Inheritance tax cuts – the political splurge

By Dan Elton

Have you ever had one of those pictures put in front of you, made up of different shaped and coloured splurges and spots, a Rorschach Test, and asked what you see? Whether you see a sheep or a wolf, a smile or a frown speaks volumes about what sort of person you are. Inheritance Tax is the ultimate political Rorschach Test.

If you were to die in 2010, the first £350,000 (“the threshold”) of your assets will be left untaxed. Anything you leave after that will be taxed at 40 per cent. So if someone leaves £450,000, the first £350,000 is untaxed, leaving 40 per cent of £100,000 to be taxed, or £40,000. £350,000 represents more than 14 times the average salary and seems a generous threshold. But “Inheritance Tax is Theft” squawks the Daily Express. Inheritance Tax is a “trap” set to ensnare the “middle-classes” screams the Daily Mail.

To the Left, Inheritance Tax is the fairest tax. There are strong arguments against taxing someone’s income – that they have worked for – or VAT – which hits everybody equally as hard no matter their ability to pay. But Inheritance Tax, despite the common coverage, does not affect the dead but the living. Those who are penalised by Inheritance Tax are the heirs who have not done one stroke of work for their windfall.

If our society was rid of want then we might wish good luck to them. As we enter a recession however, the money to support the new unemployed has to be found somewhere. The Government’s tax take will shrink and we still need to pay for public services somehow. And we still live in a country where more than two million children are in poverty. If the Labour Party is not committed to equality of opportunity, as represented by Inheritance Tax, the it is unclear what it is committed to.

There are good practical reasons to be in favour of Inheritance Tax. Leading Neoconservative Irwin Stelzer advocates the tax, as a large inheritance leads to heirs retiring early and ceasing to contribute economically.

The question is “why raise the issue of Inheritance Tax now?”. Inheritance Tax was all over the news in 2007, when the Conservatives pledged to raise the threshold to £1 Million. The Government was wrongfooted, forced to play catch-up as the Chancellor promised to raise the threshold for couples to a joint £700,000. Labour appeared weak and cynical as a result.

But what that description of events does not include is the months and years that the right-wing press spent attacking Inheritance Tax, focusing on the wishes of the dead. In that time the Government never made the Left-wing case for Inheritance Tax, based on the needs of the living. Now is the time to rehabilitate Inheritance Tax, and make the positive case for it. It took years to make the tax politically toxic, and it will take years of bold leadership to rehabiltate it.

The dilemma is how to make it apparent that Inheritance Tax is about life chances. Labour’s next Manifesto should ringfence inheritance tax to pay for the £4.2billion needed to meet the Government’s target of no more than 1.7 million children in poverty by 2010. If the Tories pledge to raise the threshold, we should ask exactly how many children they are willing to leave in poverty to fund thier irresponsible tax cut.