Inheritance tax is bad for families, bad for the economy – and voters hate it
Party conference season is always an exciting time to set out ideas that can change our country for the better. These ideas shape the vision we have not just for the country we want to live in but, more importantly, for the kind of country we want to leave for our children.
The Prime Minister and the Chancellor have done an excellent job of steadying the ship after a turbulent year across the world, as the United Kingdom continues to grapple with the consequences of Vladimir Putin’s barbaric war in Ukraine, and the global inflationary spike. But they now have a real opportunity to demonstrate that the Conservatives are on the side of all of those who want to leave the world a better place for their children.
It is the most natural and fundamental of all human desires to pass on to our children that which we have built, earned and saved.
The moral case for getting rid of what is effectively a death duty is obvious
The economic and moral cases for abolishing inheritance tax are well-documented. The economic case is that tax has created a number of unintended, and undesirable, distortionary effects.
Individuals now plan their financial affairs, not around making constructive, long-term investments in useful ventures, but in trying to navigate the reams of tax code. This discourages entrepreneurship and risk-taking, the very forces of dynamism that underpin the wealth creation and growth our economy desperately needs.
And it hurts people’s own day-to-day lives in a cruel way. Parents are discouraged from saving for their children, who are forced to deal with this burdensome system at the very moment of intense personal grief, and who may even lose family businesses or homes altogether.
The moral case for getting rid of what is effectively a death duty is obvious. We are quick to forget that cutting taxes is not a case of the government giving away money. It is the government deciding not to take away money that is ours in the first place – money which has already been subject to taxation.
But what has perhaps been less widely commented on is that scrapping this tax could be an absolute game-changer for the party. According to my old company, YouGov, 49 per cent of those polled thought that inheritance tax was unfair or very unfair, compared to 21 per cent who found it fair. This sense of unfairness will only increase as our old enemy, fiscal drag, pulls more and more families into having to pay a tax which was only ever meant for the very richest.
David Cameron and George Osborne understood the mood of the country on this issue – to their advantage. In 2007, Osborne announced that the threshold at which you have to start paying inheritance tax would rise to £1m. This was barnstormingly popular and was duly credited with turning the Conservatives’ fortunes around in a mere matter of days. One poll showed that, by the end of that year’s conference season, Labour’s lead had been cut from eight points to nil. Andrew Rawnsley’s seminal work on New Labour, The End of the Party, paints a vivid picture of key Labour figures watching Osborne’s speech live on television and glumly pronouncing: “We can’t have an election.”
Fundamentally, abolishing inheritance tax would be a deeply Conservative thing to do. It draws one of the key pillars of Conservative thinking – that ordinary people know better than the state on how to spend their money.
And we’ve recognised that this has been an out-dated tax for years. In the mid-90s, the Adam Smith Institute was already calling it an old-fashioned tax that has lost any rationale it may have had in earlier years. In 1996, John Major told the Commons that he intended to abolish inheritance tax as soon as could be managed. That time is surely now.
Nadhim Zahawi, Conservative MP for Stratford-on-Avon and former chancellor
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