Chancellors of the Exchequer sooner or later fall into the old trap of thinking of themselves to be St George slaying a dragon. It is terribly good publicity, and they love the idea of themselves being reported as ridding the land of a hated tax or two.
So it was no surprise to find that ahead of the recent Autumn Statement last month there were yards of heavily leaked stuff about how Jeremy Hunt was intending to abolish inheritance tax (IHT). This would have been a startling and largely popular action.
But come the day, and a mere fortnight or so after the IHT reform proposals started to drift into the press, nothing was announced or even hinted at. So what was the significance of what Sherlock Holmes would have noted as the dog that didn’t bark in the night?
In theory, the public generally would have been with him, even though few of them are affected by the tax. But, almost uniquely, it gets up people’s noses. Ahead of the announcements, Chris Etherington, tax chief at accountants RSM, described it simply as: ‘The most emotive tax in the UK.’
‘IHT is often said to be unpopular and raises strong emotions’
In its last examination of the tax, in 2019, the now defunct Office of Tax Simplification said: ‘Inheritance tax is often said to be unpopular and raises strong emotions, not least because it affects people only occasionally, in sometimes significant and surprising ways, and at a sensitive time’.
Or as another expert pointed out: ‘It is bizarre. Everyone hates it, but almost nobody pays it.’
Hot topic
Yet in the run up to the Autumn Statement, and in the week after it, the newspapers were full of articles about it. They know what sells the family finance pages, and fears of a complex tax that might hit your family out of the blue are top of that list.
Even VAT and popular chocolate biscuits don’t elicit that amount of uproar
When the OTS asked for comments from the public before it produced its report, it had what it described as ‘an unprecedented level of engagement’: some 3,000 responses to an online survey, hundreds of emails from the public, and a hundred written responses to a call for evidence. Even calls for comments on VAT and popular chocolate biscuits don’t elicit that amount of uproar.
You can see, therefore, why a chancellor in search of good publicity and wanting to bask in the reflected glory of a hated tax being slain might be tempted, even though the amount of tax that IHT raises is tiny as a percentage of the nation’s taxes and affects an equally tiny number of the total population. Such draft proposals would be placed in the wire basket on his desk marked ‘No brainer’.
But what probably saved the tax would have been a nagging anxiety around unintended consequences. You can avoid the tax, if you are rich and landed, by shovelling your cash into agricultural assets. Abolish the tax, and the shires of old England would be furious at the idea of family farms being broken up.
Leaving the tax intact still ensures a steadily rising source of government revenue
Or you could put your money into other business assets. Reversing IHT could cause real problems for AIM, that bit of the London Stock Exchange that serves small and medium-sized companies. Suddenly the no-brainer turns into what no chancellor wants – a prolonged sequence of post-Budget stories about furious victims of the reforms.
Doing nothing
Leaving the tax intact, with the old trick of not increasing the thresholds, still ensures a steadily rising source of government revenue. Perhaps the chancellor tossed the papers into the wire basket marked: ‘For another day’.
But the main issues will not go away. After all, the OTS report summed up all the irritations that their consultations exposed: that there are ‘many areas where inheritance tax is either poorly understood, counter-intuitive, requires substantial record keeping, creates distortions, or where the application of the law is simply unclear’.
It would be no surprise if reform turned up next time around.
