Hammond’s inheritance tax plans would be the revenge of the undead
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Version 0 of 1. Would I tax my own children, and tax them of the sweat of my own brow? Your children, of course, should look after themselves. His children are worthless layabouts. But my children are the salt of the earth, the harbingers of humankind. The chancellor should keep his sticky paws out of their adorable pockets. But wait. A whisper is going round that the crumbling edifice of adult social care really is disintegrating. Pensions have risen by a third in cash terms since 2009. Astonishingly, spending on social care for those same pensioners has actually fallen, and in cash terms. There is simply no money. But who should pay? Next week the chancellor, Philip Hammond, is rumoured to be proposing an ideological earthquake. He will tackle the great inheritance taboo – though, of course, he will not say so. Financial advisers used to ask clients a euphemistic question. Did they wish to join the “ski club”? It turned out that ski stood for “spend the kids’ inheritance”, otherwise expressed as “thrifty to fifty, then spend to the end”. The question is now changing. It is: do you want to look after yourself in old age or let the state do so while you stash away your savings for your children’s benefit? You can give them the lot, houses and all, tax free if you stay alive for seven years. Taxation is the armpit of politics. It is a stench of punishments and giveaways, election bribes and political fixes. Last week we saw the tax imbalance between businesses and homes explode in the government’s face. VAT is enmeshed in the implication of EU withdrawal. Banking and energy taxes are chaotic. This is mild compared with Hammond’s possible upheaval. It would be the revenge of the undead, of Labour’s 2007 “death tax”. This was a 10% inheritance tax surcharge “to pay for social care”, abandoned before the 2010 election but then proposed afterwards by the shadow health secretary, Andy Burnham. It was derided by the present health secretary, Jeremy Hunt. Hammond is apparently looking at it again. At this point debate leaves the high ground of pragmatism and descends into a swamp of self-interest, ideology and class war. We work hard all our lives so our children can have a nice place to live and family security. How dare the state tax that ambition? Nearly all the places that would benefit are in London or the south-east. Welcome to the southern powerhouse Others reply that they too work all their lives so they can live out their days in comfort and care. Why should the state tax them, to relieve tax on the undeserving children of others? Let everyone pay for their own care as long as they can. The next generation can care for itself, and pay taxes on all its income in the meantime. Duties on inheritance are so delicate that the very name has constantly changed – from legacy duty to succession duty, estate duty, death duty, capital transfer tax and now inheritance tax. Evasion is made ludicrously simple. The seven-year rule and other exemptions mean that the tax now yields a paltry £4.7bn, less than car tax. Taxing people’s earnings at up to 40%, but letting their offspring inherit the resulting wealth, mostly houses, tax free is blatantly unfair. As the billionaire Warren Buffett said, it merely signifies “membership of the lucky sperm club”. Personal income from any source should incur tax, especially if “unearned”. The famous bank of mum and dad is not a bank; it is a cash-gusher. In one respect Hammond is next month moving in the opposite direction. He is extending the sperm club privileges by relieving inheritance tax on property worth up to £1m. This electioneering gambit by George Osborne is, in effect, a £1bn subsidy to London’s property market. The Leeds MP Rachel Reeves has disclosed that 96 of the 100 constituencies that would benefit the most are in London or the south-east. Welcome to Osborne’s southern powerhouse. Nonetheless, any such impact could be swamped by the ideas now swirling round the adult care budget. With increased longevity, old people are at risk of seeing their wealth vanish into home and institutional care, either by paying privately or by having to top-up council benefits. The care marketplace could itself tax into extinction the estates of people who live too long. In 2011 the Dilnot report proposed a cap on the amount of a person’s means-tested savings that should go on care before the state kicked in, with some exclusion for family homes. It wanted some crumbs left on the tables of the rich for their heirs. But it assumed that the remaining cost would be found by the state. Now the talk is more radical. The cost of adult social care is still tiny compared with the overall NHS budget, but the pressure on it is clearly intense. The lack of care homes and district nursing is leaking back to cripple the NHS. A “death tax” on an estate at the time of death would be imposed, irrespective of how much or how little a person’s own care might have cost. It would be retrospective national insurance, or perhaps a wealth tax imposed on the deceased’s family. Whatever the Treasury said, it is unlikely it would be directly allocated to social care, being just another source of revenue for the exchequer. But the pressure to spend more on the elderly would be intense. Charging old people some of the cost of their care and then taxing what they have left might seem ruthless. Not one but two state vultures would be hovering over the funeral cortege. But some version of this must be the way forward. People are living longer and need more money spent on them. This must come from a mix of later retirement, insurance, public spending and accumulated private savings. Where such savings exist, it is right that they should be devoted to the accidents and eventualities of old age. It is also right that what is given to heirs should be taxed as income. If such a tax relieves distortions in net wealth distribution, between those who earn and those who inherit, so much the better. People should work for themselves. So should their children. |