King’s Speech (4th Day)
Lord Truscott Excerpts(3 months, 2 weeks ago)
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Lord Truscott (Non-Afl)
I too congratulate the new Ministers and welcome them to the Front Bench, and warmly commend the noble Lords, Lord Vallance and Lord Petitgas, on their excellent maiden speeches.
His Majesty’s Government’s priority mission to stimulate economic growth is laudable. I also welcome strengthening the Office for Budget Responsibility. Never again should a Prime Minister play fast and loose with our economy. A national wealth fund is a good innovation; it is just a pity that this was not created in the 1980s when, unlike Norway, our North Sea oil and gas bonanza was blown on tax cuts for the already wealthy. What do we have to show for it now as a country?
Investment in clean power and our public services after years of neglect will not come cheap. His Majesty’s Government will need to find new revenue streams if we want to invest in new technology, schools and hospitals, and across the regions of the UK, and to fund social care and support an ambitious housebuilding programme.
May I make a suggestion that I have raised a number of times in your Lordships’ House over the last few years? It is surely time to reform inheritance tax, which is paid by less than 4% of the population. To put this in context, if we returned to post-war levels of death duties this could raise £174 billion—enough to fund all our public services properly, including social care, and provide homes for all those who needed them.
A large number of lucky people will benefit from inheritance, but many more people will not, and wealth and property inequalities will only increase. Society will increasingly lack social mobility and move further away from a meritocracy, as opportunities and life chances will depend on whether your parents or grandparents left you a significant legacy or not. Those lucky enough to win the inheritance lottery have just to sit and wait to inherit. Others will not have those advantages. It would be better in my view to transfer a bit more of this inherited wealth to those who need it, and to fund HMG’s ambitious programme through a reform of inheritance tax, rather than make those same people continue to pay the highest level of tax for 70 years.
Many people would prefer to have their estate taxed after they are gone, rather than pay higher taxes during their lifetime. Switching the burden of taxation, even to a limited degree, from income to inherited wealth is one way to achieve this. It avoids the pitfalls of a wealth or property tax, which can hit the living, who are often cash poor but property rich—for example, an elderly couple living in their own home.
I am aware that inheritance tax is one of the most unpopular taxes—particularly, perhaps, in your Lordships’ House—but this is frankly illogical because over 95% of people never pay it. The average inheritance, where there is any at all, is £11,000. Up to £1 million can be currently inherited tax-free from both parents. Nevertheless, there are well-documented alternatives to the current inheritance tax, which is virtually unpaid by the very wealthy. As Paul Johnson, the director of the Institute for Fiscal Studies, said:
“If you have millions it is absurdly easy to avoid”
inheritance tax. The Office of Tax Simplification showed that the average rate of IHT increases from under 5% for estates with a net value of under £1 million; up to 20% for estates valued at £6 million to £7 million; after which it falls to 10% for estates with a value of £10 million or more.
As the Resolution Foundation proposed, inheritance tax could be replaced by a lifetime receipts tax. This would deal with the fallacious argument that IHT is double taxation—we all pay income tax and VAT, for example.
Agricultural property and business asset exemptions, including for AIM shares and gifting, are widely exploited. These exemptions could be restricted to family businesses and farms. IHT could also be made a progressive tax, so the effective rate increases with the size of the fortune, rather than decreasing as now.
The UK’s tax take on inheritance and gifts is less than all but one of the other G7 countries. As Demos reported, if the UK taxed the same proportion as South Korea did in 2022, it would have raised about £14 billion in 2019-20, rather than the £5 billion raised. For the above reasons, I commend inheritance tax reform to the Chancellor of the Exchequer.