Pensioners should pay extra tax to help cover the £1.7 billion annual cost of introducing a cap on social care bills for the elderly, a Government-commissioned review suggested today.

In a move designed to prevent older people being forced to sell their homes, the Commission on Funding of Care and Support called for the state to cover costs exceeding £35,000 in any person's lifetime.

Combined with a proposed increase in the means-tested assets threshold from £23,250 to £100,000, this would mean nobody requiring care in retirement would have to spend more than 30% of their assets paying for it, the commission said.

But it also raised the prospect of a "specific tax increase" to cover the cost to the Treasury - an issue likely to prove contentious at a time of deep public spending cuts across most of Whitehall.

In an eagerly-anticipated report published today, the commission said it would "make sense for this to be paid at least in part by those who are benefiting directly from the reforms".

"In particular, it would seem sensible for at least a part of the burden to fall on those over state pension age," the report stated.

"If the Government decides to raise additional revenue, we believe it would be sensible to do so through an existing tax, rather than creating a new tax."

Andrew Dilnot, the economist who chaired the commission, stressed that how to fund the proposals was a "political" decision that was up to the Government, but pointed out that pensioners did not currently pay national insurance.

While seeking to address the costs of care, the commission's proposals also included charging elderly people in residential accommodation for living costs such as food and accommodation. This would be capped at between £7,000 and £10,000 a year.

Charities urged the Government to act on the Dilnot recommendations after years of stalled reforms.

Mr Dilnot said there would be "disappointment" if a white paper on the recommendations was not published by next Easter.

He added that he would like to see reforms implemented "as soon as possible", which could be by 2014.

Downing Street rejected suggestions that ministers would kick the proposals into the long grass.

"The Prime Minister welcomes the report," a No 10 spokeswoman said.

"This whole area is complex, as well as multi-faceted. Certainly, the whole funding issue is not something that can be looked at in isolation.

"We have always said there is a price tag, but we are not going to back away from the issue.

The Department of Health said it had approached shadow health secretary John Healey's office last week about opening cross-party talks on social care reform.

Labour leader Ed Miliband, on a visit to a care home in south London, said he wanted to work with the Prime Minister and Deputy Prime Minister on the plans.

Health Secretary Andrew Lansley was due to make a statement to the Commons about the proposals this afternoon.

Mr Dilnot described the existing system, in which many people risk losing the majority of their assets including their homes to pay for care - as "confusing, unfair and unsustainable".

"This problem will only get worse if left as it is, with the most vulnerable in our society being the ones to suffer," he said.

"Under our proposed system, everybody who gets free support from the state now will continue to do so and everybody else would be better off.

"Putting a limit on the maximum lifetime costs people may face will allow them to plan ahead for how they wish to meet these costs.

"By protecting a larger amount of people's assets, they need no longer fear losing everything."

The commission recommended that the cap on lifetime contributions to social care costs should be set at between £25,000 and £50,000, but added that £35,000 was "the most appropriate and fair figure".

It is intended that a cap on care costs would help "stimulate" a market in insurance products to cover potential outlay in old age, the commission argued.

Elderly care has risen up the agenda because of growing life expectancy. The number of people aged over 85 is expected to double over the next two decades, to 2.4 million.

Michelle Mitchell, charity director at Age UK, said the Dilnot recommendations were "a clear blueprint for long term sustainable reform of social care".

"The Government now needs to act on Andrew Dilnot's proposals and follow the Commission's ambitious but achievable timetable of a White Paper by the spring. Delay beyond Easter would be indefensible," she said.

"By setting a clear cap on contributions towards the cost of care, the Government would lift the fear and uncertainty for many.

"The social care system has been neglected for too long and allowed to reach the brink of collapse. The time to act boldly is now to reassure today and tomorrow's older people."

The insurance industry said it stood ready to support the Dilnot recommendations and called for immediate action to create a "clear and sustainable framework".

Tim Breedon, chairman of the Association of British Insurers, said: "Time is running out.

"We need a clear and sustainable framework to work from, so insurers can help to establish a functioning market, and individuals and the state can work in partnership, to determine an affordable and permanent solution for the funding of long-term care."

Town hall chiefs called for the three main party leaders to work towards a white paper by the end of the year, with legislation in 2012.

David Rogers, chairman of the Local Government Association's community wellbeing board, said: "Whatever the finer details may be, reforming adult social care is primarily an issue about funding and this fundamental problem cannot be dodged forever.

"Collectively, we all need to step up to the plate to tackle this and we shall keep urging national political leaders that the time for change is now. Councils are ready to play their part and others have to be too.

"People contributing more fairly to their own care costs and a greater role for insurance companies are both realistic and viable options, particularly given the current squeeze on public sector spending.

"However, there must still be a safety net for those unable to pay, as well as a fair system for how costs above an individual's payment cap are funded. Councils do not have the resources to shoulder that alone."