Last week, someone told me that their dad enjoys my columns. He’s a Liberal Democrat. I’m not sure what that says about my writing, nor my audience, but I for one am delighted that people actually read my stuff. He also said that I need to get to the point quicker. Fair do’s. Here goes.
Over the weekend, it was hinted that Kemi Badenoch, at conference this year, would announce that she would abolish inheritance tax (IHT) altogether were the Conservatives to return to office. It’s not an enormous surprise. Word on the Tory grapevine is that LOTO were torn between announcing the abolition of Stamp Duty and IHT at last year’s party conference. The former won out, and changes to IHT were shelved indefinitely.
But when Andrew Griffith replaced Mel Stride as Shadow Chancellor, rumours began to circulate about the abolition of the tax once again. Griffith is a staunch, free-market Thatcherite. The idea of yet more tax and yet more regulation is enough to make the bloke dry heave. He has often expressed his adoration for Sweden’s economic model, believing in part that their system offers a blueprint from which Britain can develop its economy.
A few weeks ago, Griffith filmed himself touring the streets of the Scandinavian nation, pointing out that Britain can “learn from them”, particularly given the fact that Sweden, “has no stamp duty, abolished its wealth tax, and scrapped inheritance tax.” Colour us surprised, then, when speculation begins to grow in the run up to this year’s Conference.
Of course, the usual suspects have been rallying behind this announcement for quite some time now. The Institute of Economic Affairs has previously argued that the “tax is arbitrary, distortionary and expensive to administer” adding that “it imposes heavy costs on families, deters saving and investment, and undermines Britain’s international competitiveness.” Those at The TaxPayers’ Alliance, meanwhile, have called to “abolish inheritance tax entirely” because the levy is “distortionary, unfair and very unpopular.” The list goes on near ad infinitum.
As a supporter of lower taxation more generally, I find myself inclined to agree with such positions. To come knocking, cap in hand, for yet more cash after an individual has paid hundreds of thousands of pounds over their lifetime seems, at the very least, immoral. Coupled with the fact that IHT routinely contributes to less than 1 per cent of HMRC’s total tax income, and it becomes ever-harder to defend the tax in its current state.
The public agrees too. 54 per cent of Brits now support the abolition of the tax in its entirety, an increase from 49 per cent the year before. It seems an open goal for Kemi Badenoch then. The public want it, the levy raises very little and you would do away with Britain’s “most-hated tax.” What more could you bloody well want?
However, I am sceptical of the move, not because I fancy myself as some wannabe contrarian, but because I fear it’s not the silver bullet that Tory grandees believe it to be.
Complete abolition just looks bad. There’s no other way to say it. It makes the party look as though they are in cahoots with the uber-wealthy, patting one another on the back whilst necking a bottle of champagne. Less than 5 per cent of households currently pay IHT, a figure which – despite increasing from years prior – still remains remarkably low. Combine this with the fact that the scrapping of IHT would benefit the top 1 per cent with an average tax cut of £1 million, and the political viability of the move becomes somewhat contorted.
The optics remind me, in part, of Truss’ decision to cut the top rate of income tax when she was PM. As Michael Gove said at the time, “cutting tax for the wealthiest” is a “display of the wrong values.”
I find myself applying this logic here. It sends the wrong message to voters. At a time when our competitors are raking in the big bucks from wealthy crypto-tycoons and the like, portraying ourselves as a party for the wealthiest isn’t a particularly good look.
There is a middle ground that can be found here, however, that addresses some of the problems with the tax whilst maintaining a friendly face toward the 99 per cent. Osborne was onto something in the late 2000s, when he announced that the Tories would raise the threshold for IHT to £1m. The increase was set to cost roughly £3.1bn, yet the threshold raise was never implemented when the Tories got into power.
Raising the threshold to £1m may well prove too costly at present. It’s difficult to provide an entirely accurate price tag for the move, as HMRC’s data is somewhat shaky and fails to account for estates which are the beneficiaries of exemptions. However, if the threshold was raised to just £500,000, current research shows that the overall cost would be somewhere in the region of £700m.
A threshold raise of such an amount would keep the percentage of estates paying IHT at less than 5 per cent, whilst helping to ensure that more households are not dragged into paying IHT through asset price rises and inflation. Whilst costly, this is still a significantly lower cost than the more than £8bn that would be wiped out through Kemi’s suggested plans.
This is the more sensible, pragmatic and, perhaps most importantly, fiscally responsible route. It comes at a far lower cost, whilst simultaneously being something that is far easier to sell on the doorstep to voters. It would lift thousands of estates out of paying IHT, whilst ensuring that the richest of the rich do not benefit to the extent that total abolition would allow.
This is not, as some critics may point out, a means of punishing success, no. When economic growth is as poor as it is, and our rivals are too busy looking out of touch through ordering a bottle of bubbly and half a dozen oysters in a Clacton-based restaurant, we should be the party that offers something meaningful to working people. A policy which by all means has its merits, but makes the Tories look as though they care only for those with bulging wallets is not the way to do this.
Reducing the argument down to a binary decision seems to me to be a mistake. It really doesn’t need to be one or the other, and yet we have convinced ourselves that it must be so. Total abolition is not the only path forward, nor is keeping IHT exactly the way it is. There is an alternative, but it requires some level of compromise which I fear the party is not willing to show. Raising the threshold, even to a comparatively lesser figure than that of £1m will send a far stronger message than abolishing it altogether.
Kemi would be telling voters that she not only understands their concerns about IHT, but shares their sympathies too, whilst at the same time proving that she is not in the pocket of the super-rich. It seems to me to be both a smart and obvious move, but hey, I’m not the Leader of the Opposition.