This plan to help the wealthiest will entrench the north-south divide. Philip Hammond should dump it and channel the money to early years childcare
There is nothing certain in the world except death and taxes, according to the old proverb. But, unless the government sees sense, we could soon find that there is a new certainty: that death means far lower taxes for the wealthy.
It was George Osborne who was behind the deeply flawed plan, to be implemented by 2020, to cut inheritance tax (IHT) to let a couple in a £1m home avoid paying a penny in death duties. The plan would cost an estimated £1bn, and the former chancellor promised to gradually lift the IHT threshold from its current £325,000 per person to £500,000. The phased changes of this iniquitous and ill-conceived plan are due to start in April. It is a tax break for a wealthy elite, at a time when the NHS faces a cash crisis and the government is moving to cut £3.7bn in disability benefits from the most vulnerable in society.
Helping future generations get the best possible start in life should be a higher priority for any government committed to social mobility than helping the relatives of rich couples enjoy the benefits of £1m of unearned, tax-free income.
The chancellor should abandon his predecessor’s planned tax cut because it is the right thing to do. But he should also drop the idea because pressing ahead with it will further deepen the UK’s north-south divide and undermine the government’s supposed commitment to a “northern powerhouse”. I have compiled figures, based on Land Registry data collated by independent experts in the House of Commons library, showing which areas will gain from the proposed IHT cut. After years of rocketing property prices, the beneficiaries will be almost exclusively in London and the south-east.
In 2015-16, of the 100 constituencies with the highest number of property sales over £650,000 – the current IHT threshold for a couple – 96 are in London or the south-east. Perhaps unsurprisingly, Osborne’s Tatton seat is one of just two in the north where more than 10% of properties sold for more than £650,000.
The planned cut to IHT does nothing to tackle the north-south divide or improve social mobility. It does nothing to help those for whom home ownership or a decent, affordable place to rent are just a distant dream. The change would only entrench those problems. It is a plan that is very unlikely to benefit a single family in many constituencies across England and Wales, including mine, Leeds West.
There are many in the Conservative party who are ardent supporters of cutting inheritance tax, and some who would like to see it abolished. But there is no clearer evidence of where a government’s real focus is than its tax and spending plans. If Theresa May and her chancellor choose to help couples in £1m homes pass on their main asset entirely free of tax, they have a warped sense of priorities.
At a time of immense pressure on public finances, every tax break has to be carefully considered and fully justified. There is no justification for a tax break for the already wealthy, especially from a prime minister who promised her focus would be on those who are “just about managing”.
A cut in inheritance tax is the wrong priority at the wrong time for the wrong group of people. The chancellor should think again and invest in our future by putting more into early years childcare, instead of the pockets of the rich.