David Cameron during his visit to the headquarters of ventilation manufacturer, Vent-Axia on January 23, 2014 in Crawley. Photograph: Getty Images.
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Cameron's plan to cut inheritance tax would create social care black hole

The Tories have previously pledged to fund social care reform by freezing the inheritance tax threshold.

George Osborne's 2007 pledge to raise the inheritance tax threshold to £1m, which spooked Gordon Brown into calling off an early election, is still remembered as a political masterstroke. But the combination of the crash and the coalition means that the Tories haven't even come close to delivering it. In the 2012 Autumn Statement, Osborne announced that the inheritance tax threshold, frozen since 2009 at £325,000 (£650,000 for couples), would rise by just 1 per cent in 2015-16 to £329,000. More recently, he revealed that to help meet the £1bn a year cost of the coalition's social care plan, the threshold will be frozen at £329,000 until at least 2019. Many more "ordinary people", to use Osborne's 2007 words, will be hit by inheritance tax (although, in reality, only around 6 per cent of estates are affected). Were the threshold to rise in line with inflation, it would stand at £420,000 in 2019.

It is notable, then, that when asked about this subject at a pensioners' event today (hosted by Saga magazine), David Cameron suggested that the Tories would promise relief in their manifesto. He said:

We put in our manifesto that we wanted to take it to £1m but we did not win an outright majority [and] the pledge did not make it into the Coalition Agreement.

Would I like to go further in future? Yes I would. I believe in people being able to pass things down through the generations and onto our children, it builds a stronger society.

Inheritance Tax should only really be paid by the rich, it shouldn't be paid by those people who have worked hard and saved and brought a family house.

The ambition is still there, I would like to go further. It's something we'll have to address in our election manifesto.

It is unclear whether this amounts to a commitment to repeat the pledge of a £1m threshold, but Cameron's words suggest that he is planning a significant increase in the starting level.  What he may or may not be aware of is that this would leave a black-hole in his social care funding plan, meaning tax rises or cuts elsewhere. In the age of austerity, there are no cost-free pledges.

Incidentally, it's worth noting that Osborne, according to Janan Ganesh's recent biography, was secretely glad when the Lib Dems gave him political cover to abandon the pledge as it had come to reinforce the Tories' reputation as "the party of the rich".

Cameron also used today's event to give the clearest signal yet that the Tories will again pledge to protect universal pensioner benefits in their manifesto. He said: "We will set our policy for the next parliament at the next election. I don't want to prejudge that. But the only thing I would say is that people think you save lots of money by not giving these benefits to upper-rate, top-rate taxpayers. You save a tiny amount of money and you always introduce another complexity into the system. We made our promises for this parliament, we kept our promises, I'm proud of that."

It is rather disingenuous of Cameron to protest that means-testing the benefits would raise little money when one could say the same of measures such as the benefit cap (which is forecast to raise £110m) and the bedroom tax (£490m - and both, as analysts have warned, may end up costing more than they save by increasing homelessness and other problems). But the view among the Tories is that, having lost many pensioner voters to UKIP since 2010 (some of whom have been clawed back by Osborne's Budget), they can't afford to hand Nigel Farage another attack line.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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