The Labour Party has just learned a very painful lesson in the use and abuse of statistics. For years they dismissed calls to lessen the burden of inheritance tax by insisting that it only affects 6% of estates every year. This is only of interest to the very rich, they argued. However, it was obviously not just the very rich that responded so positively to George Osborne’s conference pledge.
What, then, is going on?
So far, I’ve no reason to doubt the statistical accuracy of the 6% figure. But just because a statistic is true, it doesn’t mean that it can’t be used in a misleading way. For instance, though we’re supposed to think that ‘only 6% of estates’ means the ‘richest 6% of estates’, this ain’t necessarily so. The rich, after all, are well-versed in the ways of tax avoidance, not to say evasion. I even heard of one case where a wealthy man instructed his heirs to keep his body in the freezer should he die too soon after transferring his riches in the form of a gift. Once the minimum period required to avoid inheritance tax had elapsed, the plan was to thaw out the corpse and get it cremated before anyone got suspicious.
Luckily, all I’ve got to dispose of is Labour’s 6% statistic – so let’s put a few more nails in its coffin:
We’re supposed to think that ‘only 6% of estates’ means ‘only 6% of homes’, but of course it doesn’t. Many estates don’t involve the transfer of a residential property. Thus the percentage of all homes affected by inheritance tax will be much higher than 6% – and that of owner-occupied homes higher still. I wish the Government would publicise those figures.
There’s also a danger in applying statistics to the nation as a whole when regional and local differences are what actually count to real people. Thus in London and the South East, the 6% figure makes no sense at all – especially not in the marginal constituencies that will decide the result of the next election. Ordinary southerners struggle with the cost of living in and around the capital and regard inheritance as the main way to transmute the burden of high house prices into a blessing. Hence the resentment when the Government steps in to confiscate wealth that certain ideologues have the effrontery to regard as unearned.
But now we’re straying out of the realm of statistics and into that of fundamental political values. There are those on Left who regard all inherited wealth as a bad thing. I don’t just mean the Trotskyite fringe; apologists for confiscatory inheritance tax can be found in mainstream think tanks like Compass and the IPPR.
Their case is built upon two foundations. Firstly, that those who inherit wealth don’t deserve it; and secondly, that inherited wealth exacerbates inequalities.
The undeserved wealth argument is a strange one, singling out the private realm of family and friendship as one where the transfer of wealth (on which tax has already been paid) must be regulated and penalised by the state. As a principle it isn’t even applied consistently. For instance, no one questions the transfer of wealth between spouses – even if the beneficiary did nothing to earn it. It seems that even the Left acknowledges that marriage is a partnership where wealth is held in common for inheritance purposes. But why shouldn’t this also apply to other family relationships? In particular, there is scandalously little recognition for the mutually supportive relationship between parents and their grown-up children – without which society would be much the poorer and the state much the more burdened. Unfortunately, when leftwingers think about this issue what pops into their minds is the dynastic wealth of the landed aristocracy – as if that were the main consideration in today’s Britain.
But never mind the class wars of yesteryear, what about the growing inequalities of the 21st Century? Won’t the reduction in inheritance tax widen the gap between the poor and everyone else? Well, no – not compared to the real drivers of inequality. For instance, the decade-long boom in house prices has left those without property further and further behind the rest of society. So what has Labour done about extending home ownership to the bottom 20%? The best part of nothing, that’s what. Indeed, this Government doesn’t even attempt to measure inequalities in asset wealth. It is therefore utterly hypocritical for Ministers to pretend that they are taxing the estates of the middle class in order to fight poverty.
Labour has, of course, now compounded its hypocrisy by executing a u-turn on inheritance tax. But the absurdity of the spectacle should not distract us from our Conservative duty to extend the benefits of home ownership from most of our society to all of it.
There is no doubt IHT is affecting far more people. I get the issue on the doors in North Wales. IHT is charged on the total estate. A fairly average bungalow is upwards of £200 and then add on the rest of the estate. People have already been taxed on their income, why the hell shouldn't they leave things to their children. It might be the only way those children get a chance to either get on the property ladder or move up to a house of a size they can bring up a family. Remember also that Brown has wrecked your pensions. Many people under about 35 have no decent pension provision. When their parents die it might be the only way those parents could have helped their children. No wonder there is real anger and we have shot up in the polls.
Posted by: Matt Wright | October 17, 2007 at 10:30 AM
The link from the front page to this article does not seem to work.
The point about the 6% is who cares?
In terms of people likely to vote in a general election, a much greater quantity than 6% will think they might be subject to the effects of IHT at some point in the not too distant future.
That is what counts - for the people who have already been affected as beneficiaries (a once or perhaps twice in a lifetime event), it is probably no skin off their nose as they can't eactly get the money back now.
Posted by: aristeides | October 17, 2007 at 02:59 PM
The underlying justification for IHT must be that in some degree your assets belongs to the state or they need the tax money. Certainly if IHT ever reaches 50% they are saying that assets belong to the state as much as they belong to you, and we should counter the underlying thinking directly. The other point is that needing the money is no excuse ("we have to balance the books") - if it isn't right in principle for you to have it, you do without and spend less. We could pass a law to confiscate the assets of everyone whose names begin with F, to balance the books, but that wouldn't be right - the issue is why we have IHT, especially if we already have tax on income and gains, IHT being a capital-based tax after income and gains tax (and stamp duty, VAT, fuel duty etc) have already been levied.
Posted by: Terry | October 17, 2007 at 04:14 PM
Peter's story about a man wanting his relatives to freeze his corpse to avoid IHT is not apocryphal. It was my grandfather although I doubt he would have agreed with Peter's assertion that he was rich.
Having left school at 14 to work in Boldon Colliery he subsequently made a bit of a go of his life as a builder. After working all his life, serving his county, paying his taxes, providing homes for most of his relatives & doing a huge amount for charity he was disgusted at what he considered legalised grave robbery.
I am pleased to say my father declined to stick his corpse in the chest freezer (although my mum still finds it useful) and instead my grandfather pretty much forced himself to live until a about week after the 7 years elapsed.
What he couldn't forgive was not simply how much the state wasted of other people’s money, but that the government did not appear to want as many people as possible to have the means to be independent of it. A more sensible IHT regime would be one which encouraged as wide a distribution of capital as possible.
Posted by: Rebecca Harris | October 18, 2007 at 04:26 PM