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.

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