Good news for houses like these. Photo: Carl Court
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Cutting inheritance tax will be good news for a privileged few, bad news for the rest

Cutting inheritance tax will mean happy days for the top 10 per cent, and nothing to everyone else.

The UK’s archaic taxation system taxes income too heavily but wealth too lightly. This acts as a roadblock to social mobility, which is the lowest in the western world.

And George Osborne is about to make it worse. When he unveils his Budget, the Chancellor will announce an increase in the individual inheritance tax threshold from £325,000 to £500,000, fully transferable between couples. No inheritance tax will be paid on a couple passing on a £1 million house to their children.

Only the wealthiest families will benefit. If the inheritance tax threshold were left untouched until 2018-19, it would only affect 10% of people. While cutting it does nothing for those in the bottom 90%, it amounts to a boon for those inheriting houses worth £1 million to £2.35 million (when the cut will be fully tapered off). Someone inheriting a £2 million home will benefit more than someone inheriting a £950,000 home. Exactly how this policy fits into the ‘One Nation’ playbook is not clear.

Osborne once recognised the great structural flaw in the UK’s taxation system. According to In It Together, Matthew d’Ancona’s study of the coalition, Osborne and Nick Clegg agreed a ‘grand bargain’ in 2012: reducing income tax to 40% and introducing a mansion tax in return. But David Cameron had other ideas. “Our donors will never put up with it,” the Prime Minister said before vetoing the idea.

Now taxation is becoming even more dependent on income rather than wealth. The inheritance tax cut will be paid for by reducing pension tax relief for those earning over £150,000; hardly a group many feel much sympathy for, but the upshot will be to prioritise those who inherit money over those who earn it.

None of this is to say that inheritance tax is perfect. It is “a somewhat half-hearted tax, with many loopholes and opportunities for avoidance through careful organization of affairs,” as the IFS-led Mirrlees Review into inheritance tax noted in 2011. On the grounds of equality of opportunity, it advocated instead taxing individuals at progressive rates on the total amount of gifts and inheritances they received over their lifetime. Radical leftism this is not: Edward Heath’s Conservative government in 1972 proposed a similar policy.

Robert Halfon, the Conservative Party’s vice-chair, wants to make the party logo a ladder to symbolise opportunity. Yet the cut to inheritance tax will show no regard for equality of opportunity. Instead, it will entrench a system of taxation that favours those who have inherited money rather than those who earned it. By making property an even more attractive investment for the wealthy, it could lead to house prices rising even more. And cutting inheritance tax also risks reducing economic growth: a Royal Economic Society study three years ago suggested that increasing inheritance tax while reducing income tax could increase growth by creating greater incentives to work.

Eight years after proposing to do so, George Osborne will finally make good on his pledge to deliver on inheritance tax. The party faithful will be delighted. But the risk for the Conservatives is that the combination of £12 billion of welfare cuts with a tax cut for the wealthiest families will exacerbate their image as the party of the rich.

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.

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Who will win in Manchester Gorton?

Will Labour lose in Manchester Gorton?

The death of Gerald Kaufman will trigger a by-election in his Manchester Gorton seat, which has been Labour-held since 1935.

Coming so soon after the disappointing results in Copeland – where the seat was lost to the Tories – and Stoke – where the party lost vote share – some overly excitable commentators are talking up the possibility of an upset in the Manchester seat.

But Gorton is very different to Stoke-on-Trent and to Copeland. The Labour lead is 56 points, compared to 16.5 points in Stoke-on-Trent and 6.5 points in Copeland. (As I’ve written before and will doubtless write again, it’s much more instructive to talk about vote share rather than vote numbers in British elections. Most of the country tends to vote in the same way even if they vote at different volumes.)

That 47 per cent of the seat's residents come from a non-white background and that the Labour party holds every council seat in the constituency only adds to the party's strong position here. 

But that doesn’t mean that there is no interest to be had in the contest at all. That the seat voted heavily to remain in the European Union – around 65 per cent according to Chris Hanretty’s estimates – will provide a glimmer of hope to the Liberal Democrats that they can finish a strong second, as they did consistently from 1992 to 2010, before slumping to fifth in 2015.

How they do in second place will inform how jittery Labour MPs with smaller majorities and a history of Liberal Democrat activity are about Labour’s embrace of Brexit.

They also have a narrow chance of becoming competitive should Labour’s selection turn acrimonious. The seat has been in special measures since 2004, which means the selection will be run by the party’s national executive committee, though several local candidates are tipped to run, with Afzal Khan,  a local MEP, and Julie Reid, a local councillor, both expected to run for the vacant seats.

It’s highly unlikely but if the selection occurs in a way that irritates the local party or provokes serious local in-fighting, you can just about see how the Liberal Democrats give everyone a surprise. But it’s about as likely as the United States men landing on Mars any time soon – plausible, but far-fetched. 

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