Sunday, 12 July 2009

Tory soft shoe shuffle on inheritance tax

With the News of the World still very much on close speaking terms with Tory HQ, Jamie Lyon's Tax Brake report on the party's tax plans will be taken as an authoritative whisper of a probable shift in political positioning.

he Tories pledged to slash Inheritance Tax - their flagship policy - and Stamp Duty as soon as they came to power. But they have now mothballed the moves for as much as six years. And other plans to give tax breaks for married couples have also been put on the backburner ...

But now the Tories have shelved the plans. Rather than being introduced straight after the election, they will be put off until the end of the first Parliament - as late as 2015.

A Tory spokesman said: “The cut in Inheritance Tax will not be brought in straight away. It will be in the first term of the Parliament. It is important to be honest with people.

“The same goes for Stamp Duty. We will bring it in in our first Parliament.”

Key plans to help married couples have been put back even further ... A spokesman said: “It will not necessarily be in the first parliament but we are totally committed to it and we are going to do it.”

The case against the policy was inheritance tax policy on public spending grounds was successfully made by Tim Horton, Fabian research director, on Newnight's policy pen, noting how money could be saved on the government's current plans by suspending any uprating of thresholds for five years. We have published the argument for a freeze in inheritance tax thresholds the projected savings against both Labour and Tory plans submitted to the programme.

Tim did a good job of showing how a public case can be made, for example in pointing out to Digby Jones that somebody inheriting a £400,000 estate would keep £370,000 after taxes. There are many popular myths and misperceptions: a common one being that 40% is payable on the entire value of estates over the threshold.

In today's News of the World, Lyon notes that David Cameron was extremely clear in October 2007 that the IHT pledge was the business of day one of a Conservative government.

This looks to me something of a 'weasal words' policy shift.

Still, the partial retreat is something of a half-victory for common sense - and indeed for Ken Clarke too. The new line is close to that suggested by Clarke last March, when he publicly sought to downgrade the policy to an 'aspiration', noting that "I don't think we're going around any longer saying, this is something we're going to do the moment we take power". He was publicly rebuked for that, but the policy has now moved his way.

However, nervousness at offending the party's right, partly given reaction to Clarke's intervention, explains why the Tories seem to be edging towards delaying the policy rather than dropping it because the economic situation has changed.

So I expect the next few days will see shadow Ministers stressing to their own side that the policy is staying. Will they at the same time brief liberal columnists that the delay shows a sensible willingness to recognise changed circumstances, even if it means challenging the party's instincts?

One can understand the short-term political and party management, there are negatives in this approach too.

The Conservatives will still put the policy in the manifesto - so opponents will naturally challenge what remains almost the only firm commitment they have. Yet the Conservatives will now be asking the public to vote for a policy having introduced a good dose of uncertainty over whether or not they intend to do it.

However, there is also some medium-term thinking behind a 'in our first term' pledge. If the populist policy can't be presented at the hustings this time as 'the first thing we would do if elected' then the strategy is to wait and make it one of the last actions of a Tory first term. It could then become the flagship measure of a pre-election budget in 2014-15.

The problem here is not so much whether that would lose some impact by having been pre-announced nine years earlier. It is that this strategy is the clearest signal we yet have as to the public political strategy of the Tories in power. For all of the talk of Oliver Letwin telling us that the test of progressive Conservatism was what it does for the poorest, that has proved little match for the Thatcherite instincts of the true blue activist base to look after what Maggie called 'our people' first,

So "recapitalising the poor" may be the slogan of the fledgling, endangered species that is progressive Conservatism but that clearly lags well behind "recapitalising the rich" as a priority for George Osborne.

Perhaps the ProgCons need to do more to engage with the case for a principled defence of taxing inherited wealth put forward by Stuart White, Rajiv Prabhakar and Karen Rowlingson in their Fabian pamphlet.

Of course, the 'funded by non-doms tax' defence is a red herring. No independent analyst thinks the highly speculative projections are robust. And, even if £2 billion were available from taxing non-doms, the question of what to do with it is a separate one. Inheritance tax cuts at the top first show a different priority to reducing income taxes at the bottom; extending or protecting a particular spending priority; or reducing fiscal debt.

Hat tip: Paul Staines at the Guido Fawkes website. He notes (disapprovingly) Policy Exchange Director Neil O'Brien's observation last month that the inheritance tax cut pledge was incompatible with arguments about the need for fiscal rigour.

Update: Tim Montgomerie writes he has been told to take the report with a 'ton of salt (which is not a denial) though he thinks the policy shift makes sense. That would be consistent with a plan to say that 'these are just rumours; the policy remains', while both testing and preparing opinion, and then to have any official announcement treated as old news because everyone thinks it is coming.

The Tories are treading on eggshells when it comes to taxes.


John said...

The progressive conservative project is showing itself up as merely away to get political power, and not of achieve progressive ends.

The Independent mentions Tory plans to make aid to developing countries go into education vouchers... So a Friedmante casino instead of universal public services for the worlds poor then.

Stuart White said...

The move to shelve the cut to IHT implies, I think, that the Conservatives themselves don't really believe their argument that it can be financed by a new tax on non-doms. Presumably, the reason for shelving it is that they recognize the need for the revenue at this time. But if the move really could be financed from a new tax on non-doms, it wouldn't be a revenue why shelve it?