Tories pursue social justice by abolishing tax 94% of people do not pay
Conservatives August 17, 2007After much heavy trailing, the Conservative policy group on Economic Competitiveness, today finally published its report.
The headline that the Conservatives are pushing is a call for Inheritance Tax to be abolished, on the grounds that too many middle-income earners are now paying it.
As house prices have continued to rise very fast in recent years, it is true that the number of estates qualifying to pay inheritance tax has risen. So have they got a point?
Well, according to the BBC, “no inheritance tax is currently payable on 94% of estates, according to official figures”.
If only the most well off 6% of people pay inheritance tax, then I think it is fair to describe it as a tax on the rich. This makes it difficult to see how it furthers the aim given by John Redwood, one of the two chairs of this group, who said today “In this report we have kept at the top of our minds the need to offer hope to the 5.4m people of working age without a job, for the millions of people working in small businesses that just find the burdens from Government too great and the parts of the country furthest from London that have not enjoyed a rapid growth in financial and business services.”
This proposal doesn’t do that - it panders only to those who are already among the very richest.
I think there may be a case for looking again at Inheritance Tax. But if Conservatives are worried that it is currently catching too many people, then the obvious response would be to increase the threshold at which it kicks in (beyond the rise the government has already planned), rather than abolish it entirely.
That the Conservatives have sought to help some people who are on the cusp of paying Inheritance Tax, by proposing to achieve their traditional ambition for the very rich by abolishing it entirely, speaks volumes to me about their real priorities, behind the cant above about making their priority helping “the 5.4m people of working age without a job”.
I note that Jock Coats and James Graham both seem to concur that it should be abolished, but because they think its objectives of redistributing wealth can be better achieved through other means of taxation which they propose instead. Crucially, the Conservatives, of course, make no such proposal.
Norfolk Blogger points out the complete absence of costings of the proposal from the Conservatives, in contrast to the Liberal Democrats’ fastidiousness in costing all proposals (and certainly huge ones like this!).
I think two other aspects of this story are worth a brief mention. Firstly the relevant paragraph of the report (10.6.2 on page 81) actually makes the case for abolition of IHT on the grounds that it is “not a popular tax”. The point about the increasing number of people caught by it is actually only made as a support for why it has become unpopular.
This is a very interesting doctrine - that all taxes which are “not popular” should be abolished! Is this really the future direction of Conservative policy? Of all the many taxes pay, finding one which is actually popular would I think be quite a challenge. Taxation, like all government, has to have some measure of public support (as incidents from the Boston Tea Party to the Poll Tax riots remind us) but the idea that taxes of which it could said that it is “not popular” should therefore be abolished, which is actually what this paragraph says, is plainly ludicrous.
Secondly, the paragraph referred to above is in fact the only substantive mention of Inheritance Tax in the entire document, all 211 pages of it. It is hardly the main point. Even the official Conservative press release announcing the report also makes no mention of it. So why has some Conservative spin doctor decided that this is going to be the thing they want to make today’s headline out of? Well I fear we are back to Cameron’s dilemma previously noted on this blog of needing to reassure his core supporters, while also not alienating the rest of us. Abolishing Inheritance Tax will surely play well with traditional Conservative supporters as a good gesture of rejecting the socialist takeover of their lives which such people believe themselves to enduring.
But below the radar Redwood and others are also trying to make more positive socially-engaged noises such as the quotation repeated above. In fact I suspect he may well be quite cross that his fully-research in-depth report that he has been working hard on for the last 18 months, has been hijacked for a headline about one short paragraph on page 81.
In Cameron’s ideal world, the Telegraph and the Times would run the Inheritance Tax abolition story, and the Mirror the “socially responsible” message. Sadly the media can’t be manipulated that deftly and the core rightwing message has predominated (and let’s face it the socially responsible message didn’t have much substance to it anyway).
Today has seen Cameron digging himself in further to keep his core supporters happy - and ipso facto putting himself further away still from crossing the threshold of Number Ten.
August 17th, 2007 at 17:33
Its not a tax on the rich as the rich do not pay it since they can put their assets in one of the many forms which is not subject to inheritance tax.
It is the increasing number of middle class who have worked hard to provide for their children who are hit by it.
Also two other questions:
1) Why is taxing the rich good full-stop? Surely those who become rich through saving, hard work and prudence should be praised rather than condemned?
2) If only 6% of the population pay it what’s the point? Its not even the richest 6%. Surely its better to remove resources from enforcing and collecting that to ensuring other tax is paid?
August 17th, 2007 at 18:11
Thanks for the comment.
I tried to say that I accept Inheritance Tax may need reviewing, but the Conservatives are not proposing to replace it with anything else, simply abolish it. For example, although I myself am not a dyed-in-the-wool LVT-er, that seems to be a coherent alternative mechanism.
I don’t think tax as such is a good thing. But if we accept that some level of tax has moral benefit, for the services it provides, then I think a progressive element of that is taxing the rich at a higher proportion than the poor (unlike a flat tax, for example). Certainly I agree that ‘good behaviour’ should be less of a focus for taxing, but I don’t think that precludes taxing rich people. And taxing people only at their death in fact does allow people to enjoy the benefit of their own industry - the people it prevents from enjoying it are their inheritors, not them.
August 17th, 2007 at 18:53
A further comment in response to Tristan.
There is a high-profile but statistically extremely small proportion of UK residents who manage to avoid pretty much all UK taxation. I am sure this includes avoiding IHT. Certainly this should be addressed so that these people are paying tax here.
However I am not sure that beyond this important but extremely small group - the richest 0.2%, say - IHT-avoidance is that widespread. I have certainly heard of merely very rich people for whom paying IHT has been a real issue.
Other than the stratospherically rich who live in a completely different tax world from the rest of us, IHT does seem to me be generally targetted at the richest. However there are certainly people who are very much more well informed about this than me and I would welcome comments.