‘Death tax’ to pay for increasing care costs likely to be shelved by Labour

Labour is likely to backtrack on plans to implement a so-called death tax to pay for long term care saying it will not introduce any definitive final reform in the next parliament.

The intention is to take the heat out of the issue during the election in an attempt to reconstruct a cross-party consensus afterwards .

The government is due to introduce a national care service in a white paper in the next few weeks, but appears to recognise that it is too close to the election to introduce a tax to pay for the scheme. It will set out a phased process towards a final reform allowing the electorate to look at the issue again in a further election.

The decision is likely to be seen as a defeat for those arguing the government needed to take a bold approach in the face of repeated delay and evidence of a funding shortfall.

A recent comprehensive Lords defeat over interim plans to provide free care at home for those 400,000 in need of intensive care has also complicated the issue.

But the health secretary Andy Burnham remains convinced that Britain’s ageing population will have to do more to pay for their own future care, either by having a means tested percentage of the value of a person’s estate deducted when they die, or through some form of social insurance.

There is concern in the cabinet at the prospect of the proposals being distorted as a fresh round of taxes by the rightwing media. They admit that a pre-election atmosphere is not the right environment in which to introduce major social reforms. Cabinet ministers have hit back at critics of the proposals saying that many of the elderly are suffering a dementia tax that is forcing them to sell their own homes to pay for the long term care.

A previous Guardian report highlighting government plans to introduce a levy at the time of death led to the Tories publishing adverts warning of Labour’s £20,000 death tax. A fragile cross party consensus between Labour, the Tories and the Liberal Democrats also collapsed amid recriminations over responsibility for the collapse.

The Tories have compared the idea of a compulsory levy to the voluntary insurance system they propose, which suggests an optional, one-off payment of £8,000 at 65 to cover the cost of future care. Critics say such a scheme has no prospect of raising the cash, put at around £400m a year, necessary to keep pace with the demands of an increasingly elderly population.

The white paper is likely to set out some transitional scheme including help for those in most severe need followed by a right to defer pensions to pay for care. The chief option is for the government to fund up to 50% of social care costs, with the remainder being paid for by a compulsory levy on the value of a person’s estate.

The Kings Fund has proposed the government paying £2 for every £1 paid by individuals towards their care costs.