Millions face 10% death tax: Middle class hit hardest by Labour plan to fund elderly care
By
Kirsty Walker and Daniel Martin
Last updated at 10:08 AM on 11th March 2010
Health Secretary Andy Burnham announced the new plans yesterday
Millions of middle income families are facing a 10 per cent ‘death tax‘ levy to pay for social care of the elderly.
Health Secretary Andy Burnham yesterday said he wanted to see those with bigger houses pay more to provide for the old.
Up to 17million families would be forced to pay the tax - whether or not their loved one had required any care.
A 10 per cent tax raid would leave the relatives of middle income earners with estates worth £500,000 with a £50,000 bill when their relatives die. This would be on top of an inheritance tax bill of £70,000.
Critics condemned the plans - saying they would penalise those who had saved all their lives. The Tories warned the true tax bill could be even higher, because a 10 per cent levy would raise £4.5billion - only a third of what is needed to pay for caring for the elderly.
Mr Burnham will set out proposals to tackle the problem of an ageing population in a highly-anticipated White Paper in three weeks. But yesterday he unveiled the three main options for raising money: a 10 per cent levy to be paid from an estate on death; means-tested amounts to be paid across the whole of retirement; or, the option of deferring pensions for three years to pay into a new National Care Service.
In return, every person over 65 would be guaranteed a free residential care home place if they needed it and any home help before that is necessary.
Up to 17million families would be forced to pay the tax, regardless of whether their loved one had required any social care. (Posed by models)
The average 65-year-old today can expect to need care costing £30,000 - with the burden on women averaging £40,400 and men £22,300.
Senior Labour sources confirmed that a compulsory 10 per cent levy, if introduced, would be capped at £50,000 on estates worth £500,000 or more.
The payment would be on top of inheritance tax, which comes in at 40 per cent on estates worth more than £325,000.
Although details have not been worked out, it appears there would be no lower threshold before the ‘death tax’ kicked in.
The payment would be ‘per estate’, not per person - meaning a husband and wife would only pay once - probably after the second death.
There were concerns that some would be able to avoid paying the death tax in the same way that many dodge paying inheritance tax, such as by putting money in a trust for their children.
At the moment, 2.5million households qualify for inheritance tax. The Tories said the new tax would mean 14.5million more being caught by death duties.
Every year around 240,000 estates are notified for probate. A 10 per cent tax would raise around £4.5billion, said the Tories, but pointed out that the costs of caring for the old would be £14billion a year.
Tory health spokesman Andrew Lansley said Labour would regret the plans when it comes to the General ElectionMr Burnham said he had ruled out the option of a flat rate tax for all apart from the most deprived of around £20,000.
He told the conference, organised by Age Concern, that another
option was making people pay means-tested instalments over the course
of retirement. This too would hit the middle classes harder.
He added: ‘[Another] option could involve someone deferring
their state pension, for instance, by working to the age of 68, and
paying their contributions into the National Care Service.’ Neil Duncan-Jordan, of the National Pensioners’ Convention, said: ‘The fact is that all these proposals are aimed at pensioners paying for pensioners rather than the population as a whole paying for those who can’t look after themselves.’
Mark Wallace of the Taxpayers’ Alliance said: ‘It is totally unfair to punish people for doing the right thing and saving up all their lives, when they are taxed on earning and saving the money in the first place.’
Under the current system, all the elderly with assets of more than £23,000 are expected to pay for the full cost of social care and many have to sell their homes.
Millions of families’ homes at risk from shock interest rate rises or falls in property prices
By
James Coney
Last updated at 8:55 AM on 11th March 2010
Millions of families’ homes are at risk from shock interest rate rises or falls in property prices, Britain’s financial regulator warned yesterday.It fears that households who have failed to pay back debts could be pushed to the brink should the economic recovery falter.Under greatest threat are credit-hungry families who use credit cards and loans to keep up an affluent lifestyle, and young professionals who borrowed many times their income to get onto the property ladder.
FSA chairman Lord Adair Turner warned yesterday: ‘This recession is really quite different than the early 1990s’
In a bleak analysis, the Financial Services Authority forecast that any rise in unemployment, interest rates or a further crash in property prices could drastically slash the already stretched incomes of many middle class families.This would lead to them missing mortgage repayments, and eventually losing their homes.It will come as a timely warning to thousands of homeowners. Yesterday, it was reported how more than a million desperate borrowers are applying for credit cards with interest rates as high as 60 per cent.Many economists believe interest rates will start to rise at the end of this year. And this month Halifax and Nationwide both reported falls in the value of houses for the first time in more than a year.FSA chairman Lord Adair Turner warned yesterday: ‘This recession is really quite different than the early 1990s. ‘We have households which are more indebted than they were in the past and that creates a vulnerability.’
The FSA’s report examines the state of the economy, and sets out potential threats for households and businesses.The Bank of England base rate has been at a historic low of 0.5 per cent for one year. This has helped reduced the amount homeowners mortgage repayments by about £20 billion.Despite this families have failed to repay their debts, instead choosing to use spare cash to top up their pensions or invest in the stock market. Meanwhile the cost of borrowing on credit cards and loans has risen.And an estimated 4.7 million homes are still paying mortgage rates that are more than eight times higher than base rate.The City regulator said that as the economy recovers the Bank rate may need to increase to more ‘normal’ levels, such as those before the recession. This would ‘increase the cost of debt before household incomes have recovered fully.’ The report said: ‘The high level of debt income has left many households vulnerable to property price, income and interest rate shocks.’Figures from the Council of Mortgage Lenders show the number of repossessions soared to a 14 year high in 2009 as homeowners were battered by the recession. Around 46,000 people lost their homes throughout the year - an increase on 15 per cent on the previous year.However, this was well below the 75,000 that was first expected, mainly due to historically low interest rates and pressure on banks and building societies not to take people’s homes. Ed Stansfield, an economist with Capital Economics, said: ‘I think we could see a very long tail for arrears and repossessions with high numbers of people losing their home stretching back for many years to come.’People will realise that more of their income is being taken up by higher taxes or greater debt levels. ‘Any sudden changes in the economy will seriously widen out the number of people that are going to be affected.’In a further warning the FSA sounded alarm bells that desperate banks were forcing customers to buy expensive products in a bid to boost their own profits. Banks have seen their takings on current accounts stripped - so are resorting to flogging insurance and investments as a way of making extra money from customers.And the regulator warned that many consumers are gambling with their retirement savings in a frantic attempt to boost their income to the same level as before the recession.The report said: ‘They may be tempted to purchase products (and firms may seek to sell them) with the potential for greater return, but which are not suited to their individual circumstances or which are higher risk than they appreciate or desire.’
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Morrisons hails 21% profits surge for 2009
Last updated at 9:26 AM on 11th March 2010
Morrisons today hailed ‘another good year’ as profits climbed 21 per cent and sales hit record levels.The UK’s fourth biggest supermarket chain reported pre-tax profits of £767million for the 12 months to January 31, from £636million in the previous year.Morrisons, which said it expects economic conditions to remain challenging this year, saw like-for-like sales growth slow across the period to 6 per cent, compared with 8 per cent the year before.The Bradford-based grocer saw turnover rise 6 per cent to £15.4billion.
Marc Bolland, the former CEO, has left to join M&S
It is engaged in a growth strategy put in place by former boss Marc Bolland, who has left to join Marks & Spencer.
Morrisons opened 43 new outlets in the year, taking its total to
425, and it plans to keep expanding its store base to reach more
customers.
Last year presented a challenge for UK supermarkets as the recession squeezed consumers’ wallets.
Morrisons said it put in place 30,000 price cuts during the year and
‘delivered a promotional programme that enabled our customers to save
money whilst eating good fresh food’.
Sales of its own label value range rose 34 per cent in the year, while sales of premium organic and fairtrade products declined.
Christmas trading saw a surge for the firm as it outperformed the
market for the fourth year in a row during the festive season, putting
larger rivals in the shade.
Morrisons chairman Sir Ian Gibson welcomed the firm’s new chief
executive Dalton Philips, who takes up his post later this month.
Mr Philips is a relative unknown in UK retail but has plenty of
grocery experience as a former executive of US giant Wal-Mart and chief
operating officer of Canadian food group Loblaw.
Sir Ian said the supermarket would continue with its long-term
strategy of investing in growth, with new selling space and
manufacturing capability in the year ahead.
‘We expect the economic environment to remain challenging,
disposable incomes to be under pressure and value to remain a high
priority for consumers,’ he said.
‘The board believes that Morrisons’ unique offer of high quality,
fresh food at great value prices will continue to attract customers
from our competitors and drive market share growth in the year ahead.’
The firm said that based on research from Kantar it believes it has
grown its share of the market to 12.6 per cent from 12.3 per cent.
Nick Bubb, of Arden Partners, said the results comfortably beat analyst expectations and were ‘pretty impressive’.
Growth exceeded rival Sainsbury’s as like-for-like growth was driven through promotions without sacrificing margins.
Meanwhile, food price inflation also buoyed the industry for much of the year.
Mr Bubb said the new chief executive is inheriting a business in good
shape, with growth potential in online and overseas markets.
‘It’s an ideal place to be coming in at because you have fantastic momentum and lots more to do in the long term,’ he said.
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