Mr. Jim Cunningham (Coventry, South): Will the hon. Gentleman give way?
Mr. Jack: If I can finish this point I will be delighted to give way to the hon. Gentleman.
Those who have accumulated part of their estate through savings might also, on the way through, have faced capital gains or other taxes on the dividend or other income from those savings. Inheritance tax seeks to grab hold of some of that money, which has potentially already been heavily taxed en route.
Mr. Cunningham: The right hon. Gentleman said that this was an old form of taxation, but I remind him that when his party was in government it did not do very much about inheritance tax. Given that he questions the formula, I should have thought that he would have done something about it when in government. However, I have some sympathy with what the right hon. Gentleman is saying. There is an argument for inheritance tax to be adjusted, because
Column Number: 468values are changing through mortgages and that sort of thing, so I accept that his argument has merit.
Mr. Jack: I am grateful for the hon. Gentleman's support and I accept it in the spirit that it was offered. His implied criticism was that the Conservative Government did not do what they could have done. They did in fact over-index the level of inheritance tax on a number of occasions.
This is one of those matters that we should reconsider from time to time. We need to consider whether we need it and to examine the justification behind it. My argument is that people of modest means could find that, for those who succeed them, the final accumulation of their hard work and efforts as home owners and savers is once again to be taxed, and at a penal rate of 40 per cent., once they have passed from this planet.
We must re-examine the issue, because there are ways round this tax. When the Minister replies she will no doubt quote the latest figure from the Treasury to show that, with a threshold of £250,000, probably 1 or 2 per cent. of estates will be affected by the tax. However, surely the perceptive Minister would ask, ''If the tax is 98 per cent. out and only 2 per cent. in, how can that be?'' Quite a few outside London and the south-east might escape because their biggest single asset is their house. However, part of the reason that those figures are as they are—
Mr. Peter Luff (Mid-Worcestershire): My right hon. Friend is underselling his case. In Edinburgh, for example, house prices have risen very sharply. In areas of the west midlands, £240,000 or £250,000 is not an unusual price for a property.
Mr. Jack: I am grateful to my hon. Friend for intervening on me. I do not claim an expertise on the property market outside of my constituency or where I live in London. My hon. Friend makes the case that what may be today's low percentage could develop into a much higher percentage, but I want to develop the argument.
People can circumnavigate inheritance tax by a variety of entirely legitimate means. If they are busy finding ways round it, and they can do so relatively easily—so far, the Treasury has thankfully not moved to affect the law on gifting—it surely raises the question of what the whole complex mechanism is about. The Financial Secretary will be aware of the complexities and expense not only of avoiding inheritance tax but of other matters connected with probate, valuation and all that goes with it. A case can be made for a thorough examination of the tax.
The United Kingdom is facing a crisis with respect to retirement income. For some people, the resources that are left to them will be crucial; one generation should be able to help the next live in some degree of comfort. Therefore, an argument can be made for a further review of the £250,000 limit proposed in the clause. Perhaps it should be raised to ensure that the accumulated wealth of individuals can be left to others to do the further job of ensuring that, at a time when retirement income is under particular pressure, families can pass sufficient money from one generation to the next to help the succeeding
Column Number: 469generation to live a reasonably comfortable life. It is about passing on wealth from one generation to the next.
I hope that the Financial Secretary will explain the legitimacy that the Treasury sees in inheritance tax, as it now potentially affects a lot of people on modest incomes. I hope that she will explain why the Treasury adjudges £250,000 to be the right number. I should be grateful also if she would explain why, at this juncture, the Treasury does not seem minded to go beyond the present rate of indexation for that tax.
Mr. Field: May I say how much I am in sympathy with the comments of the hon. Member for Coventry, South (Mr. Cunningham) in relation to my own party's record on inheritance tax. It is an immoral tax and it should be abolished—something that I believed long before being elected to Parliament. It may be easy for a new Conservative Member to say that, but those who were not in Parliament prior to 2001—or, indeed, prior to 1997—can dissociate themselves from that statement. I appreciate that it was not the top priority during the Conservative Government's last term; it might have been misconstrued had the better Conservative instinct to abolish that iniquitous tax come into play.
Ultimately, as my right hon. Friend the Member for Fylde (Mr. Jack) pointed out, inheritance tax is double taxation. The concept of inheritance tax came about at a time when there was either no income tax or it was charged at a very minor rate. About 200 years ago, income tax was levied only at times of war, and it would go into abeyance thereafter. I am concerned, as I said in our debate on stamp duty, that it is part and parcel of Government policy. Inheritance tax may have been raised by a derisory level—it may be more than the level of inflation, but it is clearly considerably less than the increase in the cost of housing, which is surely the relevant inflationary factor—but it is evidently part and parcel of a policy that could also lead to doing away with the seven-year rule. That will doubtless be presented as the modernisation of inheritance tax, just as the modernisation of stamp duty allows the imposition of greater taxes on property owners. It is part of a long-standing agenda. The Government have obviously realised, especially post–1997, that income tax is no longer a viable means of redistribution, so they will use every other means available to achieve that. Clearly, inheritance tax is part of their armoury.
There is little doubt—my right hon. Friend the Member for Fylde put this eloquently—that the measure will penalise people in London and the south-east in particular. It seems absurd that a modestly priced property, worth £250,000—I accept that that may seem a large sum of money in many other parts of the United Kingdom—will result in inheritance tax being levied on the death of both spouses. My right hon. Friend referred to passing assets from one generation to the next. I suspect that that is what the Government object to, and that we shall see more measures introduced in years to come as part of their agenda to modernise property tax to ensure that less and less can be passed from one
Column Number: 470generation to another. There is, however, a suicidal aspect to that approach, because while uncertainty remains in the financial markets and in other instruments, such as pensions, more and more money is being put into commercial property, especially by the younger generation. That should, perhaps, be discouraged, although I am not sure that it is the Government's role to do that. Many of my younger constituents eschew the idea of buying a pension, shares or other financial instruments and, instead, rush into investing in the property market, which has lead to its unhealthy overheating.
I worry that, behind the modest-looking provision in clause 115 lie the first steps towards some radical changes in the inheritance tax regime. I suspect that, in the next few years, the Government will think about ending the full capital gains tax exemption on a primary residence. We may see the idea of a European-style annual tax on property holdings being floated as part and parcel of the modernisation of the stamp duty or inheritance tax agenda. Hopefully, we shall have an opportunity to argue against that forcefully in due course.
Chris Grayling (Epsom and Ewell): I echo the calls for a more detailed examination of the role of inheritance tax in our society. The hon. Member for Coventry, South referred to the actions of the previous Conservative Government, but we face a very different situation today, in terms of both demographics and the pensions industry. There is no longer a concrete future with respect to provision for elderly people. As their numbers increase and as we continue to experience relatively low inflation and stock market problems, and as more and more final salary pension schemes disappear, the challenge of making proper provision for old age becomes greater. The use of inheritance tax planning and the modification of inheritance tax may provide a vehicle for passing wealth from generation to generation to act as an alternative form of pension provision. It is statistically likely that one's parents' generation are no longer around when one reaches retirement age. If they pass on their wealth and property, that may provide a core bedrock of provision in old age.
I suspect that the Government regard inheritance tax as a cash cow. It must be nice for them to see house prices going up, year by year, and more and more estates falling within the inheritance tax provisions, providing more and more money to be spent on other things, but that is a narrow view. The Government now have the option of considering how to sort out the pensions situation for the future.
Mr. Bercow: Given that the Government propose an increase of 3.3 per cent. in the threshold, when, according to the Halifax, house price inflation is running at 18.5 per cent., does my hon. Friend agree that the Government owe us an explanation as to which of three possible scenarios describes their position on the matter? Do we not need to know whether the Government intend more property owners to be brought into inheritance tax, whether they expect house price inflation to be reversed or reduced, or whether they are less optimistic in their prognosis for inflation than the Chancellor has led us to believe?
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