Alastair McNair works as a researcher for a Conservative MP in the House of Commons.
Following what has been one of the better received Budget announcements of recent years, especially for the elderly, David Cameron has continued on the front foot, with a statement of intent to raise the inheritance tax threshold. Widely perceived to be a pursuit of the “grey vote”, the move has been viewed as a classic Conservative policy; actively looking to cut taxes and give individuals responsibility for their own finances.
Given the Conservative Party rhetoric since returning to government, however, it is a most un-Conservative tax cut. For fours years, the party has boasted its credentials as the party of the strivers, the hard workers, the doers, the earners – nauseating clichés perhaps, but reasonable in ambition. The notion that an inheritance tax threshold rise would fit neatly in this vision is patently nonsense.
John Rawls’ veil of ignorance argument, although it gets messy and too simplistic when condensed too far, is difficult to dispute when explaining how parentage is determined. Given that offspring are the most likely recipients of inheritance, one must wonder how hard people work in order to gain such potentially vast sums of wealth. Tax-free inheritance has the potential to represent the same values as welfare reliance; the ability to live and live well without the requirement of working hard and contributing. This is wealth without merit and, whilst the wishes of the will writer should be respected, the wishes should be balanced against this point.
Michelle Mone, a hugely successful and self-made businesswomen who is widely respected (and deservedly so) discussed this issue on Newsnight on Tuesday evening, but I was for once largely deflated by her thoughts. She stated that she had already paid tax on her future estate and that the death duty was effectively a second tax imposed on the same money. This is of course not true, since inheritance tax is a duty imposed on the recipients rather than the benefactors. But what particularly puzzled me were her following comments about wanting her children and their children to have a “nest egg” and that inheritance tax jeopardises this desire. A parent wanting to know that their children and grandchildren have future financial security is a perfectly normal and worthy wish, but given the mathematics involved, this logic is flawed.
At present, the threshold sits at £325,000 tax free before a 40 per cent rate kicks in; 36 per cent if more than ten per cent of an estate goes to charity. That leaves the threshold at a level way more than ten times the national average salary. An estate worth £1,000,000 to one non-charitable recipient would see the bequeathed individual still end up with £730,000, an estate valued at £10,000,000 leaves £6,130,000 after tax. These cannot be described as insignificant amounts of money under any circumstances, or as amounts which leave the bequeathed without the security intended.
This is an issue that does not affect everyone, of course. Many estates are valued way below the threshold, many people do not receive an inheritance of any sort. Many of the people that the Conservatives hope to woo with their hard workers rhetoric fall into these two brackets. This is a gift to the fortunate few and the upper echelons of the Conservative Party should remember this. This is not an anti-Conservative sentiment, by any stretch, in the same way that these are not new arguments. I am fully in favour of tax cuts, but cutting inheritance tax should be way down on the list of priorities. If they want to help the workers, cut income tax. If they want to help the doers, cut National Insurance contributions. Cut corporation tax, cut fuel duty, cut VAT. Cut anything that might encourage people to go out and get a job or make a job. Inheritance too often stands in the way of this. The Prime Minister should not toy with tax cuts just to target the grey vote. He should look for tax cuts which target the votes of everyone.
As a final point, it does however appear that charities get hard done by under the current thresholds. The argument to cut the threshold significantly here makes perfect sense and may encourage people writing their will to give far more to charitable causes. Philanthropy is an underrated concept as a rival to state tax and spending, but is one which is genuinely discouraged with such excessive rates. This could prove a better bet if the government really wants to fiddle with the current arrangement.