Wednesday, 9 December 2009

IHT freeze: was it Newsnight wot won it?

Was it Newsnight Wot Won It on the inheritance tax freeze?

Well, not really.

But Alastair Darling's decision to freeze the inheritance tax threshold may be the first policy success to arise from Newsnight's Politics Pen, as Fabian Research Director Tim Horton pitched this proposal to the dragons in the summer. You can watch it here.

And that won the support of the Dragons, Digby Jones' even backing it as a money saving measure despite his concerns at what he called the "socialist rhetoric" of fairness in which Tim Horton made his Fabian case.

More background here on the proposal, which Tim argued should be extended for the foreseeable future, across the next Parliament, following the large increase in 2007 what many could leave tax-free when couples were allowed to use a double allowance up to £650,000.

"My proposal is to freeze the inheritance tax allowance, setting the current £650,000 as a ceiling for the foreseeable future. By scrapping the annual uprating process, we could save £150 million in the first year, potentially rising to as much as £500 million in year 5 (if the government were to continue uprating by increments of around £15,000 a year).

"By scrapping the Conservative proposal to increase the allowance to as much as £2 million, we could save around £1.2 billion in the first year, rising to potentially as much as £1.5 billion in year 5. Assuming the Conservatives were also committed to uprating the threshold in similar annual increments, the combined saving on their plans could be as much as £1.4 billion, rising to £2 billion in year five. So this proposal saves up to £500 million under Labour’s plans and up to £2 billion under Conservative plans. And this is money that would otherwise go to some of the wealthiest estates in the UK.

This table sets out the estimated savings over five years, showing these against Labour's proposals (before today) and Conservative proposals.

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