Burnham’s £18bn ‘Death Tax’ Nightmare: Fears He Could Impose 10% Levy on All Inheritances
Andy Burnham’s plans to overhaul Britain’s troubled social care system have reignited one of the most politically explosive tax debates in Westminster, amid fears that the Prime Minister could eventually turn to a 10 per cent levy on inheritances to help fund a new national care service.
The controversial idea could raise an estimated £18 billion a year, according to reports, potentially providing the Treasury with a huge new source of funding for an NHS-style social care system. But it would also bring millions more estates into the tax net and could trigger a fierce backlash from families who fear that money, property and savings built up over a lifetime would be swallowed up by the state.
The proposal has already attracted the politically charged label of a “death tax”, a phrase that has haunted Mr Burnham since he first backed an inheritance-based levy more than a decade ago.
Yet there is an important caveat. The Government has insisted that there are currently “no plans” to resurrect the so-called death tax. Burnham has instead promised to tackle the social care crisis through a process of consultation, cross-party talks and a broader attempt to build consensus around reform.
That has done little to stop the speculation.
The reason is simple: social care is enormously expensive, and any attempt to create a universal service would require a substantial and reliable stream of new funding.
A £18bn funding challenge
England’s social care system has been under pressure for years. People with assets above £23,250 generally have to pay for their own care, while those below the threshold may qualify for help from their local authority. For some families, long-term care costs can run into tens or even hundreds of thousands of pounds.
The result is a system in which families can face an agonising choice between using their savings, selling property or watching their assets gradually disappear to meet care bills.
Burnham has made reform of this system one of his major political priorities.
His ambition is considerably more radical than simply adjusting the existing means test. He has spoken about creating a National Care Service operating on principles similar to the NHS, with care available according to need rather than simply according to an individual’s ability to pay.
But universal or substantially expanded state-funded care would come with a substantial price tag.
The Health Foundation has estimated that providing state-funded adult social care on an NHS-style basis could require an additional £18.5 billion a year by 2035-36.
That figure helps explain why the inheritance levy has returned to the centre of the political debate.
A 10 per cent charge on estates could potentially provide a large and predictable source of revenue. Reports have suggested a figure of around £18 billion annually, although the precise design of such a system remains unclear.
The crucial question would be whether the levy replaced existing inheritance tax or operated alongside it.
That distinction could make a dramatic difference to how much families ultimately pay.
Burnham’s old idea returns
The controversy is particularly awkward for Burnham because the idea is not new.
When he was Health Secretary in 2010, Burnham proposed an approach to financing a national care service that involved taking 10 per cent from estates after death. The proposal was attacked by Conservatives as a “death tax” and became politically toxic.
More than 16 years later, the same issue has returned just as Burnham has finally reached Downing Street.
That history means every discussion about funding his social care plans is inevitably followed by questions about whether his old proposal could make a comeback.
Burnham has so far resisted giving a definitive commitment to such a tax.
Instead, his Government has stressed the need for political consensus and has argued that the existing system has been allowed to deteriorate because successive governments have avoided making difficult decisions.
In a speech on social care, Burnham said he wanted to end decades of political drift and find a way to provide people with greater dignity, security and support when they need care.
The political challenge is that fixing the system may ultimately require more money than the Government can easily find from existing budgets.
Why a ‘death tax’ would be so controversial
For opponents, the idea of taxing every inheritance is likely to become an easy political weapon.
Inheritance is emotionally different from many other forms of taxation. It concerns money and property that people may have spent decades accumulating with the intention of passing it on to their children or grandchildren.
A universal levy would also be fundamentally different from the current inheritance tax system, which applies only to estates above certain thresholds and includes a range of exemptions and reliefs.
A flat levy could potentially bring many more estates into the tax system.
That could mean families who have never expected to pay inheritance tax suddenly finding themselves facing a substantial deduction from an estate.
For example, a 10 per cent levy on a £300,000 estate would amount to £30,000. On a £500,000 estate, it would be £50,000. On a £1 million estate, the figure would rise to £100,000.
The political argument would therefore go far beyond the very wealthy.
Supporters would say that the levy would help create a system in which people no longer have to fear losing their homes and life savings because they become elderly or require long-term care.
Opponents would argue that families have already paid tax on their earnings, property purchases and investments during their lifetimes, and that taxing their estates again would amount to double taxation.
A different way of paying for care?
There is, however, a powerful argument on the other side.
Under the current system, the financial consequences of needing social care can be unpredictable and extremely severe.
One in seven people can face social care bills exceeding £100,000, according to analysis cited during the debate over reform.
That creates what many campaigners regard as a lottery.
Two people with similar lives and similar savings can have completely different financial outcomes depending on their health and how long they require care.
One may remain relatively independent and pass most of their wealth to their family.
Another may develop dementia or another condition requiring years of residential or home-based support and see much of that wealth consumed by care costs.
A universal levy could therefore be presented not simply as a tax but as a form of social insurance.
Instead of asking individuals to bear the full financial risk of needing care, society would collectively contribute towards the cost.
That is the argument Burnham and his supporters would have to make if such a policy were ever formally proposed.
The political battle ahead
For now, however, the “death tax” remains a fear rather than confirmed Government policy.
The Government has explicitly said there are no plans to resurrect the old proposal.
Burnham’s immediate strategy is to build a wider consensus around social care rather than simply announce a tax rise.
That approach may be politically sensible.
Social care has defeated governments of different political colours for decades. Previous attempts to introduce major reforms have repeatedly run into questions over cost, fairness and public opposition.
The Conservatives’ Dilnot proposals attempted to limit the amount individuals could be forced to pay for care, while later governments explored different funding mechanisms. Yet major reform has repeatedly stalled.
Burnham now has an opportunity to break that cycle.
But he also faces a fundamental problem: consensus is much easier to achieve when everyone agrees on the destination than when they are asked to pay for it.
If the Government ultimately decides that universal care requires an extra £18 billion or more every year, ministers will have to identify where that money comes from.
That could mean higher taxes, spending cuts elsewhere, changes to existing inheritance tax, a new social care levy or some combination of different measures.
And that is where the political fireworks would begin.
A tax battle waiting to happen?
For Burnham, the inheritance levy carries both an opportunity and a danger.
On one hand, it could provide a clear answer to one of Britain’s most persistent social problems. A dedicated source of funding could give social care greater financial stability and potentially prevent vulnerable people from being forced to exhaust their assets before receiving support.
On the other hand, a 10 per cent charge on all estates would be extraordinarily easy for political opponents to portray as a direct attack on family wealth.
The phrase “death tax” has already proved politically powerful.
Reform UK and Conservative opponents are likely to argue that the policy would punish savers, homeowners and families who have worked for decades to build financial security.
Supporters would counter that the current system already forces many families to sacrifice their wealth when they need care, but does so in a far less predictable and fair way.
Ultimately, the debate is about a much bigger question than inheritance tax.
It is about who should pay for Britain’s ageing population and how society should share the enormous cost of caring for people in later life.
Burnham has promised to tackle a problem that previous governments repeatedly avoided. His challenge will be to persuade voters that the price of reform is worth paying.
If a 10 per cent inheritance levy ever reaches the statute book, it could become one of the biggest tax changes in modern Britain.
For now, though, the £18 billion “death tax” remains a proposal hanging over the debate rather than a confirmed policy.
But with social care reform moving higher up Burnham’s agenda, the question is unlikely to disappear anytime soon.