The current government has been behind the bedroom tax that has forced tens of thousands of people living into social housing to move home, break their ties with the communities in which they live, disrupt children's education and deny many sick and disabled people the space they need to manage their conditions.
And now the Guardian has reported that the Conservatives wan to introduce a tax relief so that all owner occupied homes are exempt from inheritance tax to a valuation limit of £1 million at a cost of maybe £1 billion a year, which is more than the bedroom tax has saved.
The proposal is absurd for a number of reasons.
First, it is likely to push up house prices in the South East when they are already over-inflated.
More importantly, there is no economic justification for this measure. The deaths where this relief will be given will tend to be second deaths in a relationship and so will be of the elderly. The saving will be to the next generation, many of whom will be in their 50s and 60s at the time they inherit, and almost none of whom none of whom will, one would hope, have waited at home for all that time for their parents to die solely for tax reasons (and I am aware of carers, and their special needs which are already catered for in law, as I recall).
So, in that case this is not about any need. It is simply about allowing wealth concentration to continue, which is the exact opposite of what all evidence shows that society needs.
And when the same government is also promoting the bedroom tax it is more cynical than that: this is about serving the needs of a few without need at cost to the many who have very real need.
Or as John Kenneth Galbraith put it:
The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
It would be hard to summarise this plan more succinctly.
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I have never understood why it is “greed” to want to keep the money you have earned but not greed to want to take somebody else’s money.”
― Thomas Sowell,
Maybe bcause you have not learned the meaning of living in community
“Earned”? By what circumstance? “Take”? To what end?
the expression”have earned” is often a euphemism for “windfall”-who has ‘earned’ the windfalls from land and property increases????
Indeed
On a BBC local radio this morning I was asked to discuss IHT with a 77 year old man who did not want to pay IHT on his lottery win of a million last year
The irony was he wanted to provide for his numerous offspring of several generations but not in any way by providing better infrastructure
I pointed out 86% of his estate would pass with no action on his part tax free
He had clearly not seen it that way
And it was all windfall
Oh for goodness sake! Yes what you ‘earn’ is down in some small part to working hard – your choice. But this is only within the opportunities presented to you by the good fortune of nationality, appearance, social status, natural ability (and particularly the ‘choice’ of specialism), family income, family stability, education, social opportunities etc etc. Or in other words; how well-equipped you may find yourself at the end of childhood to fulfil the demands placed on labour by those who own the resources, and with whom we do a deal to exchange our labour for income. And that deal is also massively weighted in favour of those with wealth and against those with need.
In other words, it’s completely systemic, and the political choices made over decades and centuries to shape that system determine who the winners and losers are, and how much they win and lose.
It’s not ‘greed’ to want a fairer system. By contrast, you display a psychopathic lack of empathy in not realising that you’re damn fortunate to end up at the top end of a massively unequal system.
Well said Matt
Yes, I think you’ve mastered the economics: George Osborne exists solely to accelerate the concentration of wealth. That’s it: all of it. He has some details to master – pulling rabbits out of hats to win elections and a limited amount of PR so that his work may continue – but this is all anciliary to the concentration of wealth.
His colleagues are, with one exception, engaged in an unseemly scrabble to direct the wealth into the hands of the deserving few.
Our definitions of ‘deserving’ may differ.
That exception is Ian Duncan Smith: his mission is to replace the concept of Social Security – a comprehensive State in which the citizens labour and live in a secure expectation that they will be free from enforced idleness, squalor and want – with a punitive and arbitrary system of unreliable ‘handouts’ that leaves us all living in fear that we are one workless week away from eviction, destitution, disease and hunger. He believes in his mission – he is, indeed, imbued with missionary zeal – and sees himself as a liberator and reformer and a force for good who will be thanked by generations yet to come.
I don’t think that labour-market economics features in his ‘world view’ at all: but I do not doubt that a precarious and desperate labour pool is seen as an exploitable resource and an economic gain by his colleagues; and by those who fund them.
And that is my ha’penny-worth of politics on bedroom taxes for the poor and inheritance tax ‘reforms’ for the well-to-do.
So whom should we praise the more, or less, for these two contrasting housing policies? Remember: either or both of them might one day be Prime Minister.
Indeed- the whole project from Thatcher on was to create a vast ‘surplus population’ which weakened Labour bargaining power under the smokescreen of ‘curbing inflation’. It has succeeded, along with assorted myths such as the Government’s a household; people are poor because they don’t work hard enough; Globalisation sreads wealth;privitisation improves services-the list of absurdities is endless and easy to reel out.
People have a visceral hatred of IHT that they often do not have towards other taxes such as income tax. This hatred reflects that basic tension between the genetic bonds of family opposed to the looser bonds of society. Our genes encourage thoughts and behaviour which benefits copies of those genes found in our descendants and close family, but which are less likely to be found in other human beings within the wider society. As a result, many people think of their family as a unit and cannot philosophically comprehend or accept the idea that transfers of wealth within that unit should be subject to tax.
IHT attacks what many people feel is the meaning of life- to do what is necessary to provide for yourself and your descendants. Taxes such as income tax do not fundamentally attack that idea, as IT is viewed as the price of earning a living within a state regulated society (and all the benefits that includes).
But IHT is thought of as undoing all that hard work in setting back the next generation. The aim of working to better your descendants has been somewhat frustrated.
Politically, I wholeheartedly agree with IHT (and would even support increasing it, in theory). However, on a personal level, I fantasize about ensuring that my children do not have to struggle in life for money, or at least have to struggle less. It is a biological urge to protect your young, and IHT is a threat to the wellbeing of your young.
Oh come on
My dad is 88
I am 57 this week
When and if dad leaves me anything (and he may not) if it is taxed it will not be a charge on the young
Shall we get real here?
Alexande may have a point about why people dislike IHT. However, we have learned to repress some of our biological urges in order to make the world better for all of us. This is one of those cases.
Anyway, hardly anyone is even in the IHT net and those who are generally can take steps to avoid it, whether by life time PETs or other means. It is rarely paid.
So we can assume you will be giving away all your money to charity when you come to pass, instead of giving it to your children?
I also assume that you have specifically stated as much in your will?
My will is my business
Not yours
I can say I am not seeking to avoid IHT
I was trying to explain why some people have such an emotional aversion to IHT, not argue that it should be abolished or reduced.
Some people (by no means all) measure their life’s work by their accumulated assets, and they may somehow visualise their descendants building on and benefitting from that ‘life’s work’.
They see the wealth they pass on to their children as an embodiment of themselves- they may be gone, but their presence through that wealth lives on.
IHT attacks the idea of immortality through leaving a legacy of assets.
IHT might not bother great creators of ideas, inventors, artists, company founders as much, because their legacy takes a form distinct from their pure wealth- their legacy is in their creations.
However, for many people, the only legacy they leave, apart from fading memories in their loved ones, is their accumulated wealth.
Hatred of IHT is simply an expression of the fear of death. That fear of death drives us to try to ‘make our mark’. Many people feel IHT somehow acts to partially rub out that ‘mark.’
The fear of death is a difficult emotion for any politician to defeat.
Then revert to charging it on all gifts throughout life
You are lucky to have a healthy dad.
What has this got to do with your dad anyway??
Some of the comments on here today and yesterday are shocking and making me reconsider reading this blog.
We don’t know if this change will happen yet, if Sky News are reporting the truth.
I am talking about inheritance
And I did not say this would happen
As for the comments: I can’t win if I put them on and if I don’t
The worst I delete
If I got the judgement wrong this time – and I may have done – I apologise
Hang on a minute here. You are not *seeking* to avoid IHT? But it wouldn’t hurt if you accidentally fell into a situation where you do, right?
But that wasn’t really my point. You are saying that raising IHT thresholds is an *absurd* idea with *no economic justification* and all about allowing *wealth concentrations to continue*. Which is bad when rich (or not so rich in many cases, just lucky to have bought a house many many years ago) people are concerned.
Yet you are getting rather defensive when we talk about your own case. Is it because it’s OK for you, but not for other people? You could have stated that you are categorically not going to use any tax planning in your will. If you really believed what you say about continuing wealth concentrations, you could give all your money to charity or hand it to HMRC. But it looks like you are just * not seeking* to avoid any IHT….if it happens, hey, it happens!
If I argue for IHT reform I clearly intend it to apply to me
I am not saying I think there should be no inheritance
You just made that up. It’s not worth responding to
As the father of a 10-day old baby girl I am happy to be a supporter of IHT. It is important to me that my daughter – and millions of other children in the UK – grow up in a country with high-quality, well-funded public services. The destruction of universal public services in favour of a de facto lottery whereby if you are a child from a rich family you get everything handed to you on a silver platter, while if you are a child from a poor family you get nothing, seems to me a very sick kind of social engineering.
Howard
Congratulations
And well said
Enjoy being her dad
Richard
I actually think it’s pretty disgusting.
What you are essentially saying is that when you work your whole life to build up some assets, paying tax on it all the way, a bunch of sneering socialists want to take even more away from you when you pass so they can spend it on their pet projects, their own salaries and those of the people who vote for them.
I think if so-called socialists really cared, they would actually be keen on reducing the role of the state, reducing taxation, and allowing people to get on with their own lives.
Instead, we see them demanding more of other peoples money, then binging in the gratitude it buys them. All the while keeping the poor down by denying them real chances in life – trapping them in benefits through high marginal taxation and, poor schooling and worse healthcare outcomes.
Because obviously, the left-wing state knows better.
Yes, sometimes we really do believe that the state knows better
In fact, we are quite sure of it
And proud to say so
Try doing without one
Green
You and others like you are the very reason that the State has to be involved to ensure that ALL, not just the blessed FEW of the next generation have a chance to advance themselves to a level their skills merit.
Left to you and others that are like minded, all the ladders enabling the less fortunate to climb upwards are thrown way, nepotism rules supreme and in short we’re back to feudalism.
Your attitude is enough to make many vote for inheritance tax to be charged at the rate of 100% in order to end the “birth lottery” and ensure that all start on a level playing field with equality of opportunity.
At the moment a husband and wife can leave £650,000 to their heirs without incurring IHT. Isn’t that enough to satisfy this ‘biological urge’?
I just discussed this on a radio programme
Apparently it isn’t
here we go again- someone ALWAYS wheels out the ‘argument by genes’ -I’m afraid this is a total misuse of biology for transparently clear purposes – “Oh, it’s our genes doing it, so it’s fine”! Socio-biology’s genetic determinism arrived on the seenaround the mid 70’s (Dawkins, E.O. Wilson) just at the right moment to fuel the Torie’s ‘greed is good’ program and since then the whole culture has been suckered by it, deadening real thinking on thse issues.
In reality it is CULTURAL FORCES that get us to behave in these ways, not genetic ones. read Steven Jone’s (et al) “You are Not Your Genes” for a polemic against these glib forms of lazy thinking.
Errata: ‘seen’ should be ‘scene’/ Steve Jones, should, of course, be Steven Rose! Sorry
I want to emphasize that I referred to genetically derived urges not as an excuse, or as some kind of moral approval, but rather to explain.
I have always been curious about how people view different types of tax, and the way politicians play on those views.
I would argue that one way of raising the same amount of revenue but in a way which is more palatable to the electorate is to impose an annual wealth tax to replace IHT.
I don’t think most people mind paying the price of a well funded state and social safety net, but (for possibly understandable reasons) feel more or less comfortable paying depending on how that tax is collected.
Tax policy needs to be constructed in a way that takes these natural protective urges into account. Many people who might never have to worry about IHT still don’t like the idea of it.
As for your point about overcoming your genes, of course we overcome those urges all the time. We all like the fact that we live in a society where we obey rules and restrain certain instincts for the greater good. However, there is no point in denying the urge to provide for your family. Much of historical development can be viewed through the evolving conflict between allegiances to family and allegiances to the state. I don’t pretend to know where the ‘right’ balance is, but I do not pretend that those urges to protect those more closely related to you is simply a figment of our imagination.
Alexander-the gene argument is not even a coherent explanation and most biologists come out, in the end with some fudged answer that the balance between environment and genes is unclear at best. For example, in African cultural traditions, the village was seen as a family. The genes argument doesn’t stand up to scrutiny because even if it were true, it would indicate that behavior that protects the community would be much more in our self interest than that which is likely to create gated communities of wealth; the constant threat of social instability; the rise of extremism.
Edgar Allan Poe’s ‘The Plague of the Red Death’ is a good allegory about a ‘gated community’ of wealth and its downfall!
In both my posts I have been trying to explain the antipathy people feel towards IHT that they do not necessarily feel towards income tax, CGT, etc.
In my job I constantly am faced with the following seemingly incomprehensible statement: “I’ve always paid all my taxes but I want to make sure the government does not get its hands on my estate when I die.”
This statement shows how differently people view taxes paid during their lifetime on income and capital gains compared to what they view as an unjustified ‘second bite’ on death.
I actually support a stronger IHT regime as good policy, but I would rather that same revenue was collected as annual wealth taxes, as I believe these would be potentially fairer and more palatable to the electorate.
Genes do not explain everything, and we are by no means dictated in our behaviour by our genes, but it is ridiculous to pretend biology does not influence behaviour in any way.
I would argue greed has a much bigger impact
Richard- how in the world could one possibly define what is ‘greed’ in this context? It is easy to point to extreme examples of obvious, horrible, unjust greed, but somewhere in the grey area, ‘greed’ turns into lots of useful things like ambition, responsibility, productivity. ‘Greed’ gets harnessed to do lots of socially beneficial things like working, taking the initiative, trying new things, and no one organising a modern society would ever want to actually eliminate ‘greed’ or civilisation as we know it would collapse.
Civilisation would also collapse without a well functioning tax system (we can at least agree on that point!)
While I accept that many, if not most, people would want their children to grow up in a just society, very few human beings act on that principle to its logical extremes. We all raise our own children, inevitably giving them more care, attention, and money, than we give to the children of strangers. Is that preference for our own children over strangers’ also an expression of selfishness and ‘genetic greed’?
I never met a greedy entrepreneur. I mean, not a real entrepreneur
Real emntrepreneurs who create real change know tney need others too badlty to be greedy
Parents do the same. Good parents know the paradox of being a parent is that you have to let them go
Tying them to the apron string of ingeritance is a way to stop that
I note quite a lot of wealthy people now rejecting that idea
Let me speculate about the kinds of voters this proposed change appeals to.
Most of them will be that generation of the middle/upper middle class that benefited from that great accident of history that allowed the West to enjoy a few decades of post-War economic boom before globalisation properly kicked in. They know their children will not have as easy a time of it as they did- their children’s (and grandchildren’s) educations will cost more, and getting a university degree will no longer be a guarantee of middle class comfort as it might have been for previous generations. The world is a little harder for the children and grandchildren of these middle class generations than it was for their parents, and god knows they are going to do what they can to help them.
Yes, the truly wealthy have the confidence to know that their children have benefited all they really can from their privileged upbringing. The children of the truly wealthy have all the tools, connections, and access they need to succeed with a fairly high success rate. Wealthy parents withholding the millions is simply a little nudge to make sure their children avoid the pitfalls of trustafarians. But that is not the dilemma faced by these middle class parents- they do not have the confidence that their children will be alright. In fact they strongly suspect that if they do not help out as much as they can, their children could easily slide very quickly down the social scale (god forbid!)
I repeat that any sensible debate about evolving tax policy needs to pay attention to these very real fears of the middle class, and ignoring them completely will lead to the failure of reform. These middle classes do not need to be re-educated to be less ‘greedy’, the tax system needs to find a better balance between redistribution and legitimacy. At the moment I would say that the system is failing on both counts.
So we must accommodate greed but not need
I think we have to differ
I wouldn’t exactly phrase it like that!
I would say that we need to accommodate need and legitimacy. I would fully support many of the proposals you made in your other blog today- aligning CGT and IT rates, country by country reporting, reviewing allowances.
Populations are taxed by consent, and it is crucial that taxes (and the particular forms they take) are supported and endorsed by the taxpayers if we are to maintain a sufficient tax base.
Let’s agree to differ on some issues then
History lessons suggest that inheritance and marriage (the latter to ensure male line genetic security for the purposes of inheritance) were introduced to allow the accumulated assets of those with most power to pass on to the next generation. Genetics’ wish to is to reproduce/pass on its successful survival traits, and perhaps add an improvement to the next generation. That is what evolution is about. Genetics doesn’t play a part in why people hate IHT. It’s more likely to be a more prosaically Freudian reason.
As only relatively few people pay IHT, the mega rich having sheltered their wealth offshore,or in family trusts, increasing the threshold will bring positive headlines at very little cost to the Government. Believers in the lottery will support the policy and maybe vote for Dave despite the odds of their lottery numbers coming up before their number comes up in real life.
There are real costs
Real people do pay IHT
Maybe £1 billion
Richard,
Generally speaking, can a social justice component, writ large, be added to tax legislation?
A social justice component would measure the cost to society of any tax giveaway and hopefully alleviate the unnecessary diminution of public service funding.
That is entirely possible
It is a job I have suggested for the Office for Tax Responsibility
Can you explain who determines the social justice component?
Democracy
The ballot box
People
The same people who hate inheritance tax, even though they’ll never pay it?
You’re not fighting the popular case here. I’m wholly on your side, but there aren’t many of us. I’ve argued for IHT with all sorts from all sides, but most have a gut reaction against it which no amount of rational thought seems able to shift.
Lee T- you’ve hit the nail on the head. Rationally, IHT should be a ‘painless’ tax, in that the original owner is dead and does need the assets anymore, and the recipients are getting a windfall, no matter how much the tax has reduced it.
But people aren’t rational! Parents hate the idea of their estate losing some assets in tax after their death, and the beneficiaries think of the assets as ‘theirs’ and resent the state taking their cut.
The way forward in my view is for politicians to either make a forceful case for IHT being a force against class entrenchment, a force for social mobility (both downward and upward), and that this is a good thing.
Either that or accept that IHT will never be popular for largely irrational reasons (although I would maintain those ‘irrational’ urges can be explained by our innate patrimonial tendencies). Having accepted that, move on to other more palatable ways of redistributing wealth over time- instead of 40% every ‘generation’, how about 1% of assets over a NRB per year? Largely equivalent in terms of revenue (arguably more as there would be fewer opportunities for avoidance by making substantial lifetime gifts), and possibly much easier to swallow, as few people will have assets which qualify. The popular case study of the married couple in London with a “modest” £1 million house would not pay anything for most of their lives until they had substantially reduced their mortgage, at which point they would slowly start paying 1% of the net equity as it rose above £650,000 (2 x current NRB). Eventually, if they paid off all the mortgage, their yearly 1% wealth tax would only be £3,500, or less than £300 per month. And remember, they’ve paid off their mortgage, so the monthly tax payments shouldn’t be much of a problem. Also remember that they know they can pass their house ‘tax free’ to their children when they die, as they’ve been paying their yearly wealth tax.
I believe this type of wealth tax could actually enjoy some popular support.
I think we need more taxation of wealth, not less, as just one method of countering the dangerous increasing concentration of wealth. However, some people do seem to have an irrational aversion to IHT, more than to other taxes. Though your point that you can get to keep 86% of the first £1m (assuming the survivor of a married couple) is a good argument use.
For tactical reasons, I think it might be better to cut the headline rate of IHT, but eliminate almost all exemptions, which could have the overall effect of raising taxation of wealth. Suppose all the following changes were made:
1) Cut IHT rate from 40% to 20%.
2) Eliminate almost all IHT exemptions, only keeping the exemption for anything left to a surviving spouse / civil partner. So reliefs for AIM/unquoted shares and agricultural land would go. Also apply IHT to pension pots.
3) Also make lifetime transfers (over the allowance) chargeable – i.e. effectively go back from IHT to the old Capital Transfer Tax.
4) Also make unrealized Capital Gains chargeable on death (before IHT is applied).
5) Also introduce an annual wealth tax. This would have an exempt amount, and then start at a fraction of a percent (but might rise when you get to multiple millions).
Just some of the above measures could increase overall wealth taxation, but might be more palatable.
Apart from what is palatable, a small percentage annual wealth tax is in some ways fairer than a larger percentage inheritance tax. Why should wealth be taxed less heavily when there are larger age differences between generations, or when there is enough wealth to pass it down skipping a generation or two?
Wealth taxes are on my agenda
This list was short term reforms
What a great list of potential changes. I agree that the Business and Agricultural Property Reliefs are arguably being used in a much wider way than was originally intended, and could definitely be reformed. I think total elimination of them could be a bad idea as their purpose is to prevent the forced sale of productive businesses (a family owned business that might need to sell its premises to pay the iht, thereby ceasing to trade, for example). The rate of relief and/or the type/size of the business investment could be limited.
Also, I like your ideas on chat. The current policy of rebasing cgt to the date of death value is problematic in that it really skews lifetime behaviour (for example, people hesitate to sell their buy to let flats in their later years for fear of the cgt, reducing supply to the housing market and making retirement planning more difficult.)
I also agree that an annual wealth tax has real potential and I think there would be lots of ways of solving the ‘little old lady with low income but living in a mansion’ problem- the case study always used to oppose such taxes. A growing charge in the property, for example, could work.
If you wander into the social housing sector, you will find things are changing. Social housing tenants no longer have a home for life, maybe not even for a few years. In my area the tenancy is examined regularly, in new tenants, and if the household income rises it may well be that the HA will decide they no longer meet the requirements. The policy is being moved to long-term tenancies over time. The right to buy has been extended, the discount is now 77K (102K in London).
Labour, and the snp, seem to have decided they are incompatible. Not to worry, I’m sure their collective egos’ are more important than defeating a tory-libdem-ukip stranglehold government.
I love politics, it is just the politicians I hate.