Ken Clarke fails to stop Cameron and Osborne committing election suicide

In September 2008 I penned a piece about what I then thought was the likelihood of the Tories following through on their 2007 pledge to increase the personal Nil Rate Band (NRB) for Inheritance Tax (IHT) to £1 million.

The question of increasing the NRB was raised again with Ken Clarke on Sunday 22nd March 2009 by the BBC.  He responded by saying that ‘cutting inheritance tax would not be a high priority for an incoming Tory government’.  He went on to confirm that the Tories were still committed to increasing exemptions on IHT but that the current financial conditions meant that the ambition to increase the band to £1 million was now considered to be an ‘aspiration’.  In a later partial retraction he said ‘we are fully committed to raising the threshold for inheritance tax in the first parliament of a Conservative government.  This measure will appear in the manifesto and I support it.  We also agree that George Osborne cannot write his first budget until we have seen what we have inherited’.

On Monday 23rd March this view was refined again by a statement that confirmed that in future ‘only millionaires would pay Inheritance Tax’.

It is clear from these exchanges that my earlier suspicions that Osborne’s original intention of moving to a £1 million NRB were effectively scuppered by Darling’s inspired move to make the NRB transferable.  By avoiding any specifics over recent days it seems that the Tories are, quite understandably bearing in mind the deterioration in the economy and in government finances, leaving themselves wriggle room.

In the longer term I suspect that the Tories will either, (a) increase the personal NRB to £0.5 million and retain the new transferability rules to give every couple a joint allowance of the promised £1 million, or (b) increase the personal NRB to £1 million and remove transferability. 

However, in the short term I do not think that any major moves are likely because of the state of government finances.  It is more likely that any move towards either of the above scenarios will be made incrementally over a number of years.  The background environment has changed dramatically between 1st October 2007, when Osborne made the ‘commitment’, and today and I do not believe the electorate will accept moves to benefit the ‘wealthy’ during a period when all taxpayers are likely to be hit hard in an attempt to rebuild government finances.  As David Cameron pointed out only last week, the ‘wealthy’ will have to pay their ‘fair share’ during the economic downturn.

With asset values well down, inflation about to turn into deflation and unemployment forecast to hit 3 million in the coming year, the public will feel there is little justification at this moment for taking the wealthy out of any form of taxation!

Paul Wilcox
Chairman & Technical Director, WAY Group.

Posted on 23rd March, 2009 |
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Humanitarian aid is in our hands

Returning from Australia late in January we avoided travelling for 26 hours non-stop by taking a two day stopover in Dubai.  Having spent a miserable time being monsoon rained upon for days on end in the Whitsunday islands (discovered by James Cook, British navigator on Whit Sunday in 1770 – us Brits are nothing if not logical, albeit somewhat unimaginative) we were determined to have some last minute sun before returning to our cold and snowy shores.  Five o’clock in the morning approaching touchdown at Dubai’s new airport terminal the pilot announced that for the first time in several months it appeared to be raining in Dubai.  I was beginning to take things personally.

We had last been in Dubai just a year ago, en route to another sunspot, as we have tended to do.  It is a great stopover with good hotels, generally reliable weather and a relaxing environment to bridge the gap between 24/7 holiday and the realities of home.  We stayed, as per normal, at the Hilton Jumeirah Beach hotel just along from the ‘sail’ of the famous Al Burj.  Ten years ago this hotel stood in splendid isolation on Jumeirah beach, with unspoilt views in every direction.  Today its ten stories are completely dwarfed by the rows of 40-50 storey beachside apartments which line the new promenade directly across the road from the hotel.  We have watched these apartments being built over recent years and have been fascinated by the working practices employed by the local building companies.

 Allegedly because of the heat they run their building sites 24/7 bussing in hundreds of workers three times a day for each eight hour shift, day and night.  There has been a great deal of controversy about the extremely tough conditions endured by building workers in Dubai, most of whom come from places like Bangladesh or Pakistan.  This year we walked around all the new developments and there is no doubt that progress has slowed a great deal.  There are plenty of ‘immigrant’ workers but their numbers are vastly reduced from previous years.  The global credit famine is hitting Dubai hard.

 With a tiny Emirati population and a large but quickly shrinking ex-pat community one wonders who is going to buy the thousands of properties being built.  Most residents of Dubai (between 80% and 90% are ‘visitors’ working on short term visas) are male and working to support families elsewhere.  With the economy going through a tough time many are losing their jobs and leaving the country.  At the same time property investors around the world are pulling in their horns.  This leaves Dubai property companies selling off luxury villas and apartments at massive discounts.  Maybe more important, however, is the fate of the erstwhile imported labour who, whilst earning a pittance by western standards, relied on their sparse income to support their families in some of the poorest parts of the world.

 This reminds me of some research trips I took several years ago which later led to many heated dinner table debates about capitalism and exploitation of labour.  This has become a major social issue in the intervening years.  I visited a huge clothing factory in Bangkok in the 1990s which made women’s fashion clothes for companies like Top Shop and Marks and Spencer.  I remember visiting the quality control department run by ex-pats on behalf of M&S.  This factory employed young teenaged women who, allegedly, supported their families (who mainly lived in pretty awful conditions on the banks of the river).  They earned very little by western standards but were all nattily dressed in jeans and t-shirts or blouses, wore watches and jewellery and, bearing in mind the daily challenges of their lives, were of a surprisingly cheerful disposition.  Whilst there were no obvious abuses of workers in this particular workplace, the whole area of exploitation of poorly-paid workers in third world countries has become an ongoing scandal in contemporary life.  Even in the buoyant economic times pre-2007 the moral tensions between possible abuses on the one hand and offering people a means of climbing out of destitution on the other, were difficult to unravel.  How much more difficult is it now?

 The Financial Times recently reported (2nd February 2009) ‘more than 20 million rural migrant workers in China have lost their jobs and returned to their home villages or towns as a result of the global economic crisis, government figures revealed on Monday.  The job losses were a direct result of the global economic crisis and its impact on export-oriented manufacturers, said Chen Xiwen, director of the Office of Central Rural Work Leading Group.  He warned that the flood of unemployed migrants would pose challenges to social stability in the countryside’.

 It is a similar story across many of the poorer countries of the world.  Most of these ‘redundant’ workers have no state safety net, no social insurance, basically no hope.  And this is the awful thing about the current economic ‘crisis’.  We in the west are suffering from fear, and in some cases reduced incomes or even redundancy, but our very existence is not being threatened by this recession.  Around the world many thousands of people are facing starvation simply because western consumers have put a brake on their consumption.  Remember that something like 70% of world economic output relates to consumer spending.  No wonder economies around the world are suddenly in a mess.  We do not have to reduce our spending very much for the economy to come to a virtual halt and that is precisely what has happened. 

 As I wrote previously, the solution to this dilemma is in our hands.  Strangely there has still been no strong and charismatic leadership shown in this crisis.  I expected Barack Obama to galvanise the American people in his inauguration speech.  I expected Gordon Brown to attempt to hint at it in his speech to Congress when he recently visited Washington.  I have expected the right exhortations to come from the lips of some world leader somewhere in recent months!  But no.  The public will respond to an appropriate impassioned plea to take action to stamp on this recession.  It does not need VAT reductions.  It does not need tax rebates.  It does not need interest rate reductions (which takes spending power away from the grey economy where it is easiest spent).  It does not need public spending.  What it needs is a charismatic leader to explain to the public that they need to get back to leading normal fearless lives, where they resume their previous levels of sensible rational spending.  This will save the world.

 What the world needs now is a resumption of ‘business as usual’.  Otherwise the price to be paid by millions living in the world’s poorest nations does not bear thinking about.  Maybe we, as influencial people in our communities, should be spreading the word because it seems that no-one else is going to.

Paul Wilcox,
Chairman & Technical Director, WAY Group.

Posted on 20th March, 2009 |
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