This piece first appeared in the money section of the Saga website on 25 March 2009
The text here may not be identical to the published text

TORIES’ TAXING TIMES

Ken Clarke’s attempt to soften the Conservative pledge to raise the Inheritance Tax threshold to £1 million seems to have had the opposite effect. David Cameron has now set the policy in concrete. And Ken has had to say he agrees with it. The commitment will be in the Conservative Manifesto and will be implemented within the life of the next parliament. That could of course mean the change will not happen until 2014/15.

The problem that Ken Clarke and deputy leader William Hague have realised is that if the Conservatives do win the next election they will face government finances in their worst state since the seventeenth century when King William III was told by the Treasury that the country could not afford to buy him a new mourning costume to go to a Dutch cousin’s funeral. At such a time will any government be able to justify spending billions of pounds on a change that will give most money to the richest few in the country?

The policy is being sold as ‘ensuring that only millionaires pay inheritance tax.’ In fact what it does is ensure that millionaires gain the most. Heirs left £400,000 would gain £20,000 over the current level of tax. Heirs left £1 million or more would be £260,000 better off. So the change will be a straight gift of more than a quarter of million pounds to the heirs of every millionaire who dies.

The pledge has been made even more extravagant since the Conservatives promised last year to keep the rule rushed through by the Government to allow a widow whose spouse did not use the allowance to leave twice as much tax free. So a widow who had inherited all her husband’s wealth could then leave up to £2 million to her children entirely free of inheritance tax under the Conservative plans.

Most estates are too small to pay any inheritance tax – certainly five out of six and possibly as many as nine out of ten do not do so. And as house prices fall that number will rise. Only about one estate in 200 is for more than £2 million. Most of that wealthy band would pay £520,000 less tax.

At a time when households throughout the land will be struggling with high inflation, rising unemployment, fierce spending cuts, and income tax and VAT going up, will any government want to spend hundreds of millions of pounds on huge gifts to the richest 0.2% of the population?

I doubt it. But will Kango Clarke be able to break the concrete the pledge has been set in this week?

 


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