Gordon Brown proposed a new insurance-based system yesterday to fund care for the elderly, the cost of which is forecast to reach £24 billion in the next 20 years. The Prime Minister said he wanted to free people from the fear that they would be forced to sell their homes to pay for care, and called the current means-testing system unfair for those who had saved. He revealed few details on how the new system might work, with his ministers saying that nothing had been ruled out except free personal care for all. That would be too expensive. They also stopped short of promising that the family home would be taken out of the equation altogether.

The current system, where anyone with a home or savings worth £22,250 or more gets no help with care home fees, is to be scrapped and replaced with one where everyone gets government help. That is likely to be a basic contribution from the state towards the cost of care. The new system would also encourage and reward those who have saved for top-up payments, such as matched funding up to a predetermined limit.

Equity release schemes, which allow people to use the value of their home to pay for care without selling it, would be explored. A deferred payments scheme, under which care home bills are settled out of the estate after death, would also be expanded. But the very poorest with no savings or assets would continue to have their needs met.

Mr Brown said that his aim was to make the system fairer for people who worked hard and saved for their retirement. “Of course, helping relatives is a challenge that most families rise to – however difficult it becomes,” he said in a speech to mark the start of a six-month public consultation on care.

“But that doesn’t make it any easier. Nor does it remove family worries about providing physical care that is needed, or take away people’s concerns that at some point in the future they may have to sell a treasured home to pay for their own care. We can – and must – look to give people the opportunity and the support to save for their old age in a way which insures them and protects their houses and their inheritance.”

The initiative is the first of several with which Mr Brown hopes to revive his and Labour’s fortunes after the local election debacle.

Since Tony Blair announced during the 1997 election campaign that he did not want to live in a country where people had to sell their homes to pay for care, Labour has made several failed attempts to reform the system.

In 1999 the Government rejected a recommendation of free care for all made by a royal commission that Mr Blair himself had set up, although this advice was adopted in Scotland.

In 2006 it also shelved the recommendations of a second major review, chaired by Sir Derek Wanless, saying they were too generous.

Because of rising property prices, few homeowners now qualify for help. Charities estimate that 70,000 people a year are now forced to sell their homes to pay for residential care, which costs an average of £450 a week. Local authorities have also tightened the rules on funding for home help.

Plans for a new system are likely to be part of Labour’s manifesto at the next election. The six-month public consultation Mr Brown launched will feed into a Green Paper next year, but legislation before 2010 is unlikely.

Stephen Burke, chief executive of the charity Counsel and Care, said that this was the best opportunity to change the system since the royal commission ten years ago, and a social insurance scheme was the most attractive option.

“The growing care gap means we have to examine creatively new ways of paying for care, sharing the cost and risk. Social insurance schemes have worked in other countries and certainly should be examined during the care debate, along with other forms of private and public spending,” he said.

The Department of Health predicts that by 2028 a quarter of adult the population will be aged of 65, the number of people over 85 will have doubled and the number of those over 100 quadrupled.

That will put the cost of care under the means-tested system at £24 billion, almost double this year’s bill.

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