Good news for houses like these. Photo: Carl Court
Show Hide image

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.

Getty
Show Hide image

It's easy to see where Berlin is being rebuilt – just hit the streets

My week, from walking the streets of Berlin to class snobbery and the right kind of gentrification.

Brick by brick, block by block, the people are rebuilding the city once called Faust’s Metropolis. To see it clearly, put your boots on. One of the most bracing walks starts by the Gethsemane Church, which served as a haven for dissenters in the last days of the GDR and takes you down ­towards the Hackescher Markt.

Here, in what is still the eastern half of a divided city that wears its division more lightly, is a Berlin experience both old and new. In three decades of frequent visits, it has been fascinating to note how much this part of town has changed. Even a decade ago these streets were rundown. With crumbling buildings showing bulletholes, it wasn’t hard to imagine what the place looked like in 1945. Now there are lilacs, blues, and yellows. Cafés, bars and restaurants abound, serving the young professionals attracted to the city by cheap rents and a renewed sense of community.

 

Breaking the fourth wall

Looking north along Schliemannstraße, you’ll find a delightful vista of well-tended balconies. It’s a pleasant place to live, notwithstanding the gaggle of grotesques who gather round the corner in the square. On Kastanienallee, which forms the second leg of the walk, an old city feels young. It’s a kind of gentrification but the right kind. There’s more to eat, to drink, to buy, for all.

Berlin, where Bertolt Brecht staged his unwatchable plays, was supposed to have been transformed by a proletarian revolution. Instead, it has been restored to health by a very middle-class one. Germany has always had a well-educated middle class, and the nation’s restoration would have impossible without such people. The irony is delicious – not that irony buttered many parsnips for “dirty Bertie”.

 

The new snobbery

The British Museum’s survey of German history “Memories of a Nation” is being presented at the Martin-Gropius-Bau as “The British View”. Germans, natürlich, are curious to see how we observe them. But how do they see us?

A German friend recently in England  said that the images that struck him most forcibly were the tins of food and cheap booze people piled up in supermarkets, and the number of teenage girls pushing prams. Perhaps Neil MacGregor, the former director of the British Museum who will shortly take up a similar role here at the new Humboldt Forum, may turn his attention to a “German View” of the United Kingdom.

There’s no shortage of material. In Schlawinchen, a bar that typifies Kreuzberg’s hobohemia, a college-educated English girl was trying to explain northern England to an American she had just met. Speaking in an ugly modern Mancunian voice that can only be acquired through years of practice (sugar pronounced as “sug-oar”), she refer­red to Durham and York as “middle class, you know, posh”, because those cities had magnificent cathedrals.

When it comes to inverted snobbery, no nation can match us. To be middle class in Germany is an indication of civic value. In modern England, it can mark you as a leper.

 

Culture vultures

The Humboldt Forum, taking shape by the banks of the Spree, reconsecrates the former site of the GDR’s Palace of the Republic. When it opens in 2018 it will be a “living exhibition”, dedicated to all the cultures of the world. Alexander von Humboldt, the naturalist and explorer, was the brother of Wilhelm, the diplomat and philosopher, whose name lives on in the nearby university.

In Potsdamerplatz there are plans to build a modern art museum, crammed in between the Neue Nationalgalerie and the Philharmonie, home to the Berlin Philharmonic. Meanwhile, the overhaul of the Deutsche Staatsoper, where Daniel Barenboim is music director for life, is likely to be completed, fingers crossed, next autumn.

Culture everywhere! Or perhaps that should be Kultur, which has a slightly different meaning in Germany. They take these things more seriously, and there is no hint of bogus populism. In London, plans for a new concert hall have been shelved. Sir Peter Hall’s words remain true: “England is a philistine country that loves the arts.”

 

European neighbours

When Germans speak of freedom, wrote A J P Taylor, a historian who seems to have fallen from favour, they mean the freedom to be German. No longer. When modern Germans speak of freedom, they observe it through the filter of the European Union.

But nation states are shaped by different forces. “We are educated to be obedient,” a Berlin friend who spent a year at an English school once told me. “You are educated to be independent.” To turn around Taylor’s dictum: when the English speak of freedom,
they mean the freedom to be English.

No matter what you may have heard, the Germans have always admired our independence of spirit. We shall, however, always see “Europe” in different ways. Europe, good: we can all agree on that. The European Union, not so good. It doesn’t mean we have to fall out, and the Germans are good friends to have.

 

Hook, line and sinker

There are fine walks to be had in the west, too. In Charlottenburg, the Kensington of Berlin, the mood is gentler, yet you can still feel the city humming. Here, there are some classic places to eat and drink – the Literaturhauscafé for breakfast and, for dinner, Marjellchen, a treasure trove of east Prussian forest delights. Anything that can be shot and put in a pot!

For a real Berlin experience, though, head at nightfall for Zwiebelfisch, the great tavern on Savignyplatz, and watch the trains glide by on the other side of Kantstraße. Hartmut Volmerhaus, a most amusing host, has been the guvnor here for more than 30 years and there are no signs that his race is run. The “Fisch” at twilight: there’s nowhere better to feel the pulse of this remarkable city. 

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage