Osborne attacks 'fake Labour' after Darling cuts inheritance tax

Alistair Darling has just announced that the threshold for inheritance tax is up to £600,000 for married couples.

I've never seen Gordon Brown smile so much - he looked like he was really enjoying the theft of Tory ideas.

Great speech from George Osborne in response.  Here are some highlights (not verbatim):

This was meant to be a pre-election budget without the election.

The Prime Minister fired the starting gun but shot himself in the foot.

The Prime Minister's name may appear on the cover of a book on Courage but it'll never appear in the index.

Copying Tory ideas on inheritance tax isn't leadership, it's followership.

This is a cynical government.

Growth is down, borrowing is up.

After a decade of growth the budget should be in surplus, not in deficit.

This government should have saved in a boom for a rainy day.  It didn't.

The savings ratio is the lowest on record.

The growth of disposable income has fallen from 2.5% to 1.5%.

Neither of these things were mentioned.  Just like his predecessor, Alistair Darling is hiding the truth.

He shouldn't be copying Gordon Brown - he should be blaming him.

The growth of spending is slowing fast.

Reform never got off the ground.

Our tax burden is rising to a historic level - when all our major competitors are cutting tax levels.

Today's announcement is a tax-raising announcement.

This is a Government of fake photos, fake troop withdrawals and fake hospital openings.

5.30pm: Matthew d'Ancona thinks I missed the most important line from GO's speech: “From this day on let there be no doubt who is winning the battle of ideas."  Matt explains all over at The Spectator's Coffee House blog.

Comments

[Prodicus]

Stonkingly good, Gideon. Never mind the 'rehearsals', every blow landed. Good job.

[Janet]

Inheritance Tax up to £600,000 for married couples? What if they do not die at exactly the same time(As is the likely senario)? Surely it would just revert back to £300,00. Is this a cut in Inheritance Tax? Sounds like a bit of smoke and mirrors to me.

[William Norton]

Quick off the cuff response:
(1) The inheritance tax changes are a spoof which will bring no practical benefit. In effect Darling's abolished what we call a nil rate band trust for a surviving spouse - and if you leave everything to your spouse then there's no IHT anyway.

(2) Unclear on details, but it seems Darling's abolished taper relief for capital gains from next April (which is what produces the apparently notorious 10% rate which means investors pay less tax than their cleaners). That's a U-Turn on Gordon's great incentive to invest which he implemented when he first became Chancellor - the people who qualified for that 10% rate were employees holding shares in their employing company, who have now apparently suffered a tax hit on their share incentives. So much for people's capitalism and wider share ownership.

[Malcolm Dunn]

Some good jokes and a hint of bitterness from George.The most important line is 'after a decade of growth the budget should be in surplus not in deficit'. We should be kicking hell out of them for this.

[David Cooper]

Isn't the Darling proposal on IHT an inherently empty gesture, given that in most cases the married couple will own their principal asset - the matrimonial home - jointly, and as such it will pass from the deceased spouse to the survivor outside of the estate? Darling should not be allowed to get away with this. Let's hope Jeff Randall is on good form later this week when it comes to Friday's Telegraph column.

[NigelC]

How does an inheritance tax allowance for couples work? Am I missing something?

Is this supporting marriage through the tax system?

[Man in a Shed]

£600,000 for married couples ?

Not sure how that works - I thought legally one person always dies before the other, so how can this apply to couples ?

Will the couples have to be married ?

What does this mean ?

[James Burdett]

Janet - you are probably right, although the devil as always will be in the detail but if so the only people who will benefit are the children of a tragic accident scenario. If it is that cynical we should absolutely crucify them for it.

[Prodicus]

IHT - couples? Smoke & mirrors. What about children?

[Man in a Shed]

Okay reading the comments other people added while I was typing - its clearer now.

Its yet more *spin* (with a silent p) !

Don't these people ever learn ?

Time for someone to email PM to make sure they run them out of town for this one !

[Michael Davidson]

As far as I'm aware the announcements would raise the threshold to £600k (and £700k by 2010) for inheritance from parents to children. Someone correct me if I'm wrong on this.

[Tony Makara]

Disposible income will continue to shrink under Labour as the spend,spend,spend economy begins to grind to a halt and debt takes a major slice out of income. This Labour government would be in a debtors jail if such places still existed today.

[William Norton]

New stealth tax number one:
Sounds like a new tax on small businesses

"the Government believes it is unfair for one person to arrange their affairs so that their income is diverted to a second person, subject to a lower tax rate, to obtain a tax advantage (income shifting)....The Government will be consulting, shortly after the Pre-Budget Report, on draft legislation to take effect from 2008-09 to address income shifting."
Income Shifting

[Andrew Woodman]

Brown's smug look whilst he nicked our policies should be copied and sent to every one of our members, to incentivise them to campiagn and kick these b******s out.

[William Norton]

New stealth tax number two:
National Insurance Contributions exemption for holiday pay:
"The exemption from National Insurance Contributions (NICs) of holiday pay paid via a third party is to be removed for all sectors outside the construction industry."

[Editor]

Thanks for all of these insights, William - they're brilliant!

[Chad Noble]

That Mr Norton, no doubt, will be the govt changing the law after it lost the 660 split divis test case recently. As soon as it lost, it was obvious they'd change the rules!

[William Norton]

New stealth tax number 3:
IHT extension on savings:

"Where appropriate, tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities will also be subject to inheritance tax (IHT). "

The Chancellor giveth and the Chancellor taketh away...

[W9 Conservative]

The increase in CGT from 10 to 18% will be very controversial - there will be a rush sell off before April by a lot of people, and AIM, which currently attracts this relief is likely to be marked down overall.

This is typical Labour - in seeking to catch Private Equity, they have taken the opportunity to sneak in a tax rise for many millions of shareholders, employees and entrepreneurs.

[William Norton]

New stealth tax number three:
bit obscure this one - Darling's made a typical Brown manoeuvre, he's attacking corporation tax deductions for employers in connection with pension funding: "spreading" a tax deduction is a polite way of saying that current year tax liability increases.

"Legislation will be introduced in Finance Bill 2008 to ensure that the rules that spread tax relief for large employer pension contributions relative to their contribution in the previous year cannot be circumvented. "

[William Norton]

Just what we needed - another blitheringly pointless complication for property transactions:

"Following on from action in 2006-07 on stamp duty land tax avoidance [=people selfishly keeping their own money], the Government will consult with interested parties later this year on how to extend the disclosure regime [=think up more ways of screwing money out of you plebs] to high value residential property transactions [=any house south of Watford]. Government will also consult with interested parties later this year on the practicalities of addressing the use of special purpose vehicles to reduce stamp duty land tax liability on high value residential property. [=but not that clever VAT wheeze the Labour Party pulled a few years back when we bought our new HQ]

[Edison Smith]

The budget's being attacked on BBC 5 Live for attacking small businesses and strangling enterprise.

[William Norton]

It gets better and better - coming to a street near you MORE TRAFFIC WARDENS with INCREASED POWERS OF ARREST

"To assist in the fight against VED evasion, the Government has today strengthened VED enforcement powers to include motorists driving unlicensed vehicles and parking in areas where enforcement is not currently permitted.
Therefore in addition to public roads, from 1 September 2008, VED enforcement will also cover vehicles parked in public places that are not intrinsically part of a private dwelling, where a Statutory Off Road Notification has not been made."

I haven't seen anything yet about extra policemen (real ones, not the plastic fakes) but that might be my ageing eyesight.

[Prodicus]

Grant Shapps doing a great job on Sky. Refusing to give snappy, unprepared answers and saying let's take a day or two to get into the small print of the doc where the truth lies hidden, while swatting Darling left and right for all the obvious stuff. Good day. Expert (who?) alongside him makes raises my Q about IHT and children. 'Not at all clear.'

[Graham D'Amiral]

It's laughable isn't it? They had no intention of doing anything on inheritance tax before George Osborne announced it in his conference speech. I doubt the public will have enjoyed the desperate attempt to try and steal the tories policy as much as Gordon Brown clearly did. As Nick Robinson said this was the first major economic statement from a new chancellor under a new Prime Minister, and what we got was a remarkably defensive statement , trying desperatly to head off the political advantage the tories had gained from their policies.

George gave a really excellent, punchy and suitably aggressive response.

[Tooting Conservative]

I thought GO did very well. I've copied the provisions relating to IHT from the PBR and pasted them below..

5.76 The inheritance tax (IHT) spouse relief rules mean that there is no IHT paid on assets
passing between married couples or civil partners. Many people therefore leave all their
assets to their spouse or civil partner, and do not make use of their individual tax-free
allowance of £300,000. The Government will therefore make the IHT system fairer by ensuring
that if a person’s tax-free allowance is not used on their death, it can be transferred to their
surviving spouse or civil partner, enabling every married couple or civil partnership to
benefit from double the tax-free allowance – £600,000 this year – in addition to spouse relief.
5.77 Furthermore, to ensure that people who have lost a spouse or civil partner prior to
today can also benefit, the Government will extend this entitlement to the three million
existing widows, widowers and bereaved civil partners.
5.78 Following the announcement made at this year’s Budget and the changes announced
today, the IHT allowance will rise by April 2010 to £350,000 for individuals and £700,000 for
couples. In future years the Government will consider both house prices and retail price
inflation when setting the appropriate IHT allowance.

[Edison Smith]

Andrew Woodman - I wouldn't worry, Brown's got until June 2009, then his political life is over.

The hypocrisy of Labour!

Last week they slated our tax propsals for inheritance tax, claiming it only affects 6% of the population. Now when questioned, they say they have been considering raising the threshold for some time. Unbelievable...

[Mike Thomas (215cu)]

I have some of what Osborne is taking. Very sharp barbs, the one about 'followership' really hits home.

As for copying our policy, please, please more of that. This proxy government isn't the real deal. We are.

[englandism]

To echo and confirm other points.

The widowed spouse is not liable for IHT so why marriage has been chucked into the mix eludes me.

The beneficiaries of the estate upon the death of the remaining spouse are liable. Unless, it would seem, Darling implies that one should marry one's mother?

[Comstock]

Don't agree with raising the IHT threshold (but I accept it was politically neccessary), or with the extra spending on the armed forces, but the rest is great stuff.

Brown is still in a very strong position.

[Andrew Lilico]

Three things:

Keep an eye out for the statement announced for later this week on the response to Northern Rock.

The introduction of an 18% flat rate for CGT is remarkable, in two ways. First, because it eliminates the incentive to hold assets for a period that Brown boasted of. Second, because it takes down the standard rate of CGT to a remarkably low level. Since CGT exists mainly to protect the income tax base - preventing people from taking too much income in the form of capital gains rather than income - it will be interesting to see whether this leads (as the Treasury has previously said it feared when abolition of CGT was proposed) to widespread dislocation of employee remuneration into capital. Presumably many people are going to start receiving their bonuses in the form of share options, rather than cash.

Finally, this fall in CGT significantly reduces the relative attractiveness of primary dwellings as an investment, versus (say) shares. The consequences of this will be interesting to understand.

[Daniel Jacobs]

We Conservatives have all the right arguments on tax - and I am sure all the criticisms of Darling are spot on. And yet.. and yet. I was listening to this on the radio. Darling came accross as a normal person. George Osbourne on the other hand - on the radio- came across, to me at least, quite simply appallingly. He had this smug, braying , obnoxious tone in his response. Why can he not simply present his arguments and not seem so appallingly smug?

[William Norton]

Here's a nice raft of footling drivel which will make it harder to run your company and could have a critical cost impact on borderline businesses:

"Action is being taken, effective from today, to counter attempts by some companies to get around the shares as debt rules, which apply to interest income disguised as a capital gain or tax nothing." [=The Inland Revenue know better than you do whether borrowing or capital is better for your business.]

"Action being taken, effective from today, will tackle avoidance schemes abusing the availability of interest relief through the payment of interest in advance." [=Forget all that sentimental rubbish about freedom of contract to agree payment terms with your bankers. After all, this Labour Govmt is going to try to rig the mortgage market so we might as well cock-up commercial debt too while we're at it.]

"Action is being taken.... counter avoidance involving the sale and finance leaseback of plant or machinery and attempts to exploit long funding leases to create a tax loss where there is little or no commercial loss." [=You mean you really thought you could decide for yourself the best way to buy your company's new equipment?]

[John Leonard]

I thought bequests to spouses was exempt of IHT until death? Has Darling stuck a limit on it now?

[support the strivers]

"income shifting tax"

Interesting....

I wonder if it catches Sarah Brown's use of her personal allowances by eg renting out that bachelor flat of her husband..remember all that a few days after Brown took over?

and on IHT, aren't ALL transfers to spouses exempt?

[Jay]

This is typical New Labour deceit. A big headline-grabber, with lots of complex, petty, restrictive rules behind.

One small give, and lots of takes.

Oh how I wish there was going to be an election to boot these crooks out.

[Shaun Bennett]

What exactly is the point of the Labour party in the modern world?

Labour MP's may jeer at the Tories that they remain ahead in the polls, but why are those Labour activists and MP's who fought tooth and nail to get Lady Thatcher out of Downing Street in the 1980s now delight in her invitation to return?

Why are those activists and MP's who fought tooth and nail against Tory policies throughout their lifetime now admit that they have to nick them as quickly as possible?

Why are they happy to sit alongside Quentin Davies and Shaun Woodward despite having bitterly opposed them just a decade earlier?

It is because this Labour government no longer has any thoughts or principles or reasons to govern. They now govern merely for the sake of governing; they oppose the Tories for the sake of party loyalty and then adopt everything the Conservatives propose. Indeed, they're so shameless that they don't even try to pretend otherwise anymore.

We have a government-perhaps for the first time in history-who are in it solely for the power and prestige of being in government. THAT has got to be the number one reason why they deserve to lose power, and why people must see through them at the next election!

[Tooting Conservative]

The IHT cut seems real to me (although watered down) and an incentive to marriage to boot! The headline policy from a Labour Chancellor's first PBR is a Conservative policy in more ways than one. Alistair Darling must be wondering why he bothered joining the Labour Party...

In Gordon Brown's government of "all the talents" he lets the Shadow Cancellor write the budget!

[Paul D]

An expert on 5live mentioned a "triple whammy" for small businesses. I can't remember the last one off the top of my head but increasing CGT impacts on a small business if it's sold, business rates are going up by about 2% (surprisingly that one wasn't re-announced)

We need to highlight the effect of this statement on small businesses and look into ways of helping entrepreneurs rather than penalising them

[Jeremy Brier]

I think other people have referred to this in the long chain of correspondence above, but this IS NOT A CUT in inheritance tax.
It just allows couples to combine their allowances.

Anyone planning their IHT burdens sensibly today would be in precisely the same position before and after this announcement as they could ensure their wills left appropriate amounts to their children and didn't channel everything through their spouse.

Complete smoke and mirrors. Very irritating.

[Malcolm Dunn]

You don't agree with spending more money on our Armed Forces accommodation Comstock? My God! Are you really that heartless?

[Andrew Lilico]

There must quite a bit of potential for us in this Capital Gains Tax change. It should be at the very least an embarassment for Brown, and perhaps a humiliation. I guess the government will want to emphasize the IHT change and hope the headlines focus on that. But what has happened on CGT is the total destruction of Brown's capital gains tax reform. Taper relief has gone - the government has decided, despite Brown's boasting, that it achieved nothing. The government has also decided that, despite its previous position, CGT did not need to be at 40% to protect the income tax threshold.

This is a straight, unambigious climbdown by Labour on an important issue. We should be nailing them on it.

[William Norton]

As part of the Big Tent strategy, Gordon and Darling have hired Lewis Carroll to join the Treasury team:

"New fraud estimates released today show that attempted fraud fell by up to £1.5 billion in 2006-07. [What on earth is 'attempted fraud'? What they mean is 'our latest guess at what we don't know suggests that we don't know less than we first thought we didn't know', or at least I think that's what they mean] This follows the introduction of operational measures to strengthen the Government’s strategy for tackling MTIC fraud. [They have a strategy? Since when?] The Government is determined to build on this success. [e.g by actually achieving some success]. HMRC will take further steps to apply both criminal and civil sanctions to those who are found to be knowingly involved in fraudulent trading. [which seems an odd use of resources if it's really falling as you first said it was]"

[johnC]

'the Government believes it is unfair for one person to arrange their affairs so that their income is diverted to a second person, subject to a lower tax rate, to obtain a tax advantage (income shifting)....'

But this is exactly what they are doing with their inheritance tax proposals. They will encourage many people to rearrange their affairs in order to leave more to a surviving spouse rather then to their children in order to take advantage of the increased exemption. The main beneficiaries will be the lawyers who rewrite the wills. Since when has it been 'unfair' to take advantage of any opportunity the law affords to reduce your tax burden ?

[William Norton]

Another bloody tax on insurance companies:

"Legislation will be introduced to prevent life insurance companies benefiting from tax relief for expenses in respect of reinsured business which have been met by the reinsurer of that business."

I mean, we can't have reinsurers meeting the expenses of reinsured business can we? Before you know it, those damn fool reinsurers will start thinking they know more about the reinsurance business than Gordon Brown or Alastair Thing/Mr Spock or whatever he's called.

[Andrew Spencer]

Comstock,

why don't you agree with more money for the Armed Forces? Even if you don't agree with the current deployments not that they are happening surely we should be giving the Armed Forces the funding they need to do the job. In fact, the government funding proposals dont go nearly far enough in addressing the endemic problems facing our Armed Forces. They have neglected the Armed Forces for too long while asking them to do so much more.

[William Norton]

This should be good for a laugh:
The Government's Commitment to Tax Simplification

[Christopher Blore]

I see the BBC Website is lapping Darling's empty promises up - "New Primary schools in every area", "Health spending up from £90bn to £110bn" flashes up on the rolling news ticker!

I know the last week has been great for the party but if we thought the BBC was going to change just like that, we were deeply mistaken. We still have a way to go before the media finally sees through Labours lies!

[Andrew Lilico]

On CGT, Gordon Brown introduced his first significant reform in March 1998 - his first full budget. He introduced subsequent further reforms in 2000 and 2002. Taper relief was the *cornerstone* of Labour's structural reform in this area. For Darling to immediately eliminate it is rather as if he came in a took back interest rate control from the Bank of England, or broke the FSA up into a number of smaller regulators. It really is the total reversal of Gordon Brown's approach.

Why? I propose the following questions for Gordon Brown:

1) Is Labour now admitting that Brown's approach has been mistaken for all these years?
2) Has the policy been exposed as a failure?
3) If 18% is a good rate, why hasn't it been in place since 1998?
4) The 18% flat rate raises more tax than the previous taper relief system - a huge rise in CGT terms (since the entire CGT take is low). Does that mean that the previous system was failing to cover all the taxes that it should?
5) Do you expect more investment in the UK as a consequence of this tax rise?
6) How would you advise firms to respond in the way they compensate their employees? Should we expect more firms to use share bonus schemes? Would the Treasury regard that as a legitimate response to the new incentives in the system?

We should pin them down on this. Don't let Brown's embarassment on this get drowned out in the IHT discussion!

[Malcolm Dunn]

Hugely enjoyed your commentary this afternoon William. But tell me, are you a tax lawyer for an insurance company?