Under the UK’s arcane taxation system, income is taxed too much and wealth too little. The system favours those who inherit income over those who earn it, and acts as an impediment to social mobility. Yet the Conservatives are now pledging to make the problem even worse by scrapping all inheritance tax on homes worth up to £1 million. This will be funded by reducing pension tax relief for people earning over £150,000 – admittedly, hardly a group many people feel sympathy for. But the policy still favours those who have not worked for their money over those who have.
lf implemented, the policy would act as a further barrier to social mobility in the UK. The UK already has the lowest rate of intergenerational mobility in the western world: nowhere else is the relationship between a child’s income and their parents as strong.
Inheritance tax certainly has an emotive pull, which the Conservatives have tried to exploit by calling it a “tax on the family home”. But it remains the closest thing that the UK has to a wealth tax and one that – contrary to the myths – does not affect ordinary families. “Inheritance tax was only supposed to be paid by the wealthiest. That’s not what happens now,” tweeted the official Tory Treasury account in justification of the proposal. Yet just 6 oer cent of people currently pay inheritance tax; even if the threshold is not touched until 2019, only 11.6 per cent will pay – hardly the squeezed middle. Even then, someone inheriting a property worth £2 million would enjoy a greater financial benefit than someone inheriting a house worth £800,000. And all those not affected – that is to say, 88.4 per cent of the population – could suffer if property becomes an even more attractive investment for the wealthy. House prices would rise even more.
Then there is the politics. The great Conservative hope is this announcement will prove as effective as when the party last pledged to raise the inheritance tax threshold to £1 million, eight years ago (a combination of austerity and the pesky Lib Dems are blamed for failing to make progress on this). The policy will excite many of the party’s base – and perhaps could be a vote-winner in pivotal Con-Lib Dem marginal seats in the southwest.
But what of the message sent out to the rest of the country – including in the critical seats of the Midlands – about the priorities of the Conservative Party in an age of austerity? 18 million people – 40 per cent of the electorate – say they would never vote Tory. Along with dire poll ratings among ethnic minorities, the main problem for the Conservatives is that they are seen as the party of the rich. Eighty five per cent of the electorate think of the Tories as being close to “the rich” – and the figure has actually increased in the last five years. This new policy risks reinforcing many voters’ worst fears about the Conservatives’ priorities.