Sunday 16 July 2023

On Scrapping Inheritance Tax

With another week's worth of polls putting the Tories 20-points behind, and three tough by-elections this Thursday things are getting a touch desperate in Number 10. The five pledges Rishi Sunak asked the public to judge him on seem miles away from fulfilment, and the drip-drip of Tory MPs dropping down the plug hole of retirement is not abating. Ben Wallace being the latest to announce his intention to leave, though whether this is to spend more time on the boards of weapons manufacturers remain to be seen. In straightened circumstances, what can the Tories do to change the public's minds about them?

Flying a kite in mid-July's stormy weather is always risky, but Sunak has been doing just that with his thinking aloud about abolishing inheritance tax and sticking it in the next manifesto. The puff piece for the Times finds a source gushing about how it's a "gamechanger", and would cost £7bn in lost revenues. And the public services that will be cut to provide this bung to the propertied? A small price to pay.

On the face of it, abolishing inheritance tax won't shift many votes because it doesn't affect that many people. As tax expert Dan Neidle points out, only estates worth over £325k fall into the bracket. Even in the wealthiest constituencies, the number of estates paying up are mostly in the double as opposed to triple figures. And the wealthiest usually find ways to avoid inheritance tax too, some of which is aided by HMRC. For instance, if a house is gifted to children or grandchildren the threshold rises to £500k. With so few affected, why do "sources close to" think this is a killer that will leave Labour reeling?

The Tories believe everyone likes tax cuts because everyone likes to keep their money. There is an assumption that most voters see themselves as taxpayers first and foremost because, in the recent past, the political fallout of the Tories' austerity programme was partly mitigated by appeals to value-for-money/hard-working taxpayer arguments. If that worked, why wouldn't a more direct message about reducing tax bills? Second, there's the who the policy is aimed at. Sure, it tells the well heeled flirting with Keir Starmer-voting thoughts that the Tories will always look out for them, but in reality those who aren't affected by it anyway are more likely to respond positively to it. According to some polling, 2019 red wall Tory voters think inheritance tax is "too high". In these seats as per elsewhere, the retired and the elderly turned out disproportionately for Boris Johnson. The reasons for doing so have been gone over here plenty of times, but for some part of it is wanting to protect the modest amount of wealth accumulated over their lifetimes so they have something to pass down to their offspring. The absurdity of pensioners voting to give their kids and grand kids a hard time now so they get their house and savings later is one of the many contradictions that bedevil British politics. Nevertheless this group, even if they're well below the threshold are sensitive to inheritance tax vibes. The Tories know this, and so politically speaking the Tories committing to abolishing the tax isn't "ideological". It makes perfect sense from their reading of the situation, as per many other apparently hard-to-fathom moves.

Sunak knows Labour will never match this promise, no matter how many times Starmer refuses to commit to spending money on public services. Therefore the door is open for a not-entirely-honest series of attacks on Labour about secret plans to raise taxes, and how closing loopholes are Trojan horses for more stealth taxes. Expect posters exclaiming tax bombshells and tax double whammys. For Tory strategists if this in conjunction with the war on woke attacks land well among the 2019 pensioner vote, then their party might be more competitive than the polls suggest.


Phil said...

I think you underestimate the number of people who might be affected or might reasonably think they could be affected. Half a mil isn't a king's ransom these days - look at house prices. It is what it is - a bung to the rich - but it's certainly not aimed at the 1%; if anything I'd say it targets the top 25%.

McIntosh said...

And their competitiveness may be aided by the ineptness of Starmer et al - if it is not the attack ads on Sunak, its the expulsion of activists or the refusal to remove the two child benefit cap or the cuts to the Green New Deal. It is as though they want to drive a group of voters away in the hope they can attract the 'Express's' readership.