Labour has got itself into a cleft stick. Having come to power on a pledge of not raising taxes on “working people”, in response to the opposition charge that it cares more about those who don’t work, that raising money from the employed goes to help those who choose to be unemployed, Keir Starmer and Rachel Reeves are stuck.
They are faced with a deficit of £50bn, give or take, for which they can no longer blame the Tories – that legacy was half. It’s down to their failure to drive the economy, to achieve as they insist, “faster and further” growth. It’s just not happening, and, meanwhile, they have that hole to fill.
They can’t borrow extra because another reason that the chasm is so large is due to higher-than-expected borrowing costs. They dare not cut services because that would alienate their bedrock, and “austerity” is what Tories do, not them.
So, they cast around for tax targets. However, they can’t alight on those who are putting in the hours and earning by aiming for income tax, employee national insurance, or VAT, because that would betray the election promise. So, they pick those who once worked. Inheritance tax, or IHT, or as it’s popularly known, “death duty”, is in their crosshairs.
At present, inheritance tax is 40 per cent on estates above £325,000. But there is no limit on how much can be gifted to relatives tax-free if the giving is made seven years before someone dies. If it’s within seven years, then a sliding scale or “taper relief” applies. The rate drops each year, from 32 per cent to 8 per cent. Those who think they, or rather their inheritors, may be clobbered duly give it away in good time. The result is that inheritance tax is paid by only around 4 per cent of estates.
In the eyes of Reeves and her advisers, that is too little. They know that people are sitting in homes that have soared in value and possess gold-plated pension pots, and they want some of it. They are looking at imposing a lifetime cap on how much can be gifted and/or changing the rules on taper relief. To ensure, in other words, that IHT is not so easily avoided and that the 4 per cent figure increases enormously.
What’s not to like? Politically, those affected are the better off, who are not natural Labour voters. It is not earned money, in the sense that property prices and pensions have risen since they ceased to work. It’s fair game to grab it. Indeed, that is precisely what a source with knowledge of the work told The Guardian: “It’s hard to make sure these taxes don’t end up with loopholes that undermine their purpose. But we are trying to work out what revenue might be raised and how to ensure it’s a fair approach.”
Labour has form for this. It’s exactly what this government did to the farmers, except there it was farmers with land worth more than £3m. Reeves said this week she believed they “should make a contribution”. These are weasel words. Reeves is ignoring the fact that they have already contributed, as presumably, she and her colleagues are doing so again, by claiming they are looking to be “fair”.
Apparently, one of the motivators is that they are not keen on a wealth tax as many of their supporters would like because that will serve to encourage the wealthy who can do so to leave the country, and there is evidence to suggest that is already happening, and would damage attempts to encourage greater investment to galvanise the economy. But how is this any different? It still sends the same signal that Labour sees the rich and not even that rich, as ripe for plundering.
In whatever way it is dressed up and spun, the message is clear: you’re better off not working or making some money under Labour, because they will get you in the long run.
Ignoring the working people and selecting those who have worked may cleverly satisfy their political and fiscal ambitions, but it fools no one. Under Labour, it really does pay not to work.
