Inheritance Tax

[Sir Robert Syms in the Chair]

I beg to move,

That this House has considered inheritance tax.

I am looking forward to your firm guidance from the Chair, Sir Robert. I am grateful to the House authorities for allowing us to have this important debate.

The whole British tax system is skewed in a very odd way. We simply do not tax wealth sufficiently, but we do tax income from work. Income from wealth is relatively untouched by the taxation system, but income from work is taxed and people feel the burden of it. If we were to redesign our whole tax system, I wonder whether that is the way we would structure it. My office wrote a report on this issue three years ago, suggesting a wealth tax. If there were to be a wealth tax, we might well be able to change the way we tax inheritance, but that is not the case; it is not a serious proposal for now, but it is something to think about in the longer term.

It is good to see so many Members here. I begin my reflections on inheritance tax with the following reflection: it is always interesting to look at the language politicians use, especially those from the governing party. When Labour proposes a spending commitment, the Government say that we have found a “magic money tree”. When the Tories find money to spend or give away in tax gifts, suddenly it is “wise”, “prudential” and “management of the economy”. Of course, it is no such thing; it is propaganda.

The right-wing papers are saying that there is some “fiscal headroom” in the Budget—in other words, the Treasury is sloshing around with money. But where has the money come from? It has come from hard-working people who are overtaxed on their income. There might be other ways to fund state services, but it is the working people who have created the additional money in the Treasury. That has been done through a cruel system, which is no longer quite as invisible as it was, called fiscal drag, whereby people’s wages and salaries are increasing but the threshold at which they pay tax is being held steady by a Conservative Government who have clearly set out to raise more money from working people. The fact that thresholds are being held steady while wages are rising means that people are paying more as a proportion of their income than they would have done if the thresholds had risen at the same rate.

Will the hon. Gentleman give way?

There are a lot of Members present, so I will give way only once—twice at the most.

Given that the hon. Gentleman is concerned about fiscal drag, as am I, would he concede that, given that the £325,000 threshold for inheritance tax has been fixed since 2007, it should be increased in order to avoid fiscal drag?

I find that a very interesting intervention. I am not opposed to considering that idea as part of the wider debate, but let me return to the point I was trying to develop.

It looks as though right-wing ideologues in newspapers and elsewhere are hinting that there is a significant amount of money available in the Treasury. Those papers are saying that we should end inheritance tax or perhaps cut it. It would cost £7 billion of the Treasury’s reserve of money to abolish inheritance tax completely. I guess that all Members present will have been around their constituencies in the recent Christmas and new year recess, and they will have seen people hungry and living on the streets, schools closed because the concrete problem has not been resolved, hospitals with cruel waiting lists, people unable to heat their homes, and even unfilled potholes.

What we have seen in our own constituencies is true for the whole nation. There are massive pressures on our civil society and the way we live our lives. If we were the Treasury and had £7 billion, would we really want to hand over money to some of the richest people in our society, when all those needs are still there, and when maybe we should be trying to help people on lower pay with some assistance on tax? I don’t think so. I do not think it is a rational decision and a proper way to spend money, and nor do the public. In two recent polls, 75% said they were against a cut in or the abolition of inheritance tax.

Will the hon. Gentleman give way?

I said I would give way twice. The right hon. Gentleman has already had one intervention, so I will only take another from somebody else; a lot of people want to speak.

I am sure we are all clear on this, but let us remind ourselves how the system works. One argument that might be made is, “Are you really saying that if you’ve worked hard all your life and managed to buy a house, your descendants can’t inherit that house?” Well, the rules are quite clear. It is not as people might imagine, because a person is allowed half a million pounds with no inheritance tax on the house value. With a couple, however—whether they are married or in a civil partnership—the partner left behind after the other has died inherits the house with no tax; we all know that. When the second person in the marriage or civil partnership dies, the first person’s £500,000 is accumulated to the second person’s £500,000, so that is effectively £1 million per house. Nobody in a couple who owns a house in that particular way would pay any inheritance tax on the house, so it is a specious and false argument to say that inheritance tax would somehow deprive people of their houses.

Look at the figures. In Yorkshire, only one in 300 properties is worth more than £1 million. All the rest are worth substantially less. In the whole of Yorkshire, there are 7,500 households worth more than £1 million. Across the whole country—of 60-odd million people—there are 700,000 properties worth more than £1 million. It is important to put that on the record, before we go any further into the debate.

If someone leaves more than £1 million, they may well be required to pay inheritance tax. Let me deal with what actually happens, based on figures provided by the Financial Times, which are based on Treasury figures. If someone leaves an estate worth more than £5 million, they will find that the amount of money they pay in inheritance tax declines. The people between £1 million and £5 million are probably paying 40%—unless they have made certain arrangements—but the really wealthy estates above £5 million, where the power and wealth in our society resides, pay less and less tax the more wealthy they are. Hon. Members can see the graphs; they are freely available on the internet. The richest estates in our country pay virtually nothing at all in inheritance tax. Can that really be right? I do not believe it is morally justifiable.

No, I will not give way—the right hon. Gentleman will have a chance to speak in a moment.

I want to illustrate what is happening. I think I am right in saying that, if inheritance tax were abolished, it would put £12 million back into the Minister’s constituency, which makes £60 million in a five-year Parliament. In all the 42 red wall seats in the north of England, which went from Labour to Tory, that sum is hardly more. All those seats together would raise £15 million a year in inheritance tax. Abolishing inheritance tax would put a fraction of the amount of wealth in our country back into those constituencies, and then only into the hands of the richest in our society.

Will the hon. Member give way?

I will give way, but briefly, because I want to make progress.

I am grateful to the hon. Gentleman for giving way. I am following his logic about money staying in a constituency where inheritance tax falls, but that presupposes that all beneficiaries of that deceased’s estate live and reside in that constituency, which is not the case. Beneficiaries often live throughout the country.

The hon. Gentleman raises an important issue, because I think there is £800 billion of wealth in our country that nobody—not even the Treasury—knows the owners of. That is a colossal, unimaginable amount of untaxed wealth, which has simply disappeared because the Treasury cannot find out who owns it. It is true that people can reside in one place and own property in another, but I am talking about someone’s place of residence when they died.

Let me remind Members of the figures, because I do not want to lose the argument. In all of the red wall seats that Labour lost to the Tories, £15 million in inheritance tax was paid; only in three of those seats did anyone pay any inheritance tax. However, in the 42 blue wall seats that I have looked at, £1.5 billion was paid in inheritance tax. So in Tory seats in the south and south-east, and to some extent in London, £1.5 billion was paid, while only £15 million was paid in all of the so-called northern red wall. That is a completely extraordinary set of figures.

I think Ministers and right-wing commentators really fail to understand the way in which our society is structured, with the inequalities and all the other problems that we face on a daily basis. If it were to happen, the abolition of inheritance tax would be one of the largest shifts of wealth that has ever taken place under any Chancellor, certainly in recent history. I have been in Parliament for 28 years and I do not remember anything as large. Here is the central point: this is not a fiscal strategy, and it is not about justice, or fairness, or responding to what the people of the country want. It is a political strategy to move money into those areas where the Tories are now extremely worried that they are going to lose their seats. This is about pumping money into blue wall seats. It is a political strategy rather than a fiscal one.

That is where we are. The Government think that they can bung people, whether with contracts or honours or by putting money back into the pockets of the richest people in our society, in order to secure their own continuance in office. But the British people do not like this stuff. It is grossly unfair and it should not be happening. I hope that the Minister can say, “Well, we might have had a look at it, but we’re not going to do it, because—you’re correct—it would be unfair.”

It is a pleasure to serve under your chairmanship, Sir Robert, and I congratulate the hon. Member for Hemsworth (Jon Trickett) on securing this important debate.

As a practising solicitor—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—it was common for me to provide advice to clients while they were planning for later life. While I was drafting wills and preparing powers of attorney, the dreaded subject of inheritance tax often came up. It is indeed a much-feared tax and a real motivator for many people to consider estate planning.

As house values have increased, many more families who never before would have considered themselves to be wealthy are brought into the scope of inheritance tax. For many, however, through proper planning and structures, it can be very much avoided. Indeed, it is often said that inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue. As a Conservative, I believe that families should be able to keep as much of their money as possible and, ultimately, I would like to see the complete abolition of inheritance tax, when the time is right.

I only have a very short speech; I really only have one suggestion to put to the Minister. A number of years ago, additional nil-rate bands were introduced to enable a joint estate to leave up to £1 million free of inheritance tax. However, that privilege only extends to those who have children, either naturally or by adoption. It seems unfair that those who have children can be given a significant tax advantage that does not benefit those who either do not choose to have children or are unable to have children. To my mind, a much fairer approach would be to equalise the inheritance tax threshold at £500,000 for everyone, enabling even childless couples to leave an estate of up to £1 million free of tax.

I thank my hon. Friend for what he has said. Does he agree that by doing those sorts of things—lifting thresholds, taking people out of fiscal drag and giving more people the opportunity to benefit from a nil-rate band—we would actually be able to grow the economy? As the Swedish equivalent of the CBI has said,

“if you abolish a stupid tax that is complicated and forces wealthy people to leave the country”—

or, by extension, reduce the amount that people pay—

“you get more tax revenue…That is the Swedish experience.”