Rule out a double 'death tax' now to save social care, warns Simon Lambert

Just when you thought it was safe to get back in the water…Keir Starmer and Rachel Reeves may be gone, with their disastrous delayed Budgets and endless rumours of tax rises, but Andy Burnham has triggered a fresh bout of speculation by trying to do the right thing.Our new Prime Minister wants to finally reform social care, correcting what he called ‘a dereliction of duty’ by a generation of politicians.He delivered an impassioned and impressive speech yesterday, drawing on the personal experience of his father being in care, reflecting on the undervalued job Britain’s care workers do, and promising to do better almost 20 years after the last Government he was in fell short.His honest appraisal of how people have been failed and that we urgently need to fix this problem should be applauded, as should his attempt to seek agreement across the political spectrum.But the reality is that someone will need to pay for this and the revival of Mr Burnham’s free at the point of use National Care Service concept has also resurfaced an idea that was dubbed ‘the death tax’. Prime Minister Andy Burnham meets residents after his speech at a care home in north LondonCare home funding and adult social care is a mess. Those suffering dementia, disability and other age-related conditions struggle to get the care they need, while means-testing leaves those with wealth of more than £23,250 at the mercy of bills that can destroy their finances.As the Prime Minister said: ‘People can see everything they worked for wiped out by the cost of care’.Social care is desperately in need of reform but attempts to do this have foundered for two decades.Under Gordon Brown (and Mr Burnham) Labour’s plans for a National Care Service funded by a tax on inheritances were skewered by the ‘death tax’ label and ran out of time.This was followed by a landmark 2011 review by Sir Andrew Dilnot, which was broadly welcomed for its plans for a lifetime cap on care costs of £35,000 and a higher means test threshold of £100,000. The Cameron government adopted a higher cap of £72,000 and created the 2014 Care Act, which got delayed and never came to fruition.Theresa May then suffered a backlash for her 2017 election manifesto idea dubbed a ‘dementia tax’.In 2021, Boris Johnson commendably acted to cap care costs in two years’ time but funded it with a manifesto-breaching 1.25 per cent Health and Social Care Levy, which Liz Truss later axed. Rishi Sunak and Jeremy Hunt subsequently delayed the cap’s implementation to October 2025.By that date it wasn’t their problem and having taken over as Prime Minister Keir Starmer cancelled the cap and kicked the can down the road.Now Mr Burnham is fast-tracking a review of social care to report next year, starting a ‘big conversation’ with the public on what it should look like and trying to seek cross-party support.This is good news and he deserves credit. But the elephant in the room is that social care reform hasn’t happened yet due to potentially huge costs that Britain can’t afford.As with funding defence, we either need to cut our spending elsewhere – savings many think should come from the UK’s mushrooming welfare bill – or raise taxes.And so, a new conversation about a National Care Service has led to fresh concerns about a 10 per cent levy on all estates to fund it. The so-called ‘death tax’.Yesterday Mr Burnham argued it would be better ‘if everybody paid a little’ than to have a lottery where some unlucky families lose hundreds of thousands of pounds.I agree with that sentiment. Where this runs into a problem is that some people are already paying a lot in tax and are rightly concerned they will end up paying even more.If a 10 per cent social care tax replaced inheritance tax, as Mr Burnham has previously mused, it would mean all estates lose an arguably manageable slice of money.But this new tax would hit smaller estates below the £325,000 threshold that are currently not taxed, while getting rid of a 40 per cent tax for larger estates.Can you really see Labour introducing bills for less well-off families, while cutting them for the wealthy?But introduce a social care tax on top of inheritance tax and a sizeable chunk of estates could be double taxed. And unless something is done about new rules on pension pots falling into the inheritance tax net, some would be taxed three times over.We could see: 10% social care tax40% inheritance taxIncome tax of 20%, 40% or 45% on money taken out of inherited pension potsThat would be a terrible solution and inevitably face a major backlash.I agree with the Prime Minister. Social care urgently needs fixing – with a plan we can come to national agreement on – and we can’t afford to let this be stalled again by a new row about tax.But to avoid speculation filling the vacuum while we wait a year for a review, we need to defuse things now with some clarity on inheritance taxes and a commitment to no double taxation. This is Money podcast