New tax on over-40s being considered by ministers to fund social care would raise £15bn a year, study finds

2.5 per cent levy on incomes would help plug £30bn funding shortfall, study finds

A new tax being considered by ministers as a way to fund social care could raise up to £15bn a year, according to a new report.

The proposal would see a 2.5 per cent levy applied to the earnings of people over the age of 40, similar to the model used in Germany.

The revenue generated by the new tax would go into a ring-fenced pot used to fund social care.

Matt Hancock, the health secretary, has previously said he is “attracted to” the proposal, which is expected to be one option included in a government green paper due to be published before Christmas.

Research carried out by pensions and risk consultancy Hymans Robertson suggested the German-style system could raise half of the money needed to plug the £30bn-a-year gap in social care funding the UK is facing by 2031.

A levy on the income of over-40s has also been backed by influential parliamentary committees.

Under the proposal, people receiving care would be given cash pay-outs to enable them to pay carers, including family members.

Mr Hancock told the Sunday Telegraph last month: “I am impressed by the work of the select committees who have come up with a model that is adapted from what was introduced about 20 years ago in Germany, and it appears to be working there.

“One of the reasons I’m attracted to the proposal is that it’s cross party. This is a problem which can only be solved by people coming together behind a solution, because as soon as it’s turned into a political football it makes it extremely difficult to make any progress at all.

“I’m prepared to have a range of options and see if we can build a consensus around one of them rather than be dogmatic about it.”

Two parliamentary committees have also backed calls for a “social care premium”.

The House of Commons health and local government committees said in a joint report that the levy should be paid only by people over the age of 40, including pensioners over the age of 65.

It would either take the form of a national insurance surcharge or be implemented through a separate mechanism.

People on low incomes could be exempted, the MPs suggested.

Commenting on the finding that such a policy could raise £15bn a year, Jon Hatchett, partner at Hymans Robertson, said: “There are no two ways about it, the system needs more money. It needs a healthy injection now and even more in the years to come.

“Taxation of current and future generations will be needed. It is never going to be popular. But, as importantly, funding needs to be ring-fenced and spent well. Prevention should be prioritised, both to improve the lives of individuals as well as to manage down the costs faced by society.

He added: “The imminent green paper is expected to put forward a number of different options to address the current crisis. One is rumoured to be a tax of 2.5 per cent on income for the over-40s, split between employer and employee contributions ring-fenced for social care, similar to the system in Germany.

“This would raise £15bn per annum, which would be a huge step forward. However all potential policies need to be assessed against adequacy, sustainability and fairness in the context of likely future demographic shifts. And however the money is raised it needs to be spent well, focussing on prevention and people-centred health and social care provision.”