Wisdom can be a hard thing to find at the best of times, but when it comes to the heightened emotions sometimes triggered by tax policy, it can prove even more elusive.
So it was when, in the recent Budget, the government announced it would introduce inheritance tax for family farms, giving farmers a 100% allowance on only the first £1m of agricultural property handed down to a new generation. The tax would be payable at 20%, a discount on the standard 40%.
The farming world erupted in anger, and a demonstration followed that brought 13,000 farmers and their supporters, among them celebrities, to the streets of Westminster.
Farmers were previously excluded from inheritance tax for a number of reasons, but chiefly because farming is a high-capital, low-income business pursued by families with an intense bond to the land they farm.
Does the Treasury know the impact its proposals will have but ploughs on regardless?
There are undoubtedly arguments to be had about who should pay inheritance tax, but the furore raises another issue: the hugely emotional energy that greets changes in taxation.
Omnishambles
The history of Budgets is littered with examples of government being at odds with an industry or campaigners over the impact of a tax policy. Who could forget the notorious ‘omnishambles’ Budget of 2012, which saw then-chancellor George Osborne attacked over numerous poorly planned measures, including the so-called pasty tax, the caravan tax and the granny tax.
I’m old enough to go back further. Who can forget the controversy around IR35 or the abolition of the 10% income tax band in 2007, which went through a partial reversal after it emerged that more than five million households would be worse off.
Does the Treasury know the impact its proposals will have but ploughs on regardless in the interests of the ‘greater good’? Or is that too generous a take?
‘No one checks the Treasury’s work’ – until the tractors are trundling down Whitehall
In his book, Failed State, Sam Freedman of the Institute for Government worries about the centralisation of power inside Westminster, and much of that to the Treasury. Such is the problem, he says, that the Treasury often fails to think through policy.
‘The problem,’ writes Freedman, ‘is that there’s no counterweight. No one checks the Treasury’s work. No one can overrule them and say, “On this one you’re wrong”.’
No one, that is, until the policy is set loose and the tractors are trundling down Whitehall. (The government estimated only around 500 farms a year will be hit by the new rules. The National Farmers’ Union reckons the figure is more like 2,500.)
Freedman is reflecting on recent decades and wrote his book before the current government came to power. But it seems that the problem might persist, however well-intentioned the chancellor is with tax policy.
Perhaps if the government plans to ‘rewire’ the state, as the prime minister recently said, one priority might be the way the Treasury considers tax policies and their implications, with more focus on outcomes and implications.
Without that, certain tax policies will continue sowing division at a time when the country should be sowing the seeds of growth.
More information
Read ACCA guidance on IHT on farms and IHT and pensions
