Thoughts on politics and life from a liberal perspective

Thursday, 21 January 2010

Cameron's Albatrosses

As we start to move towards the election campaign in earnest, I can't help but feel that there are two of the Conservative Party's major policies that will become albatrosses around David Cameron's neck.

The first one is the pledge in increase the inheritance tax threshold to £1m. The Conservatives generally think that IHT is an unfair tax and have sometimes characterised it as "a tax on the dead" as well as claiming that it means tax is effectively paid multiple times on earnings. There are others who think that it is fair to tax the estates of the deceased (over a reasonable minimum threshold of around £325,000) as the people paying the tax are the heirs who have often not done anything to earn that money/windfall anyway.

I happen to come more down on the side of agreeing that IHT is a reasonable way to raise tax revenue (although I do think there are still too many occasions when people have to sell their homes to pay it which needs to be addressed). But regardless of what I think, the Conservative proposal to raise the threshold to £1m is far too easy to characterise as a tax cut for the rich. The reason it is so easy to do this is because that is effectively what it is. There are really not that many people in this country who will inherit anything like that amount of money. So at a time when the entire country has to tighten its collective belt, Cameron is proposing a substantial tax benefit to what will amount to a few thousand of the richest heirs in the UK.

Even if you agree that the IHT threshold should be increased, is now (or the next few years) really the time to do it? The Conservatives are weak on this point and their opponents will rightly keep challenging them on it. I expect it will come up during the televised debates and Cameron is at real risk of looking hopelessly out of touch as he tries to defend it.

The second albatross is their plan to "recognise marriage in the tax system". Aside from the fact that different Conservative spokesmen seem to be interpreting it in slightly different ways (e.g. Iain Duncan Smith suggesting it would apply to families with children aged 3 or under) there is a major problem with the principle. Why should people who choose not to get married (or are not through no fault of their own) be penalised by the tax system. As Nick Clegg said during his Andrew Marr interview at the weekend, where would it leave the woman with three young kids whose philandering husband leaves her and marries someone else? She would be left penalised whilst he gets the tax benefit.

When Polly Toynbee raised a similar point with David Cameron at a recent press conference he suggested that the details had not been worked out yet. I am afraid I fail to see how this "detail" could be "worked out". It is surely an intended effect of the policy. There will be manifest unfairnesses and countless hypothetical examples of these that can be thrown at the Conservatives over the next few months.

In the case of both of these policies it is probably too late for the Tories to row back from them. It is too close to the election for that so they are stuck with them.

The question is just how heavy will these albatrosses become?


The Great Simpleton said...

A jealousy tax that raises the square root of sod all in real terms.

On the other hand we shouldn't be subsidising pepole in care so that their offspring can inherit their house.

Letters From A Tory said...

To be fair, I don't think either of these policies will change the election debates very much - although that won't stop Brown from referring to them all the time.

Johan said...

What I don't really understand is how you don't get this - under the current tax and credits system getting married incurs a financial penalty of, well, I forget the actual figure but it a substantial amount pw. The metaphorical mother you talk of would currently be hugely financially better off when her philandering husband leaves. All Cameron is trying to do is rebalance the equation so getting married does not incur penalties. If this leads to a rise in marriages (and, by extension, marriages that survive) then I think this can only be a good thing.