Inheritance Tax

David Linden Excerpts

Wednesday 17th January 2024 Westminster Hall

[David Linden (Glasgow East) (SNP)]

It is, as ever, a great pleasure to serve under your chairmanship, Sir Robert. I thank the hon. Member for Hemsworth (Jon Trickett) for securing the debate, which has been quite informative and good-mannered. I pay tribute to my colleague and comrade, the right hon. Member for North East Hampshire (Mr Jayawardena), who I am sure was here to advocate a 5% inheritance tax.

I also pay tribute to the hon. Members for Darlington (Peter Gibson), for Easington (Grahame Morris), for Wansbeck (Ian Lavery), for Coventry South (Zarah Sultana) and for Strangford (Jim Shannon). It is not often that I disagree with the hon. Member for Strangford. He knows that I hold him in high esteem. But to gently push back on his argument, I suggest that perhaps his parents started with only £5 because of the inequality that exists. Perhaps if inheritance tax was properly in place, his parents might have had more money.

[Jim Shannon]

Perhaps I did not make my point in the right way. My mum and dad started with £5. They worked hard, developed all those shops and the farm that they owned through hard work and effort. What I am trying to say—I hope I can convey it in a sensible way—is that with that hard work ethic they made their £5 go far. It is like the story in the Bible of the 10 talents. They got 10 talents and a whole lot more.

[David Linden]

I appreciate that. Anyone watching this debate will know that, given how we are debating this, some of which is based on Bible principles, this is just something that we will disagree on. I none the less appreciate how the hon. Member put his point and I respect it.

I have listened with great interest to the points made by Members today. As we approach the spring Budget, I suspect it will not be the last fiscal event of the year if we are heading for an autumn election. As with last year’s autumn statement, I am sure that the issue of inheritance tax—we got to the crux of this with the contributions from the hon. Members for Darlington and for North East Hampshire—or more specifically the issue of scrapping inheritance tax, will feature heavily in the debate leading up to the Chancellor’s announcement this spring.

As we debate this issue it is important to be cautious and take stock of who this debate favours and at what cost. Who are the winners and losers? I appreciate that, in the cosy consensus of Westminster, talking about the royal family is not often appreciated, but there is an elephant in the room here: there is no inheritance tax for the royal family. Indeed, recently, the King, following his mother’s passing away, benefited enormously from inheriting the Duchy of Lancaster, and his son benefited enormously from inheriting the Duchy of Cornwall. Neither of them paid any inheritance tax—we are talking about hundreds of millions of pounds being inherited by the King and the Prince of Wales, and not a single penny of inheritance tax being paid on that. I am at risk of upsetting either the Clerk or you, Sir Robert, so I will not make any more comment on that, but simply leave it on the record that my constituents and I find the situation deeply unacceptable.

Just last week, I stood in this Chamber outlining the dire situation that people currently face as a result of the cost of living crisis—a crisis that shows no real signs of improving any time soon. As I go around my constituency of Glasgow East and people talk, quite rightly, about the impact of the cost of living crisis and the upcoming Budget, not a single constituent who has spoken to me in person, emailed me or come to my surgeries has said, “Do you know what, David? The biggest solution to the cost of living crisis is to abolish inheritance tax.”

I suspect that if we challenge people on the issue of polling and go out there—whether to Westminster tube station, Hemsworth or Worcestershire—abolishing inheritance tax will be so low down in people’s priorities. That is why, in the midst of this cost of living crisis, debating whether to scrap inheritance tax—which less than 5% of people pay, despite bringing in nearly £7 billion to His Majesty’s Revenue and Customs—seems ludicrous. Against the backdrop of a British Government intent on bringing forward draconian measures to force ill and disabled people into work in order to balance the books, it is ludicrous that they are floating the idea of scrapping an inheritance tax that is paid by only the wealthiest households on these islands.

However, the British Government’s commitment to reducing taxes for the most well-off is a timely reminder of just how out of touch they are. As people struggle to turn on the heating this week in -4° conditions, it is simply absurd that the British Government should be even considering getting rid of a tax that goes at least some way, albeit a very small way, to alleviating the entrenched wealth inequality that is so prevalent in our society. The UK has one of the highest levels of income inequality in Europe, so scrapping or even reducing inheritance tax only deepens further the chasm of inequality that no modern or fair society should have.

Fuelling speculation around the scrapping of inheritance tax, the Chancellor has previously stated:

“I think that inheritance tax is a pernicious tax because one of the main reasons people invest is because they want to pass on savings to their children”.

Inheritance is an emotive subject of debate. It makes us consider life after we are no longer here and what that may look like for the generations after us. This is where my friend the hon. Member for Strangford and I entirely agree: we both know where we are going after we have been here, because of our belief in Jesus. I also happen to believe that people should not have a removal van or a bank van following them to their grave, but that is a separate issue.

As a parent myself, I understand the logic of wanting to be able to provide for our children, even from beyond the grave, but here is why I take that statement and the Chancellor’s line of argument with a degree of incredulity. I recently—in fact, only yesterday—spoke with Daniella Jenkins, a senior lecturer at the University of Bristol, who made an important point about recognising the existing inequality of intergenerational wealth. Like the hon. Member for Darlington, the Chancellor made a sweeping statement without giving any consideration to what I would argue are the huge disparities in intergenerational wealth that exist across these islands.

Pre-existing parental wealth is often overlooked in this debate. It is worth noting that while some children are set to inherit from their parents, some stand to inherit absolutely nothing, either because they do not have any parents or because their parents themselves face dire levels of income inequality, meaning that they will have little to leave behind. Sadly, that issue is probably more the case in constituencies such as mine, Glasgow East; I respectfully suggest that perhaps that is why I bring to the debate a different view from that of my friends on the Conservative Benches.

Although the Chancellor frames his argument around the desire to transfer wealth to children, we cannot escape the fact that the national trends across the population show that parental wealth is very, very unequally distributed. We should also remember that the value of wealth being passed on has also increased over time. If that cycle continued, it would only further entrench wealth inequality among millennial children and younger children, because—frankly—the difference between having rich parents or poor parents is now shaping what economic resources are available to children. That is why it is so important that the discussion about inheritance is centred on fairness and equality.

In Scotland, the issue of taxation has been under intense scrutiny over the last few months, following the Scottish Government’s latest reforms to their progressive tax framework. Only today the Prime Minister spoke about Scotland being the highest-taxed part of the United Kingdom. I am afraid that is not something that keeps me awake at night. As a higher earner, I am quite happy to pay more tax, because the tax that I pay goes towards the education that my children receive at the local school; the tax that I pay goes towards the salary of my mother, who works in the national health service. As a higher earner, I have no issue whatever with paying more tax, although I know that view is not shared widely in this place.

Although the Scottish Government currently have no ability to introduce measures related to income tax, within their income tax framework they have been able to create a progressive tax system conducive to a fair and more prosperous Scotland. With the limited powers that they have, the Scottish Government have ensured that the tax and social security system is progressive and equitable, so that everybody in Scotland—regardless of their background—has the opportunity to thrive. It is within those guiding principles that progressive policies have resulted in Scottish households, particularly in the lower half of the income distribution bracket, being £400 better off a year than they would be in other parts of the UK.

While we are faced with these elevated levels of income inequality, scrapping or reducing inheritance tax would simply deepen and perpetuate the existing disparity. If the British Government are determined to make an already deeply unfair inheritance tax system more unfair, the only conclusion that I can draw is that they must transfer the necessary powers to legislate on inheritance tax to the Scottish Parliament, either through the means of further devolution or—my desired option—independence. Only then will Scotland be able to build a comprehensive and progressive tax system that puts fairness and equality at the centre, representing the values of a modern and equitable society and not those of a Westminster system that frankly does not have the confidence of the people of Scotland.

--- Later in debate ---

[The Financial Secretary to the Treasury (Nigel Huddleston)]

It is a pleasure to serve under your chairmanship, Sir Robert. I join others in congratulating the hon. Member for Hemsworth (Jon Trickett) on securing this debate. I also welcome the participation of other colleagues, in particular my hon. Friend the Member for Darlington (Peter Gibson), the hon. Member for Easington (Grahame Morris), my right hon. Friend the Member for North East Hampshire (Mr Jayawardena), the hon. Members for Wansbeck (Ian Lavery), for Coventry South (Zarah Sultana) and for Strangford (Jim Shannon) and my opposite numbers.

We have had a wide-ranging debate. Everybody knows, and the Government certainly recognise, that individuals do work hard to build up assets over their lives, and it is a very human instinct to want to pass that on to their loved ones, when they pass away. Yes, there has recently been a great deal of speculation in the media and on Opposition Benches about potential future changes to inheritance tax.

I am sorry to disappoint hon. Members and colleagues, although they will not be surprised to hear that I am not going to announce Government policy here today. The Budget is on 6 March, when the Chancellor of the Exchequer will set out any changes to the tax system in the normal way. There is a great deal of speculation and it would be inappropriate for me to comment.

[David Linden]

Could the Minister confirm something for us? We hear the argument all the time that Ministers will not speculate and that the announcement will be made in the Budget. The blunt reality, however, is that, whether it is speeches at the Conservative party conference, op-eds in The Sun newspaper, or cosy sit-downs with political journalists, the Government do comment on what they are doing before the Budget, do they not?

[Nigel Huddleston]

The hon. Member will be aware from his own party and the Opposition that there is a wide range of views within parties on policy. I am not going to speculate on tax policy. We always keep tax policy under review and always welcome insights, evidence, information and views when developing tax policy, as do the Scottish Government. We have heard a wide variety of views today. As I said, announcements will be made at the appropriate time and place.

--- Later in debate ---

[Nigel Huddleston]

I thank my hon. Friend for his comments. Again, I cannot make any promises today, but I understand the important point he is making about the nil rate. Changes have been made over the years in that area, and I will come on to that point later.

The vast majority of estates pay no inheritance tax. The combination of nil-rate bands, exemptions and reliefs mean that only 5.1% of UK deaths are forecast to result in an inheritance tax liability in 2023-24. That is forecast to increase slightly to 6.3% in 2028-29: it is still a relatively small number, but it makes an important contribution to the public finances. It is forecast to raise £7.6 billion in 2023-24 and £9.9 billion in 2028-29. That revenue is important because it is spent on a whole variety of public services, levelling up and many other areas of Government policy.

The headline rate of inheritance tax is 40% but, as the hon. Member for Wansbeck acknowledged, a 36% rate is charged when at least 10% of the net estate is left to charity. That is an important point of this system as well. It is important to remember that the rate is charged on the part of the estate that is above the threshold and after the application of reliefs and exemptions.

The Government have made changes since 2010 that have increased the threshold to £1 million, made the system fairer and reduced administrative burdens. For example, in 2017 the Government introduced the residence nil-rate band, mentioned by my hon. Friend the Member for Darlington, to make it easier to pass on the family home to the next generation, but we restricted the residence nil-rate band for the wealthiest by tapering it away for estates over £2 million. More recently, we made changes so that for deaths from January 2022, over 90% of non-paying estates each tax year no longer need to complete inheritance tax forms when probate or confirmation is required. At the same time, we have tightened the rules to make sure that individuals make a fair contribution and pay the tax owed. For example, in 2017 we introduced new rules to limit abuses of the rules by people with non-domicile status who used complicated structures to make their UK homes look like offshore assets.

Several hon. Members talked about loopholes and avoidance. It is important to distinguish between the legitimate use of reliefs and those who engage in avoidance by bending the rules to gain a tax advantage that Parliament and none of us ever intended. It is not true that the wealthiest do not pay inheritance tax: national statistics for the tax year 2020-21 show that taxpaying estates valued at over £1 million accounted for 81% of the total inheritance liability.

[David Linden]

If it is not true that the wealthiest do not pay inheritance tax, can the Minister tell us how much the King paid upon inheriting the Duchy of Lancaster?

[Nigel Huddleston]

As I said, estates valued at over £1 million paid 81% of all inheritance tax.

I am aware of the time, and I need to leave a minute or two at the end for the wind-up, but I want to make a final point. We have had a very good discussion about inheritance tax, but we have had an inkling of the differences between the political parties. I am afraid that some Opposition Members started to delve into the politics of envy, which is a well-trodden path for the Labour party, by commenting on elitism, Oxford University and so on. Well, I can tell them that I went to Oxford, and that my Labour-voting trade unionist father, my mum, who worked on the tills at Asda, and the schoolteachers at my comprehensive, instead of being snide about the opportunities and aspiration that I had, actually applauded and supported social mobility. That is what we on the Conservative Benches do. It is disappointing to hear the tone of the Opposition.

The hon. Member for Ealing North, in another well-trodden argument, started trying to lecture us on responsible finances. We still have not had an answer to the question of where the £28 billion of spending promised by the Opposition would come from. We are more than happy to debate the issue, because we have a very clear plan for the economy: we had the very welcome and well-received national insurance cut at the autumn statement, which I do not believe the hon. Member opposed, and nor did he oppose the significant support that we gave during covid or the significant support that we have given households during the cost of living crisis. That all needs to be paid for, which is why we have higher taxes than we would like. But we are on a path to reducing them, because that is what Conservatives do. I thank hon. Members for their contributions; all their comments have been taken on board.