Andy Burnham urged to raise income tax on over-40s to fund social care

The discount would increase for every year someone remained in the scheme. After contributing for 25 years, they would no longer have to pay towards their personal care.

People would be enrolled automatically but could opt out at any time.

The proposal has been developed by former pensions minister Sir Steve Webb, who is now a partner at consultancy Lane Clark and Peacock.

Around 23 million people could be enrolled, including 14.3 million working-age taxpayers and 8.6 million pensioners.

LCP estimates that the scheme could raise approximately £3.5billion a year, even after accounting for millions of people choosing to opt out. Government officials are reportedly considering the plans.

The system would work in a similar way to workplace pension automatic enrolment, which has brought more than 11 million people into pension saving since 2012.

Sir Steve said the approach would allow people to share the risk of facing very high care bills, rather than leaving individuals to cover the entire cost themselves.

The Government estimates that one in seven people aged 65 and over will face care costs exceeding £100,000. Some people are forced to use most of their savings or sell their homes to pay for support.

Money raised through the proposed levy could also fund home adaptations, additional help for unpaid carers and improved access to treatment.

LCP argued that the current social care system was designed for the 1940s and is not equipped for a future in which more people are expected to live with frailty in later life.

Because people would be allowed to opt out, the consultancy said the proposal would not break Labour’s manifesto promise not to increase income tax.

The plans come as Prime Minister Andy Burnham considers how to fund a new National Care Service in England.

Mr Burnham has proposed changing the state pension triple lock from April 2030. The revised system would guarantee annual increases of at least inflation or 2.5 per cent, with larger rises allowed when needed to maintain the pension’s value compared with average earnings.

The Government hopes the change will release money for social care, although economists have warned that it may produce little or no savings.

The Institute for Fiscal Studies has also warned that a major expansion of social care would require higher taxes or cuts to other public services.

Sir Steve’s proposal is intended to provide the Government with another way to raise money while giving people greater protection from potentially unaffordable care bills.

He added: “At present, people are at risk of having their life savings wiped out by ‘catastrophic’ care costs, and have no way of pooling this risk with other people.

“This scheme, with an opt-out for those who don’t want it, provides an affordable and efficient way for people to protect their savings.”

Dr Jonathan Pearson-Stuttard, head of LCP Health and co-author of the report, said: “Social care is one of the defining societal challenges of our time, but it is also an opportunity to do things differently.”

Dr Pearson-Stuttard argued the framework could generate early investment in keeping people healthier and independent for longer, easing pressure on public services.