‘The Tories may well slash inheritance tax yet – but Labour has nothing to fear’

Inheritance tax: the great survivor of Conservative conference. Following months of briefings, speculation and a Telegraph campaign backed by more than 50 Tory MPs, many had expected it to be on the chopping block. In the end, the Prime Minister scrapped the northern leg of HS2 instead.

But don’t expect the issue to go away; there remains significant momentum behind the idea in Tory circles. My bet is that it will reappear sometime before the next general election, perhaps in the campaign to try to wrongfoot Labour, who can be forgiven for feeling a sense of trepidation about the issue.

The ghost of inheritance tax cuts past

Everywhere the myths of the Conservatives’ 2007 inheritance tax announcement is repeated.

Gordon Brown is riding high in the opinion polls. But George Osborne, then Shadow Chancellor, ruins the fun, announcing that only millionaires will pay inheritance tax in his speech to the Conservative party conference. Alongside a dip in Labour polling ratings, this leaves Brown spooked and the much-expected General Election never happens; Brown’s premiership never really recovers.

Fast forward to 2023 and the similarities appear striking, Labour is riding high in the opinion polls; the Conservatives are seeking to make up ground through inheritance tax changes.

Yet in many ways the political situation is considerably different, as set out by a new Demos paper published today. In 2007, Labour had been in government for over a decade and was seen to be running out of steam.

A tired government’s promise counts for far less

The Conservatives’ inheritance tax pledge was seen as a bold idea to show they were on the side of aspiration. Today, the situation is reversed.

The Conservatives have been in power for over a decade and appear to have run out of steam. A promise to cut inheritance tax is unlikely to have the same appeal today as it did in 2007.

This view is supported by public attitudes research conducted by Demos. Yes, in the abstract inheritance tax is relatively unpopular; in polling we found that a majority of the public think inheritances should never be taxed.

But when you ask the public to set the threshold at which inheritance tax should start being paid, only around a fifth of the public say inheritances should always be tax free. This suggests that public opinion towards inheritance is much more nuanced and complex than typically assumed.

The public prefer other tax cuts – and don’t want a small state

We also know that inheritance tax is also not a priority tax cut for the British public. Polling carried out by Ipsos in June 2023 finds that just 14% of the public wish to see an Inheritance Tax cut; with much higher support for Income Tax (44%), Council Tax (34%) and VAT (26%) cuts.

Crucially, this finding holds across the political spectrum; 2019 Conservative voters (16%) were only marginally more likely to support an inheritance tax cut than Labour voters (12%).

But this discussion obscures a more fundamental point: the British public do not want tax cuts. According to the latest wave of the British Social Attitudes (BSA) Survey, 55% of the public want higher taxes and spending, 36% want tax and spend levels to remain the same; just 8% want tax cuts and lower spending.

Indeed, there is reason to suggest we are in a new normal when it comes to public attitudes and taxation. Previous tax and spending rises have seen voters adjust their preferences and, over time, support for a bigger state to fall.

Yet the latest evidence from the BSA suggests that voters have not yet reacted significantly against the big rises in tax and spending caused by the pandemic.

Voters’ politics are not the same as in the 2000s

The world has changed since the financial crisis; 2023 is very much not 2007.

The old dogma – that inheritance tax cuts are a guaranteed vote winner – no longer holds. Why? The pre-crash political economy underpinning those beliefs has gone and isn’t coming back. We live today in an age of insecurity: inflation, climate breakdown, war in Europe.

Voters have responded by enthusiastically welcoming the state back into their lives. As the Labour Party gears up for conference this weekend, it would do well to remember this – on the question of inheritance tax, but also more broadly.