Saturday 2 January 2010

Hammond's dodgy dossier on inheritance tax

Fabian Research Director Tim Horton's proposal that the inheritance tax thresholds should be frozen was adopted by the government in November's pre-budget report.

He has letters in The Guardian and (why only preach to the converted) The Telegraph pointing to just one of the glaringly obvious flaws in Phillip Hammond's rather back of the envelope claim that 4 million people will now be liable for inheritance tax, put out by the shadow Treasury Secretary during the holiday period.

Here's The Telegraph letter.

SIR – The Conservatives' claim that four million face inheritance tax (report, December 29) is wrong.

For most households, the value of wealth owned at death will be less than the value they currently hold. Many people use some of their wealth in older age – whether to pay for care or to do things in retirement. So, you cannot use the current distribution of wealth across all households to calculate who will face an inheritance tax liability in future.

The reality is that only the richest two per cent will pay inheritance tax this year. Even in the boom years, only around five per cent of estates paid the tax.

So Labour should stick to its guns on this issue. The Conservative plan to cut inheritance tax is no more than a billion-pound giveaway to the very wealthiest estates in Britain.

At a time when David Cameron is also promising deep cuts to public services for middle-income households, most voters will think he has the wrong priorities.

Tim Horton
Research Director, The Fabian Society
London SW1

This is far from the first time that the Conservatives have deliberately misled as to who would benefit from this policy.

George Osborne absurdly told The Guardian in July that the policy was designed to help those who took up the right to buy, though he knows that his proposal does absolutely nothing for those whose estates are worth less than £325,000, or £650,000 for couples.

"We're very clear that millionaires should pay inheritance tax. But people who have worked hard, bought their own home, sometimes it's a council house that they've bought ... The proposal ... includes all sorts of people with inheritances of less than a million pounds."

The claim to want millionaires to pay is equally bogus, given that Osborne has devised a policy where couples with estates of £2 million will pay nothing. (It took almost a year for the Conservatives to disclose the £2 million policy publicly, then telling The Telegraph that ""This has always been our position; it's just that we haven't shouted about it").

And only couples with estates worth over £2 million will benefit from the maximum (half a million pound plus) tax break on offer.


Unknown said...

I do agree that the threshold has been set too high, but there is one little phrase that really gets my goat.

It's the phrase 'billion-pound giveaway'. Because the money is not the government's in the first place, it belongs to the person who pays the tax, and so it is not a 'giveaway' at all, which implies central possession, but rather an 'if your estate is worth less than £x then we won't take your money when you die'.

Mere semantics, sure, but instructive of a larger problem with the approach of some on the left.

13eastie said...

The DT letter fails to appreciate basic voter psychology.

There are millions who, were they to be hit by a bus tomorrow (and you're not offering to guarantee their longevity, are you, Tim?) would "face" punitive double taxation by IHT.

The Tories are quite right to highlight this, and it certainly does affect "right-to-buy" and "shared" home-owners.

And there are millions of others who aspire to become wealthy (despite what Labour has planned for them).

This is how real people think. Real taxpayers who might read the Guardian or Telegraph.

To win a vote is to appeal to an individual's aspirations.

But the only promise Horton's letter offers voters is that they, en-masse, will (probably):

2) DIE

No exactly inspiring, Tim!

Labour's phoney class war (dreamt up on the playing fields of Lorretto?) will only appeal to people who were never going to vote Tory anyway.

The "give-away" suggestion is not only semantically nonsensical, but also paradoxical logically: the fiscal significance of such a policy depends on it being widely applicable. To maintain that it will affect few is to undermine both this and its electoral impact.

If Labour is banking on a wholly negative campaign, based on a phoney class war, which seeks to exploit the very societal divisions that it says in the next breath it wants to eradicate, it will deservedly suffer electoral annihilation.