FEAR OF FINANCE

T he Chancellor went some way in the Budget to recognise the wave of alarm and anger being expressed by thousands of pensioners and their families at the prospect of losing the family inheritance to pay for residential or nursing care.

A place in a residential home can cost anything from pounds 12,000 per head in the north of England to pounds 20,000 a year or even more in the plusher parts of the country. Nursing care can cost around another pounds 5,000 on top of that.

Recognising the strength of feeling Mr Clarke has agreed that from next April at the latest elderly patients will qualify for some help when they are down to their last pounds 16,000, and all care will be provided free when they are down to pounds 10,000.

But this is only a palliative. Very few people are wealthy enough to fund care out of their own resources without depleting their assets. Only insurance can hope to provide the cost of long-term care if it is required, and very few policies are currently available. There may be no more than 20,000 current policies in existence.

The Government has now promised six or nine months of intensive consultation with insurers and experts in care to determine the potential size and scope of the problem of long-term care for an ageing population, and to decide on some form of partnership which would allow the state to cap the liability of those who make some effort to help themselves by taking out an insurance policy to cover the first two or three years of care if it is required.

There may well also be rule changes to allow insurers to pay family carers who currently shoulder the bulk of the burden of caring for elderly relatives in their own homes.

The Government also seems willing to allow pension pots to be tapped on retirement to help pay for long-term care insurance. But it does look as if the next generation of pensioners will have to find something like pounds 6,000 each at or near retirement to pay for a commercial insurance policy to cover the first two or three years in care.

The main disappointments in the Budget were the absence of any further incentives for National Savings, Tessa and Peps. Apart from the shaving of tax on deposit accounts, the only gesture aimed specifically at middle- aged investors is the reduction in the qualifying age for buying National Savings "granny bonds" from 65 to 60, and the doubling of the maximum holding to pounds 50,000 a head.

The current issue pays a guaranteed 7.5 per cent gross for five years, taxable but paid gross on a monthly basis.

The Chancellor also stoically refused to give any direct stimulus to the housing market through the Budget, relying on a continuing fall in interest rates to demonstrate what an irresistible bargain property has become.

Over the last six years property prices have fallen by an average 33 per cent in real terms, after allowing for inflation, which almost exactly equals the 30 per cent drop in real prices between 1948 and 1957, and the 33.6 per cent fall between 1973 and 1977.

Houses are historically cheap relative to incomes, mortgage payments as a percentage of take-home pay are at record lows, and mortgages lenders are leading interest rates lower still.

But after their experiences of the last five or six years buyers may be looking for job security rather than bargains to tempt them to commit themselves to a 25 years investment in bricks and mortar, and there is still no immediate prospect of an upturn in confidence, activity or prices.