Dorrell steps in the right direction: Leading article

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The Independent Online
As if death itself weren't leveller enough. When chronic illness strikes in old age, bills for long-term care can leave the prudent and the well-off in the same financial boat at the ends of their lives as the spendthrifts and the poor. Middle England is displeased - and it is grumbling to its politicians.

The Health Secretary, Stephen Dorrell, could offer little yesterday to protect his party from the damaging political fallout of all the disappointed expectations raining down on the property-owning masses. But his proposals were nevertheless a promising first step towards tackling an issue that will bedevil politicians for a decade or more.

Long-term social care has always been means tested. But as the NHS withdraws from geriatric care, and as the number of home-owners grows, more and more pensioners are having to sell their houses to pay for care. Inheritances are being devoured by the wage bills of care homes. Disappointed inheritees may squeal but someone has to foot the bill. As a nation we have not saved enough in the past to enjoy today cascades of wealth across the generations, as well as low taxes. The current working population will have to pay for its elders' care somehow, whether through forfeiting inheritances or paying more tax. Unless younger generations start making additional provision their children will have to do the same in their turn.

Mr Dorrell hopes that individuals will bear more of the burden themselves, through higher savings and taking out insurance earlier in their lives. For the current generation of elderly the government is suggesting a new partnership to pay the bill for care. (It sounds very like the kind of scheme new Labour should have come up with but hasn't.)

The state won't pick up the entire tab; that could cost us two pence on income tax each year. But nor will every individual with assets worth more than pounds 16,000 be expected to fork out for the entire cost either - as most have to do at the moment, usually by selling their house. Under Mr Dorrell's plan, at retirement age, people would be able to buy insurance to cover a specified level of care. If you were to purchase insurance cover worth pounds 60,000 but your eventual bill overran, the state would still means test your ability to pay for the additional care. However, it would exclude pounds 60,000 worth of your assets from the assessment. By buying your insurance you pay for your long-term care and protect at least a chunk of the inheritance hoped for by younger generations in your family.

The details may vary in practice but the principle is right. There is at least one catch. For a start, the insurance market would need to become much more sophisticated. Senior citizens are asset rich and income poor. They would need to draw on the money tied up in their houses through equity- release schemes to pay the insurance premium. At the moment these equity- release schemes are completely inadequate. More important, the insurance premiums would be substantial - especially for couples. Many people would not be able to afford them. The Government could end up spending taxpayers' money protecting the assets and inheritances of the wealthy, leaving the lower-middle classes behind.

Still, at least the Government is moving in the right direction. Unlike the Labour Party. The shadow health secretary, Harriet Harman, was quick to denounce the Government's proposals as a "betrayal" of elderly people who expected the state to provide for them. Yet delivering the state-funded care that senior citizens expect would cost a bomb - something that sits uneasily with new Labour's fiscal prudence, and runs against Chris Smith's avowed aim of encouraging people to provide for themselves.

Massaging expectations downwards is an extremely difficult task - especially for a government that is already unpopular. Yet that is the task that will face this government and Labour if it takes power. Rather than opportunistically carping about the Government's attempts to find an innovative solution to a pressing problem, Labour should itself be searching for an alternative: if not a public-private partnership, then a new social insurance scheme. Labour's trouble is that it still wants the luxury of behaving like an opposition without responsibility when it needs to start behaving like a government.