BUDGET 2010: Freeze does little to find billions needed to fund care for elderly

Rob Waugh

THE vexed issue of how the country pays for the care of a growing elderly population remained unanswered last night, with a freeze on the inheritance tax threshold described as providing "a drop in the ocean" towards what is really needed.

Age Concern and Help The Aged said the move would bring in funding worth 110m by 2012/13, well short of what it described as a social care funding gap of 1.75bn.

Inheritance tax is charged at 40 per cent on all assets worth more than 325,000 that are left behind when someone dies.

Married couples and civil partners are able to transfer any of their unused allowance to each other, meaning the surviving partner can leave behind assets worth up to 650,000 without being liable for the tax.

Chancellor Alistair Darling said he was freezing the threshold for another four years to help pay for the care for the elderly.

It backtracks on previous announcements that the threshold would be raised to 350,000, but the political heat has dissipated as the Tories have also slightly altered their plans.

Tory Shadow Chancellor George Osborne has also back-tracked on plans to cut inheritance tax on estates worth less than 1m, acknowledging the proposals would have to be pushed back to the later stages of a Conservative administration.

Michelle Mitchell, Charity Director for Age Concern and Help the Aged, said: "Freezing the inheritance tax threshold to pay for older people's care adds up to a funding increase of 110m by 2012/13 – a drop in the ocean compared to the 1.75bn needed over the next two years to plug the social care funding gap.

"The Government must promise to protect spending on older people's care services or risk half a million frail older people being left without state support."

Adam Waller, partner at Deloitte, described the Chancellor's approach to inheritance tax as "light touch" and that his decision was not unexpected.

A Department of Health spokesman insisted the inheritance tax announcement did not affect its consultation on funding of social care, and said it would outline its plans shortly.

Meanwhile the Government's plans to provide free care at home for vulnerable elderly people cleared the Lords yesterday but will now return to the Commons for MPs to consider a string of amendments.

Peers dealt the Government proposals a serious blow last week by voting to delay their implementation by at least six months.

The Personal Care at Home Bill, which puts into legislation a promise made by Gordon Brown to provide 400,000 people with free care at a cost of 670m, had originally been due to come into effect in October.

But four defeats in the Lords put a string of blocks in the way of that timetable, including ensuring that free care could not commence until April 1 2011 at the earliest.

Among the highest-profile critics have been two Labour peers, former Health Minister Lord Warner and Lord Lipsey.

MPs will have the opportunity to attempt to overturn the defeats, although because of a lack of parliamentary time before the general election, which is expected on May 6, the Government will be hard pressed to ensure its original plans prevail.

PENSIONERS

Rob Waugh

HIGHER winter fuel payments for pensioners have been guaranteed for another year and every pensioner will be entitled to a weekly income of 132.60.

Alastair Darling said the severe winter had underlined the importance of the fuel payment which had been temporarily increased to 250, and 400 for the over 80s, in the last two years. That level of payment will remain for next winter, benefiting around nine million households.

He also said that increases to the state pension, coupled with the introduction of pension credit, would ensure no pensioners would receive income under 132.60.

Increased personal allowances mean no one over 75 will pay tax on the first 10,000 of income.

Michelle Mitchell, charity director for Age Concern and Help the Aged, said: "News that the winter fuel payment won't be cut this year is very welcome."

But she added: "However a minimum increase of 2.5 per cent per year in line with the Basic State Pension, and a promise to re-link the state pension to earnings by 2012, would have provided much more reassurance to the millions of pensioners struggling to manage on a measly pension.

"Many older people will be furious that additional elements of the state pension will remain frozen at current levels despite the cost of living heating up."

Plans to make it easier for over-60s to qualify for working tax credit by reducing the minimum hours needed to work to qualify also received a lukewarm welcome.

Ms Mitchell said: "Reducing the number of hours to qualify for Working Tax Credit will bring welcome help for a few thousand older workers.

"But with increasing numbers of older people trapped in long-term unemployment, the Government must do much more to avoid creating a 'lost generation' of older workers shut out of the job market and more dependent on state benefits in retirement."

The charity was also furious that the Chancellor had not announced a clearer pledge to scrap the default retirement age, instead only proposing to consult on reform.

"It beggar's belief that the Government has announced yet another consultation on the default retirement age," said Ms Mitchell. "This is an acutely ageist and counter-intuitive policy which has stamped an expiry date on hundreds of thousands of older workers. All of the political parties should commit to scrapping the default retirement age in their election manifestos."

BORROWING

BORROWING will hit a record 167bn but will be 11bn below forecast this year thanks to stronger tax revenues and lower unemployment than first feared.

The eyewatering figures for 2009/10 – although still a record by some distance – fall short of the 178bn predicted in his December Pre-Budget Report.

Mr Darling added that the UK's overall debt would be 100bn less than expected by 2013/14 as a result of the Government's measures on the economy.

Borrowing will be 13bn lower than forecast in 2010-11 at 163bn thanks to one-off factors such as the tax on bank bonuses which has already netted 2bn.

The Chancellor also said VAT receipts had come in 3bn ahead of hopes and dole queues were well below the levels originally feared at the height of the recession, which means income tax revenues are higher.

Mr Darling used the better-than-expected borrowing figures to justify the Government's decision to hold off on spending cuts. He said plans to slash spending before recovery was established would be "wrong and dangerous".

"To start cutting now risks derailing the recovery – which is already bringing down borrowing more rapidly than expected.

"To go faster, in the face of uncertainty, would mean taking a huge risk with people's jobs, incomes and our future," he warned.

Mr Darling said the UK's structural deficit – adjusted for the highs and lows of the economic cycle – would fall from 8.4 per cent of national output this year to 2.5 per cent by 2014-15 after the toughest spending round in "decades".

Although the Treasury maintained growth estimates of 1.25 per cent for this year, forecasts for 2011 were slightly down from 3.5 per cent to 3.25 per cent.

Conservative leader David Cameron attacked the Government's track record on growth forecasts, adding: "They have given us the biggest bust in British history and now they are promising us a permanent boom."

Mr Darling was also accused of letting the banks off the hook after refusing to impose a new tax unless it was part of an international agreement.

Charities and campaigners for a so-called Robin Hood tax reacted angrily to the Chancellor's warning that thousands of jobs would be lost if the UK went it alone.

Mr Darling restated his support for a global levy on the banks, calling for it to be "brought forward quickly".

"We cannot continue with a situation where the banks are rewarded for creating excessive risk, but the taxpayer foots the bill when things go badly," he said.

Documents published alongside the Budget said the current cost of the state's financial sector bail-outs was around 6bn, an improvement on the 10bn estimated in December's Pre-Budget Report. The Asset Protection Agency says taxpayers will eventually reap a 5bn benefit.

Tax clampdown embarrassment

The biggest cheer on the Labour benches came for a clampdown on tax evasion – designed to embarrass the Tories and Lord Ashcroft.

This included an information-sharing agreement with Belize – the Central American tax haven where the "non-dom" Tory deputy chairman reportedly has much of his fortune.

Alastair Darling said: "We expect these deals to be signed within a few days – which is rather quicker than the 10 years it's taken the front bench opposite to exchange information with the deputy chairman of their party."