Andreas Whittam Smith: We could tax all over 50s to pay for old age

The state doesn't look after you from cradle to grave if you need it to; it misses out the last bit

I wonder whether Government ministers are capable of standing back and looking at their handiwork with a dispassionate eye. I am thinking of the White Paper on the social care system published yesterday, which failed to answer the question of how to finance the care costs of the elderly without leaving them to die as paupers. I have no doubt its authors, Andrew Lansley, the Secretary of State for Health, and Paul Burstow, the Minister of State for care services, thought they had done a good job when they approved the final draft.

As two people who have spent their lifetimes in party machines, Mr Lansley as a Conservative Party researcher before becoming an MP, Mr Burstow as Liberal Democrat apparatchik before entering Parliament, they have produced a document that has two virtues in contemporary politics. It neither does very much nor arouses passions. In particular, the two ministers haven't frightened the Treasury by proposing expensive reforms that would need paying for right away. Admittedly, those who follow the subject closely were quick to say how disappointed they were, but Mr Lansley and Mr Burstow can bear that.

Indeed, they fell well short of meeting the challenge posed by the Commission they had earlier set up, headed by Andrew Dilnot. Its conclusion published last year was that "the current adult social care funding system in England is not fit for purpose and needs urgent and lasting reform". By no stretch of the imagination does yesterday's White Paper describe "urgent and lasting reform".

Under the present, pre-reformed system, people with assets of over £23,250 receive no financial support from the state and must fund their own care. This can amount to a large figure. By the time the age of 65 is reached, about one in 10 people face future lifetime care costs of more than £100,000. What do they do? They deplete their savings. And many of those entering residential care are forced to sell their homes. The public regards this as unfair. The state doesn't look after you from cradle to grave if you need it to; it misses out the last bit.

I used to tell my widowed mother, who hoarded her tiny savings so that when she died she could leave something to my sister and me, that she, by now in her eighties, was experiencing the "rainy day". There was no need for her to make sacrifices for us who were in jobs and so on. But this human instinct to pass something on to the next generation is very strong. That is why people regard the current care arrangements, which deny this wish, as wrong, even wicked.

The Dilnot Commission recommended capping the lifetime contribution to adult social care costs that any individual would have to pay at between £25,000 and £50,000. Where an individual's care costs exceed the cap, he or she would be eligible for full support from the state. This cap would cost around £2bn. "This change should bring greater peace of mind and reduce anxiety, for both individuals and carers," observed the Commission.

In fact, it is not the very good notion of a cap that causes controversy. Mr Lansley says he supports a cap "in principle", but that work is still needed to establish how it would be paid for. This won't be ready until 2013. Having thus failed to find an answer to the main difficulty that confronted them, the two ministers have instead come up with a method of buying time. They will introduce a loan scheme so that those who need to go into care homes and are not entitled to state funding will have their fees automatically covered and then, after their death, the Government would recover these costs from their estate. But even this stopgap scheme won't come into operation until April 2015. So how should Mr Dilnot's notion of a cap be financed? Or to put the question more precisely, how should we taxpayers meet this charge? I would favour putting the burden on the shoulders of those for whom the costs of care that one might incur when elderly are no longer a distant and almost unthinkable prospect. The income tax system has long "helped" taxpayers above the age of 65 in a number of ways. Tax free allowances are slightly higher, national insurance is no longer payable and there are the tax-free transport benefits that are widely available. There is also a winter fuel allowance. Some of these advantages could be eliminated and the saving applied to financing Mr Dilnot's cap. And, if necessary, all income tax payers from the age of 50 onwards could have their tax-free allowances reduced. In this way, those for whom the benefits of the cap are not too far distant would be asked to finance it as they approached the critical age.

The extra tax payable should not be onerous. Income tax as a whole raised £160bn last year compared with the £2bn cost of the cap. None of this sort of thinking aloud appears in the White Paper. If Messrs Lansley and Burstow stood back and looked at what they had actually done, they would see that they have produced a White Paper full of charts and elaborations but missed the main point, which is how to pay. The dispassionate eye would reveal that they had been very feeble.

a.whittamsmith@independent.co.uk