Labour adds inheritance levies to its tax raid plans

Party plots new attack on middle class as MP says ‘we like anything that benefits people over a million quid’

LABOUR is examining raising inheritance tax in a further raid on the middle classes, The Daily Telegraph understands.

The party could ditch a measure that allows parents and grandparents to leave their homes and other assets worth up to £1 million tax-free to younger generations.

A change to inheritance tax would be in addition to other proposals by Labour, including reversing the Government’s plan to abolish the lifetime cap on tax-free pension savings and cancelling tax breaks for private schools. An increase to capital gains tax is also on the table.

The Labour Policy Forum, which is conducting a consultation on policies to feed into its manifesto, has received submissions from branches and constituency parties calling for inheritance tax to be reviewed. Labour’s “grey book”, which it published alongside its last manifesto in 2019 to explain how it would fund its spending commitments, pledged to reverse George Osborne’s inheritance tax cut tax. The party is yet to announce which measures it will keep before the next election.

However, Sir Keir has said he aims to pursue his predecessor Jeremy Corbyn’s policy of scrapping the financial benefits that private schools derive from their charitable status.

In 2015, Mr Osborne, then chancellor, announced plans to cut inheritance tax, with a promise to protect millions of family homes from the “death duty”.

The scheme, which took effect from 2017, honoured a Tory promise to cut inheritance tax, which Tories said was blocked by the Lib Dems in Coalition.

A Labour party spokesman said the 2019 manifesto is “ancient history” – but declined to rule out whether the policy on inheritance tax would feature in their next manifesto.

A Labour front-bench source said: “We have boxed ourselves into ‘we are more fiscally responsible than the Tories’ corner – we will have to tax more or where is the money coming from if not borrowing? We are most likely to take on the second-homes tax and reversing the George Osborne inheritance tax cut policies. We like anything that benefits people over a million quid.

“The liberal middle-class Remain people will agree and be happy to pay a bit more tax. And we are also trying to win back the working class by pitting the rich against them”.

The Institute for Public Policy Research has been campaigning for inheritance tax to be abolished.

The think tank has suggested several policies that have later been adopted by Labour, including a windfall tax on the excess profits of energy firms and increasing public funding to achieve net zero. Research by the Taxpayers’ Alliance, which modelled the effect of a rise in capital gains tax, found it could result in a £21billion (0.66 per cent) fall in economic growth over the next decade.

John O’connell, of the Taxpayers’ Alliance, said: “We have to remember that capital gains tax discourages investment, and without investment the economy will continue to stagnate.”

A Labour spokesman said the party was “under new leadership and the electorally disastrous 2019 manifesto is ancient history”.

When Sir Keir Starmer announced that he would reverse the Government’s decision to scrap the pensions lifetime allowance (LTA), he appeared to have overlooked two things.

Firstly, that he is the beneficiary of a unique deal from his time as Director of Public Prosecutions that meant he could enjoy a pension that breaches the LTA without incurring a tax charge. And second, that the LTA was higher under Labour than it ever has been under the Conservatives.

Introduced under Tony Blair in 2006, the original LTA was set at £1.5million and rose to £1.8million in 2010. Since then, the LTA has been successively cut by Tory governments. It was due to be frozen at £1,073,100 for the next tax year before Jeremy Hunt decided to abolish it altogether in this month’s Budget.

So when Angela Rayner this week declared the move to be a “handout to the richest 1 per cent”, she appeared to have conveniently forgotten that her own party had sought to enrich the supposedly richest in a similar vein.

Yet all these repeated references to “the richest 1 per cent” are completely disingenuous. According to a 2019 report by Royal London, at that time as many as 1.25 million people still in work were at risk of breaching the LTA by the time they retired. The figure may well be higher now.

These are not gazillionaires taking a chopper to the office but ordinary workers. Ironically for Labour, the party seemingly beloved of “The Blob”, those affected fall mainly into two groups: long-standing senior public sector workers on final salary pension schemes (think, say, Sue Gray) and relatively well-paid workers in a workplace pension scheme, typically earning £60,000 to £90,000.

I appreciate that, at the top end, that is around three times the average salary in the UK, but we are not talking about the Musks of the world here. We are talking about middle-class professionals. They are Labour’s cherished civil servants, headteachers, doctors and (human rights) lawyers. We’re even talking about Tube drivers, for heaven’s sake.

And as Royal London pointed out, “the very highest earners may be less affected by the lifetime cap, because they are now heavily limited in the amount they can put in to a pension each year” through rules that restrict the annual pension savings of very high earners.

But that’s not all. Despite the tax burden being at its highest for 70 years, Labour is now hinting at a typically self-defeating scheme to raise taxes on investments, too. It is understood that a large, Corbynesque increase in capital gains tax (CGT) is on the cards should Starmer and Rayner get the keys to No10. The idea is to double the CGT rate, currently levied at 20 per cent on most assets, to bring it in line with the 40 per cent income tax rate for higher earners.

This isn’t just a terrible idea because it would make Britain an outlier in the world, stifling investment and enterprise at a time when growth in the UK economy is most needed.

Like penalising workers for saving into their pensions or striving hard enough to send their children to private schools, it would also send a disastrous message to ordinary people who aspire to improve their lot in life.

CGT is levied on stocks, shares, buy-to-let property – the sort of investments that a great many people, not all of them loaded, either have or aspire to have. Regardless of what they earn, most people want to accumulate assets and wealth not only to have a comfortable life and retirement, but also to pass it on to their children, or to complement their income in hardpressed times.

All these punitive tax policies will succeed in doing is punish grafters for doing the right thing.

These workers do not want to be a drag on a state or, specifically, other taxpayers. Putting money aside to save or invest is hard at the best of times – but it has been especially hard in recent years, with ultra-low interest rates and volatile markets making it difficult to eke out a return. It is also easy to forget that this is money that people could have very easily frittered away. It is morally repugnant for the state to take advantage of their prudence – not least when the middle classes are already being wrung out to dry.

The seemingly never-ending freezing of income-tax thresholds means millions are being fiscally dragged into the 40p income tax rate. The 45 per cent threshold has been massively cut, which is deterring people from seeking promotions or pay rises.

Thanks to inflation, everything has become more expensive, from buying food and clothing to the price of a family holiday (which has increased in part due to green taxes on flights). Mortgages have shot up, and Labour also wants effectively to jack up the cost of sending children to private school, even though parents who do so are alleviating the burden on the hard-pressed state sector.

If it wasn’t bad enough that fuel prices have rocketed along with gas and electricity, politicians such Sadiq

Khan, the Labour Mayor of London, are making it even harder to own a car, even if you live in the suburbs, with his Luddite Ultra-low Emission Zone. God forbid anyone who wants or needs two cars. Presumably, Rayner and Co would also put such people in the “richest 1 per cent”. The middle classes are increasingly being required to prop up everyone else, with the statistics showing that the proportion of the population who are net contributors to the state is falling. The Institute for Fiscal Studies (IFS) analysed how much households pay in tax. Its research, which covers around three-quarters of tax revenues (including income tax, NICS, VAT, excise duties and council tax, which is about to top £2,000 per year on average for the first time), found that the 50 per cent of households with the largest incomes contribute about 78 per cent of taxes.

And to think I’ve yet to mention the plight of the self-employed or small business owner, who are facing an avalanche of soul-destroying tax and regulation.

The state is arguably reaching the limit of what it can squeeze out of the economy through taxes on business and personal income. What will Labour target next? They are already after our pensions, but why draw the line there? Why not start tapping into our tax-free Isas or take a chunk of our children’s tax-free savings, too?

One of the problems for the Conservatives is that they will struggle to argue against any of this because they have sacrificed their own reputation as a party of lower taxes. They seem to have forgotten all the intellectual arguments against Labour’s ill-founded war on wealth – because they have been adopting much the same short-sighted strategy themselves.

The party’s flirtation with wealth taxes is morally repugnant. People are being punished for doing the right thing