The Big Question: How will we pay for the care of elderly people as the population ages?

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The Independent Online

Why are we asking this now?

It is 13 years since Tony Blair said he did not want children brought up in a country "where the only way pensioners can get long-term care is by selling their home".

But the looming crisis in care of the elderly – and, crucially, how to pay for it – has yet to be resolved and has now become a key election issue. Andy Burnham, the Secretary of State for Health, this week set out the Government's three main options for raising money to pay for care.

What are the three options currently being considered by the Government?

The Government favours a compulsory model which would see every adult in England paying towards the cost of a new National Care Service. This would provide free care for the elderly at the point of need, in the same way as the NHS provides healthcare. The options are:

1. People could choose to defer retirement for three years and use their pension contributions for three years to pay for a care fund. The state pension age currently stands at 65 but is due to rise to 68 by 2044, meaning that people now in their 20s and 30s could routinely end up working past their 70th birthday. People could pay in instalments in the run-up to retiring at 65.

2. A 10 per cent estate levy dubbed a "death tax" could be deducted from the property of older people when they die. The levy would be charged on all estates up to the current inheritance tax threshold of £325,000. Any amount above the existing threshold is already taxed at 40 per cent. The extra charge could see beneficiaries pay an extra £32,500 in tax out of their dead relative's estates.

3. People on low incomes and no savings who could not afford to pay any charges would continue to receive their care for free.

What has the Government ruled out?

The Government has already ruled out a flat-rate £20,000 levy on estates to pay for social care for the elderly in England. In a green paper last July Mr Burnham also suggested increasing state funding out of general taxation and a voluntary contribution scheme. But this week Mr Burnahm said that paying for care for the elderly out of general taxation was not "fair to the working-age population". While a voluntary levy would be "more expensive", costing those who opted to contribute an estimated £25,000 each.

What happens under the current system?

Nursing home bills for the poorest are met by the state, but anyone with savings of more than £22,250 pays for their own long-term care. It costs an average of £600 a week to be cared for in a nursing home – and much more for those with greater needs such as dementia sufferers. Around 380,000 people currently live in care homes, of which 41 per cent, or 155,000, are in private and voluntary sector care homes paid for their own care. Almost a third, or 48,000 people, had been forced to sell their homes to pay for their long-term care.

Why is there a problem?

The current system is seen as unfair by those who have to sell their homes to pay for their care when others are getting it for free. More people are being affected as today's generation of pensioners is the first to have enjoyed widespread home ownership. The problem of providing care for the aged is also reaching crisis point as more people are living longer. By 2026 one in five Britons will be 65 or over – and total spending on care services could be more than £25bn. Eight out of 10 people will need some sort of care as they get older. The average 65-year-old today can expect to need care costing £30,000 – £40,400 for women and £22,300 for men.

What do the other parties say?

The Liberal Democrats have also called for a comprehensive scheme.

The Conservatives would offer a voluntary insurance scheme with an £8,000 premium. Andrew Lansley, the Conservative health spokesman has insisted, however, that he will not take part in future talks with the Government as long as it was considering a compulsory scheme saying this would deter people from caring for loved-ones by applying a charge to everyone, apart from the poorest.

Mr Lansley said: "A compulsory tax option is very bad policy – it is completely unsustainable. It is incredible that the Government is set to publish a White Paper outlining their death-tax policy within the next three weeks and yet the Health Secretary claims he is still weighing up various options. He is treating people like fools."

But the Conservative plans have been criticised for potentially forcing many elderly people to sell their homes to fund care. Figures obtained by the Lib Dems show that 3.5million pensioner households do not have assets of £8,000 not including their homes. This would leave two-thirds of households having to sell or release equity from their homes to pay for the Tory private insurance scheme. Norman Lamb, the Liberal Democrat health spokesman, described the proposal as a poll tax. "Many people on modest means will be wondering how the Tories could think it's fair that they should pay the same amount for care as multimillionaires."

What has happened so far?

There has been a huge amount of political bickering over this issue.

It became the stuff of political high drama last month when news of secret talks between the three main parties, attempting to reach a consensus, emerged only as they fell acrimoniously apart. The Conservatives unveiled a gravestone poster campaign accusing Labour of planning a £20,000 "death tax". Lord Mandelson, the Business Secretary, accused the Tories of "driving a wrecking ball" through constructive debate.

Meanwhile, Labour is also pushing through a controversial national policy to provide free care at home for 400,000 people with "critical needs". The policy was unexpectedly unveiled by the Prime Minister Gordon Brown during his conference speech last October.

The annual cost of the Bill is put at £670m which would allow 400,000 people with the highest needs to stay in their own homes. Of this, £420m is to come from existing Department of Health budgets, with local authorities told to provide the remaining £250m from efficiency savings. Many councils fear they will be crippled by the costs.

There has been fierce criticism of the way the proposals were sprung on Parliament and the public during consultations over wider reforms to the long-term care system. Policy experts condemned this as policy making on the hoof and said it undermined Labour's claims to be developing a comprehensive plan for all elderly care. The Bill, which is now going through the Lords, has come under attack from peers and MPs from all parties.

What happens next?

A White Paper on the subject will be published in the next few weeks. Ministers hope it will prove as radical as the legislation which led to the formation of the NHS more than 60 years ago. Burnham this week suggested that it would propose a "comprehensive, compulsory" scheme. Burnham said this week: "For me, the crucial test of any proposed solution is that it must be within the reach of all people and affordable to everyone. If we fail to act now, the unfairness will only increase as we all live longer."

Is there any way of avoiding a death tax?


*We could all work longer after retirement or pay more beforehand (Labour's proposal)

*We could take out insurance or accept we might have to sell our homes (Tory proposal)

*But there is no avoiding the fact that we have to find extra cash for the growing elderly population


*Labour's proposed 10 per cent estate levy is the fairest way of raising the extra cash

*It costs £600 a week to be cared for in a nursing home – much more for those with greater needs

*Almost 50,000 people have been forced to sell their homes to pay for long-term care