The government's decision when it came into power to axe tax breaks for elderly people taking up private medical insurance could have saved the Treasury up to £135m, according to a new report.

Chancellor Gordon Brown made the move in his first Budget despite the fact that more than 6 million people held private policies following a huge rise in the industry since the 1980s.

Now researchers at the King's Fund have claimed his decision has been 'a good use of public money'. According to its report Health Care UK Spring 2001, the move affected some 550,000 people and resulted in the costs of private medical insurance for those over 60 rising by 29.9 per cent - a financial burden which caused an estimated 4,000 people to drop out.

According to the report, although this led to an increased demand on NHS services, the costs were far less than the£135m the Treasury would have had to have spent on maintaining the tax breaks.