So, as the UK General Election hots up, the Conservatives have announced that they want every couple (and it is always 'couples' they talk about) to be able to pass on £1m in property, entirely untaxed, to their offspring.
It's a deeply misguided policy, though one on an established pattern. It's just the same kind of flawed policy-making that opened the Help to Buy scheme to all-comers - further inflating the pass-the-parcel housing bubble that seems to be all that the British economy does well. It's exactly the same naked bribe (with the voters' own money) that has given us 'pension freedom day' - a free-for-all with defined benefits pensions that will see retiring Britons subject to fraud, mis-selling and confusion. Before they return home to the taxpayer, shame-faced that they believed any government after the private pensions catastrophe of the 1980s and 1990s.
Because this new wheeze is funded by reducing richer pensioners' tax-free pension allowances (if you believe that it's being funded at all). The Whitehall that giveth with the one hand taketh away with the other.
What will be the consequences? Well, a more complicated Inheritance Tax regime that introduces distortions where simplicity (just raising the threshold as a whole, for instance) would have been better. Probably there'll also be further house price inflation given that this distorts the tax system to make owner-occupied property more attractive, yet again, causing older Britons (possibly wrongly) to scramble toward the buy-to-let market with their pension pots rather than an old-fashioned savings account. Just as Mortgage Income Tax Relief used to - and was abolished by a Conservative Chancellor for just that reason. London will be further hollowed out as a place where normal people can live and work, since that city's where most of these changes will actually happen. And social inequality will be boosted, given that wealthier parents will be able to give tax-free cash to their children - who will have done absolutely nothing whatsoever to earn it. Want to save for a pension? Don't bother: wait for your parents to die instead.
All to benefit the perhaps 10% of the population who would be drawn into this Inheritance Tax net (on death) by the end of the next Parliament. The richest 10% of the population, naturally. While the Government focuses on £12bn on welfare cuts for the poorest. This blog is not given to expostulation. It's dedicated to reasonable analysis. But this is breathtaking regression redistribution, and it leaves a nasty taste in the mouth.
You would think - wouldn't you? - that the real priorities for cutting taxes should be National Insurance, now far out of line with Income Tax thresholds and therefore probably a drag on job creation. Or maybe a cut in the basic rate of Income Tax, which would similarly reward work. Or perhaps assistance for small-scale savers with government matching funds - not the raise in the ISA limit to £15,000 and the creation of a pensioner bond, which (just like this announcement) help the richer and the older at the expense of the younger and the poorer - exactly the people who'll have to drag the United Kingdom out of its low-productivity equilibrium trap.
But no. Because we're in an election you won't get rewarded for, oh, let's be old-fashioned here and call it working and saving. You'll get rewarded for having wealthier parents who happen not to need a lot of expensive long-term care. You'll be rewarded on the basis of pure chance - exactly the opposite that we need if we're to reward thrift, hard work and self-reliance. What an un-conservative (and un-Conservative) idea - one, incidentally, that has professional financial advisers hanging their heads in utter despair.
The worst thing? It'll probably work, for although the actual change being announced won't affect many estates, older voters' aspirations and fears are being touched on here in the most visceral way. It worked before, in 2007, when now-Chancellor George Osborne (above) used an Inheritance Tax cut announcement to forestall Gordon Brown's planned early election. It'll probably boost the Conservatives in the polls again, as they start waving billions of pounds around, safe in the knowledge that the voters think they're better at managing the economy frugally than the other lot. It's a win-win: until the post-election tax-raising hangover begins.
But it's wrong. And it's wrong on the soundest and the most austere of grounds: it encourages idleness, encourages speculation, lessens clarity and certainty, further erodes the pensions system. We could do with spending the money elsewhere.
