Prime Minister Andy Burnham has indicated he is considering significant tax reforms, including changes to inheritance tax, to fund a comprehensive overhaul of social care in England. Burnham, who is set to deliver a speech on the issue, emphasized the urgency of fixing the country’s social care system to prevent a collapse of the National Health Service (NHS).

The challenge of funding social care reform is considerable. With an ageing population and rising demand for care services, the government faces increasing healthcare costs, compounded by high public borrowing. At the same time, baby boomers are poised to transfer an estimated £7 trillion in wealth to younger generations over the next three decades, largely through property assets. This considerable intergenerational wealth transfer is attracting attention as a potential revenue source to address social care funding needs.

Burnham, who previously served as health secretary, is reportedly revisiting a 2010 proposal to increase inheritance tax as part of a funding solution. Currently, inheritance tax is charged at 40% on estates exceeding £325,000, rising to £500,000 for those leaving a primary residence to direct descendants, with allowances transferable between married couples. The tax generated £8.5 billion for the Treasury last year and is forecast to nearly double within five years under current rules due to demographic shifts and frozen thresholds.

Options under consideration include aligning England’s social care model with Scotland’s, which provides free personal care at home for individuals over 65. This approach would cost an estimated £6.5 billion in 2026-27, rising to £7.5 billion by 2035-36. Alternatively, adopting a lifetime cap on personal social care costs—set at £86,000 under previous Conservative proposals—would require around £4 billion annually by 2035-36.

However, Burnham has suggested a more ambitious model akin to the NHS, offering social care free at the point of use. Analysis by the Health Foundation estimates this approach could cost £18.5 billion by 2035-36, reflecting the state covering care costs for all adults currently receiving services and addressing unmet needs that could surface if care were universally accessible.

Experts note that funding these reforms will likely require tax increases. Hugh Alderwick, director of policy and research at the Health Foundation, acknowledged the challenge of determining the appropriate tax mechanisms. One possibility is raising the inheritance tax rate above the current 40%, which could generate additional revenue, but may encourage tax avoidance or capital flight.

A flat 10% levy on all inherited estates, a proposal previously put forth by Burnham, might broaden the tax base but may not generate substantially more revenue than the existing system, which HM Revenue & Customs estimates could bring in roughly £9 billion annually with such a levy.

More significant revenue increases would require either raising the inheritance tax rate—each one percentage point increase potentially adding £300 million—or altering the nil-rate bands and reliefs. Yet, such measures risk incentivizing wealthy individuals to relocate assets abroad and could face political resistance.

Some analysts advocate looking beyond inheritance tax to taxing lifetime gifts, which are currently exempt if given more than seven years before death. A return to taxing lifetime capital transfers, as occurred prior to 1986, could broaden the tax base and distribute the burden more evenly, rather than placing it predominantly on middle-aged homeowners.

Meanwhile, the social care system continues to struggle. The national social care bill has increased by one-third over the past decade to reach £34.5 billion, yet many individuals remain responsible for funding their own care amid significant unmet needs. Danielle Jefferies, senior analyst at the King’s Fund, highlighted that current arrangements fail to meet growing demand, imposing costs on both individuals and the broader economy.

With widespread agreement on the urgency of reform but less clarity on funding pathways, Burnham faces complex decisions as he moves to address the escalating social care crisis.