Plan to save homes sold to pay for care

The growing problem of sons and daughters losing out on their inheritance because of the care fees they have to pay for elderly and infirm parents is to be addressed by the Government.

Ministers are considering plans for nationwide insurance schemes to protect people from massive bills if, in old age, they have to go into council care.

The move comes from the increasing number of cases in which hard-up local authorities have forced elderly people, living alone, to sell their houses to pay for residential accommodation.

The prospect of a generation being disinherited has concentrated ministerial minds.

Ways of tackling the problem - certain to increase in coming years - will be at the centre of discussions on social policy for the next Conservative party manifesto, just beginning in Westminster.

One idea is through tax relief - to give the same incentive to people to take out old age protection plans as they currently have to save for pensions. Treatment in hospital would remain free.

The current rules state that elderly people are obliged to pay in full if their assets exceed £8,000, although the value of their property will not be taken into account if a partner continues to live there. If not, councils can force a sale of the property to cover costs of care. On average, these are £199 a week in a residential home and £293 in a nursing home.

These measures have proved unpopular with the elderly who imagined that their tax and National Insurance contributions would look after them from the cradle to grave.

The costs of residential care can also put financial pressure on their children, as well as depriving them of the inheritance they expected.

One dossier in Hereford and Worcester shows the speed with which savings can disappear. One 97-year-old blind and partially-deaf woman spent £120,000 on home care over three years, and has only £8,000 and her home left.

Among the models being considered is a form of compulsory insurance scheme, although this is viewed as anti-libertarian by some ministers.

More likely is tax relief for care insurance, putting it on a level playing field with pension investments. An alternative is to deduct all savings, including pensions, insurance and Personal Equity Plans from income tax.

Although discussions are aimed at the manifesto, some senior Tories believe that the Chancellor may begin some progress towards the objective by announcing changes in his autumn Budget.

Senior Tories are, however, wary of the potential pitfall of encouraging people to save through one specific mechanism. The lowering value of pensions relative to income, and the unpredictability of returns from endowment mortgages, have acted as a warning of the difficulties of second-guessing the best investment performance over a lifetime.

Some people, they add, may prefer to invest in property even if they have to sell their home in old age.

Labour's Social Justice Commission raised the possibility of a compulsory national scheme, although the Opposition is not committed to such a policy. Last week, John Major ordered his departments to set up manifesto committees to prepare for the next election. A separate group of advisory committees has been set up under the auspices of the Conservative Political Centre.