Cameron's inheritance-tax error
Conservative donors stand to gain from David Cameron's planned cuts to inheritance tax
It was Lloyd George who said that "death is the most convenient time to tax rich people". But it is not just the liberal left which believes that inheritance tax is simple and equitable. There has long been a strong entrepreneurial and meritocratic case for it, too. In the US, the campaign against George W Bush's plan to cut the tax included the billionaire businessmen Bill Gates and Warren Buffett. Inheritance tax, said Buffett, was like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics". In the UK, this view is shared privately by certain of the more thoughtful Tory MPs, including, by some accounts, Kenneth Clarke before his return to the front bench.
Which makes it all the more curious that David Cameron's Conservative Party remains wedded to enriching up to 3,000 of the country's wealthiest households by abolishing inheritance tax on estates worth less than £1m, or £2m for couples. The polling evidence, after all, suggests that the plan is less than popular.
In a YouGov survey for the Daily Telegraph at the end of November, 61 per cent of marginal voters said the planned tax cut shows the Tories "mainly want to help the rich, not ordinary people". And private polling for the Labour Party by the Benenson Strategy Group showed that nine out of ten voters are less likely to vote Conservative when told about the policy. It is no wonder that Joel Benenson, founder of the group and former pollster for Barack Obama, has advised Labour to "go negative" on this issue. It also perhaps explains the apparent drop in support for the Tories in a recent ComRes poll, which showed their lead down to 10 points, a gap that Benenson's polling suggests will be reduced to 5 by the turn of the year.
Labour sources have confirmed that the government wants, if possible, to reverse its hasty decision to emulate the surprise tax announcement by the shadow chancellor, George Osborne, in October 2007. Back then, with Labour rattled in the lead-up to the "election that never was", the Chancellor, Alistair Darling, pledged to raise the threshold from £325,000 to £350,000 for single people and £650,000 to £700,000 for couples, from April 2010. Now, as Labour prepares to make this policy area a prime election battleground, Darling is considering freezing the original thresholds in the pre-Budget report on 9 December. The Prime Minister is said to be keen for him to do so and it is said, too, that Darling may introduce a tax, of 50-60 per cent, for estates worth more than £1.5m. One cabinet minister sums up the dilemma: "Can the pre-Budget report be really a political staging post, or will it be just a safe Treasury one?" Late in this parliament, the former is becoming more likely, hardening the dividing line between the two parties.
And there is an undeniable contrast. The Tories' proposed inheritance-tax threshold of £2m for couples - which would result in a saving of between £520,000 and £540,000 - is more than 13 times the cost of the average house in the UK. Last year, only 82 properties were sold for more than £2m, 62 of them in London. There is only one place in the country where average house prices are so high that more than a select few estates would benefit from the proposals, and that is the Kensington and Chelsea constituency, in which the Tory leader lives. It is hard to see how this can be framed as part of Cameron's claim to be "progressive".
Yet, to the apparently genuine surprise of some Labour strategists, Cameron and Osborne remain committed to the cut, from which some members of the shadow cabinet will benefit to the tune of approximately £7m, according to a recent report.
Now, the New Statesman can also reveal that Conservative party donors stand to gain, too. There is no suggestion that the Conservative Party has shaped its inheritance-tax policy around the interests of its donors, or that donors had any direct input into, or influence over, the policy.
But perceptions matter in politics. One of the most loyal donors is Lord Harris of Peckham, the chairman of Carpetright. In May 2005, after the Tories' defeat at the last election, Harris reportedly hosted a private dinner at which he urged Cameron to stand for the leadership. The Tory peer, whose wealth is estimated at roughly £285m, donated £90,000 to Cameron's campaign. In 1997, he sold £23m of shares - shares that would have been liable for inheritance tax - and used the proceeds to buy artworks, which are exempt from inheritance tax. The Harris family now stands to gain £520,000-£540,000 more from the Tory tax policy.
Clear and present danger
Another donor to Cameron's leadership campaign was Simon Wolfson, chief executive of Next and son of Lord Wolfson, the former chief of staff to Margaret Thatcher. Wolfson gave £10,000. In a 2007 "economic policy submission", Wolfson called on the Tory party to abolish inheritance tax altogether. His report, co-authored with John Redwood, was welcomed by Cameron and Osborne, who less than two months later announced their cut in inheritance tax. Wolfson stands to reduce the inheritance tax liable on his estate by between £520,000 and£540,000 if Cameron wins the next election.
Then there is Michael Spencer, the billionaire Tory party treasurer and chief executive of the inter-dealer broker Icap who is Cameron and Osborne's "link-man" to the City. Spencer helped the shadow chancellor devise his policy under which wealthy "non-domicile" foreigners based in the UK could pay £25,000 a year to fund the £3bn needed to pay for the abolition of inheritance tax on estates below £1m.
Spencer donated £10,000 to the Tories and also owns an estate that would eventually benefit by between £520,000 and £540,000 from a Tory victory and subsequent cut in inheritance tax. Of course, the Tory policy will benefit all those whose estates are over the threshold, including donors to other parties, and non-donors. But the clear and present danger for Cameron is that the perception will remain, and grow, of a self-interested and out-of-touch party of the rich, for the rich.
Cameron and Osborne may see inheritance tax as "unfair"; they say they want to encourage aspiration. But, as is clear to the Buffett-Gates school of thought, the Tory plans are not entrepreneurial, meritocratic or "fair". Nor do they do justice to Osborne's new soundbite: "We're all in this together."