cent levy would raise £4.5billion – only a third of what is needed to pay for caring for the elderly.
Mr Burnham will set out proposals to tackle the problem of an ageing population in a highly-anticipated White Paper in three weeks.
But yesterday he unveiled the three main options for raising money:
* a 10 per cent levy to be paid from an estate on death;
* means-tested amounts to be paid across the whole of retirement; or,
* the option of deferring pensions for three years to pay into a new National Care Service.
In return, every person over 65 would be guaranteed a free residential care home place if they needed it and any home help before that is necessary.
The average 65-year-old today can expect to need care costing £30,000 – with the burden on women averaging £40,400 and men £22,300.
Senior Labour sources confirmed that a compulsory 10 per cent levy, if introduced, would be capped at £50,000 on estates worth £500,000 or more.
The payment would be on top of inheritance tax, which comes in at 40 per cent on estates worth more than £325,000.
Although details have not been worked out, it appears there would be no lower threshold before the ‘death tax’ kicked in.
The payment would be ‘per estate’, not per person – meaning a husband and wife would only pay once – probably after the second death.
There were concerns that some would be able to avoid paying the death tax in the same way that many dodge paying inheritance tax, such as by putting money in a trust for their children.
At the moment, 2.5million households qualify for inheritance tax. The Tories said the new tax would mean 14.5million more being caught by death duties.
Every year around 240,000 estates are notified for probate. A 10 per cent tax would raise around £4.5billion, said the Tories, but pointed out that the costs of caring for the old would be £14billion a year.
Mr Burnham said he had ruled out the option of a flat rate tax for all apart from the most deprived of around £20,000.
He told the conference, organised by Age Concern, that another option was making people pay means-tested instalments over the course of retirement.
This too would hit the middle classes harder.
He added: ‘[Another] option could involve someone deferring their state pension, for instance, by working to the age of 68, and paying their contributions into the National Care Service.’
Neil Duncan-Jordan, of the National Pensioners’ Convention, said: ‘The fact is that all these proposals are aimed at pensioners paying for pensioners rather than the population as a whole paying for those who can’t look after themselves.’
Mark Wallace of the Taxpayers’ Alliance said: ‘It is totally unfair to punish people for doing the right thing and saving up all their lives, when they are taxed on earning and saving the money in the first place.’
Under the current system, all the elderly with assets of more than £23,000 are expected to pay for the full cost of social care and many have to sell their homes.
All three political parties agree reform is needed, but private cross-party talks broke down in acrimony earlier this year.
Tory Health Secretary Andrew Lansley said: ‘The time for talking is over.
‘Each party should set out their policies and let the people decide in the General Election which is the best.’
The Conservatives favour a voluntary scheme in which people pay around £8,000. Those who do not would be left paying their care bills themselves.
Mr Burnham, talking about how his proposal for a 10pc inheritance levy would affect the elderly, did however say it would ‘protect 90 per cent of their homes and savings’.
* In the first edition of today’s Daily Mail, a quote was wrongly attributed to Health Secretary Andy Burnham. In fact, it was Lib Dem health spokesman Norman Lamb who said: ‘Is it fair someone living in a small semi, who has worked all their life but is not rich, pays the same for care in old age as millionaire couple living in a mansion?’. We are happy to make this clear.
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