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18 Oct 2007 : Column 950

Inheritance Tax

4. Lynne Jones (Birmingham, Selly Oak) (Lab): What he expects the annual cost to be of the increase in the inheritance tax thresholds announced in the pre-Budget report beyond those announced prior to the pre-Budget report. [158862]

The Chancellor of the Exchequer (Mr. Alistair Darling): The costs are published in the pre-Budget report, and 12 million married couples and civil partnerships will benefit from a combined inheritance tax allowance of up to £600,000, rising to £700,000 in April 2010. The entitlement will also extend to all 3 million widows and widowers.

Lynne Jones: The reliable figure that I have for the total cost is £1.4 billion—I am disappointed that my right hon. Friend was unable to give it—which is a similar sum to the cost of introducing long-term care. Why are the Government spending money on Tory priorities, when they could be spending money on much fairer measures to help people whose inheritance is less than £300,000 and who risk losing even that should they need long-term care?

Mr. Darling: Not for the first time, I do not agree with my hon. Friend, and she will not be surprised to learn that. We should recognise the fact that husbands and wives contribute to assets held by the family, including the family home, and I therefore think it right that, in the event of a widow’s death, she can use her husband’s unexpired inheritance tax allowance, effectively increasing the amount of money that can be deducted from any tax liability. As a result of what we are doing, the allowance covers the value of about 97 per cent. of houses in this country, which is the right thing to do. I also think it right to help people who need long-term care, and we have increased the amount of money available to do that.

Mr. Michael Fallon (Sevenoaks) (Con): Will the Chancellor confirm that the press notice accompanying the March Budget proposals on inheritance tax described them as “fair and targeted” and stated that they will give certainty to families “up to 2010-2011”? Does his claim that his sudden panic doubling of the allowance had nothing to do with the announcement by the shadow Chancellor eight days before give us a completely new definition of political serendipity?

Mr. Darling: Just before yesterday’s football, I tuned into MPTV, where I saw the hon. Gentleman trying to run that line while questioning Treasury officials—and rather unsuccessfully, at that. The Budget earlier this year set out proposals to increase the allowance. It has always been the case that all taxes are kept under review. I decided at a very early stage that that was the right thing to do on inheritance tax, which is why I did it. The big difference between the Government and the Opposition is that we can make that change, because we can afford to do so. The Conservative proposals would cost more than £3 billion, and they have failed to identify any credible source for raising that money, which adds to the black hole in their finances. They have promised more than £6 billion in tax reductions, but they have offered no convincing explanation of how they would meet that gap.

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Paddy Tipping (Sherwood) (Lab): What assessment has the Chancellor made of financing lifting the threshold even further to £1 million?

Mr. Darling: As I have said, it is, of course, open to any political party to make proposals to increase the threshold, but they must ask themselves where the money would come from. The Conservatives have not identified any credible source for raising anything like the £3.5 billion that they promised in just one conference speech. It is possible to spend an extra £1 billion, but most of the benefit would go to a small minority of estates over £850,000. Both because it would be inequitable to do that and, crucially, because it could not be afforded, it would be wrong to accept the Conservative proposals. All political parties get into huge trouble when they start making promises that they cannot possibly afford. If they do that, they will end up increasing borrowing, putting up interest rates and putting up mortgage rates, which is exactly what happened to the Conservatives in the early 1990s.

Dr. Julian Lewis (New Forest, East) (Con): Would the Chancellor like to uncross his fingers, look you, Mr. Speaker, straight in the eye and assert that the Government would have made their inheritance tax announcement if the Conservative Opposition had not made their promise to raise the threshold to £1 million?

Mr. Darling: Yes, I would. It is right to recognise that, in this day and age, most husbands and wives contribute to the family assets. If a husband who has not used up his allowances dies, his wife should be able to inherit them. The key difference between us and the Conservative party is that we can make those tax reductions because we can afford to. The Conservatives have now made tax promises worth more than £6 billion, yet they have no idea how they will be able to finance them.

David Taylor (North-West Leicestershire) (Lab/Co-op): The raising of the inheritance tax thresholds has certainly been driven by a tripling of UK house prices in the past 10 years or so. Has the Chancellor seen this morning’s international report suggesting that UK house prices are about 40 per cent. higher than they should be economically? Would any amendment be made to inheritance tax policy if house prices drifted down in the next few years, as some people suggest they will?

Mr. Darling: I read yesterday’s report for this year from the International Monetary Fund—which, incidentally, says yet again that the UK economy will be the fastest-growing major developed economy. Although it has, of course, cut its growth expectations for next year, it also recognises that the UK economy is fundamentally strong and will continue to grow. The IMF’s projections are very much in line with those that I set out to the House last week. On housing, it is encouraging that we are in a position quite different from the one we were in 10 or 15 years ago, when 3 million people were out of work, interest rates hit 15 per cent. and mortgage rates made it very difficult for people to meet their repayments. As I said last week, the UK economy is in a much stronger position than it was at that time. As the IMF recognises, we will get through this time of international uncertainty.

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Mr. Philip Hammond (Runnymede and Weybridge) (Con): The capital taxes structure of the Chancellor’s inheritance tax proposals extends the recognition of marriage. Do the Government believe that the case for recognising marriage through the tax system is a moral one?

Mr. Darling: The tax system, which includes inheritance tax, has always recognised marriage. It is important that we recognise and support marriage, but we have always made it clear that we should not discriminate against children simply because of their family circumstances. Since 1997, we have done all we can—through tax credits or child benefit—to help families with children, because that gives children the best possible start in life.

Mr. John Redwood (Wokingham) (Con): What is the Chancellor’s forecast of house prices that underlies his forecast of revenues for the next two years? In the light of his recent comments that I have heard, he thinks that house prices will fall: by how much, and over what period?

Mr. Darling: I did not say that. All the projections were set out in last week’s pre-Budget report. Many people expect the housing market to slow, and we cannot be sure what the full effect will be of the problems that started in the United States. In my interview that appeared in today’s Daily Mail, I said that lenders must be realistic when they offer loans. They must be confident that the asset is sufficient to repay the loan and that the repayments can be met. A little realism would be extremely helpful not only for individuals but for the housing market in general.

Income Tax

5. Tom Brake (Carshalton and Wallington) (LD): What estimate he has made of the impact on disposable income of changes in the rate of income tax since 1997. [158863]

The Chancellor of the Exchequer (Mr. Alistair Darling): As a result of personal tax and benefit reforms since 1997, households are, on average, £1,050 per year better off. Following the publication of September’s inflation figures, I can announce that from next April the basic state pension will rise by £3.40 to £90.70 a week, and by £5.45 to £145.05 a week for a couple. Full details of all the upratings are published today.

Tom Brake: I thank the Chancellor for his reply. Is he concerned about the uSwitch report, which says that people’s disposable incomes are at their lowest level for 10 years? Since Labour came to power, council tax has doubled, home prices are, as we have just heard, 40 per cent. above a realistic value according to the IMF, and people are spending a fifth of their disposable income on servicing debt. Sir Alan Greenspan, the former head of the US reserve, believes that there is a 50 per cent. chance of a recession in the USA. What probability does the Chancellor think there is of a recession in the UK?

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Mr. Darling: Disposable income in this country has risen by 25 per cent. since 1997. As the hon. Gentleman will know, many measures, including tax credits, have helped families, particularly families on low incomes with children. That is very important.

As for council tax, we have increased the amount of money available to councils to keep down the level of increases. I made it very clear last week that I see no reason why councils should have to increase their council tax to unacceptable levels. I would say to the hon. Gentleman, who represents the Liberal party, that when one looks at the detail of the Liberal party’s policy, one will find that people who would not consider themselves to be terribly well off would be considerably worse off as a result of a local income tax.

Child Trust Fund

6. Mr. Siôn Simon (Birmingham, Erdington) (Lab): What assessment he has made of the impact of the child trust fund on family saving patterns in the UK. [158864]

The Economic Secretary to the Treasury (Kitty Ussher): There is no doubt that our policy on child trust funds has increased levels of saving. Before the scheme was introduced, 30 per cent. of children had no savings accounts; now everybody will, regardless of their background, with more than 3 million accounts already being opened for our children. The data that will be published next week on additional contributions by families into accounts will enable us to assess the continuing impact of child trust funds on family saving patterns.

Mr. Simon: I thank the Minister for that. I invite her to come to Erdington to try to help explain to ordinary families how important it is to top up their child trust fund, particularly in the many communities such as mine where almost one in two of those ordinary families do not have anybody in work.

Kitty Ussher: I would be extremely happy to take up my hon. Friend’s invitation to come to his constituency; it would be a pleasure. In recognition of the difficulties faced by low-income families, the Government give double contributions to children with child trust funds—£500 at birth and £500 at age seven compared with £250 for other families.

My hon. Friend makes an extremely valid point about encouraging family members and friends to top up their children’s accounts. That is why, alongside my right hon. Friend the Secretary of State for Children, Schools and Families, we recently announced £11.5 million for education about the financial implications of child trust funds so that we can encourage the families of the children with such funds to understand that a small amount invested now could make a huge difference later. I will write to my hon. Friend and to all Members of the House to encourage them to take a personal lead in ensuring that their constituents understand the benefits of making small contributions when a child is young so that they have a significant asset at the age of 18.

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Mr. Andrew Love (Edmonton) (Lab/Co-op): My hon. Friend has had for several months the results of the second pilot for the savings gateway. I understand that that shows a very positive benefit for family savings. When can we expect those pilots to be rolled out nationwide so that families can take advantage of them?

Kitty Ussher: I am grateful to my hon. Friend for his comments. As the Chancellor announced in the pre-Budget report last week, we are commissioning the necessary technical work to understand how and when a national roll-out could be implemented and when it could happen according to the technical requirements. My predecessor said with regard to the savings gateway that it is not a question of if, but when. I share that view.

Business Taxation

7. Mr. Stewart Jackson (Peterborough) (Con): What assessment he has made of the likely impact on the competitiveness of the UK economy of the changes to business taxation announced in the pre-Budget report. [158865]

The Chancellor of the Exchequer (Mr. Alistair Darling): The economy is expected to grow at a faster rate than any of its G7 competitors in 2007, as confirmed in the IMF’s “World Economic Outlook”, which was published yesterday. Last week, I announced several measures to help to maintain that environment and to promote a fairer and simpler tax system.

Mr. Jackson: By giving capital gains tax breaks to benefit business speculators and buy-to-let investors while punishing businesses seeking to invest in the long term, is not the Chancellor putting short-term political expediency before the long-term stability of our economy?

Mr. Darling: No, 18 per cent. is less than half the headline capital gains tax rate that we had 10 years ago. It is competitive in terms of the other developed countries. Somebody who starts up a business, develops it and then sells it keeps 82 per cent. of the gain that they make. There is a personal allowance of £9,200, which will especially help people who have employee share ownership schemes. There is also roll-over relief, which allows somebody who is selling a business and wants to reinvest their money back into capital gains to do so. The change that we announced is the right thing to do. It simplifies the tax system, which will bring long-term gains to our economy.

Mr. David Kidney (Stafford) (Lab): Has the Chancellor seen the welcome that the Chartered Institute of Taxation gave to his approach to tax simplification for businesses? Do businesses not clamour for simplification of their taxation? Does he agree that even when proposals have many more winners than losers, it is still a good idea to consult on them?

Mr. Darling: The proposal that we have put forward has been welcomed in many quarters. Indeed, I noticed that the Conservative party’s tax reform commission criticised the present system, calling it a

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The change is justified, will make a difference and will make the system easier for people to understand. Apparently, 75 per cent. of the people who pay capital gains tax find it so complex that they have to consult a lawyer or accountant. When something reaches that degree of complexity, we need to examine it, and this is the right thing to do.

Mr. Philip Dunne (Ludlow) (Con): As there are potentially more than 10 million losers from last week’s proposed changes to capital taxation—6 million in employee share schemes and 4.5 million owners of small and medium-sized enterprises—has the Chancellor calculated how many gainers, such as second-home owners or owners of substantial investment portfolios, there will be?

Mr. Darling: The hon. Gentleman mentioned employee share option schemes, which I have always supported. As the capital gains tax has an annual allowance of £9,200, it is highly unlikely that many employees in such schemes would exhaust that and therefore have to pay capital gains tax. The tax is paid by a comparatively small number of people and the allowance does protect the people whom I am sure everybody in the House would like to support.

Stewart Hosie (Dundee, East) (SNP): The Chancellor will be aware of the comments made by Scottish Financial Enterprise, the Scottish Chambers of Commerce, the Institute of Directors, the CBI, the Federation of Small Businesses in Scotland, and others about the capital gains tax changes, particularly those on the potential damage to SMEs, which are the bedrock of the Scottish economy. Will he listen to those organisations, and if they can make a credible case that the changes will lead to reduced competitiveness or weakened investment, will he be prepared to review the decision that he took last week?

Mr. Darling: I am always happy to listen to what Scottish businesses have to say, but I should tell the hon. Gentleman that the number of SMEs has grown by 21 per cent. in this country—there are now more than 760,000 more—and they have gained from a wide variety of measures that support them. Yesterday, I was interested to see a Conservative party press release that said that, according to something called the Entrepreneurs Organisation, if taper relief were to be scrapped, 33 per cent. of the people surveyed would emigrate. I was concerned about that, so I looked up the survey on the website and found that the Conservatives relied upon a survey of 12 people. Moreover, it was carried out three months before I made my announcement, and when I checked to see what the 12 people were saying, I found that one of them had said:

The Conservatives need to do some homework before they start criticising our proposals.

Mr. Andrew Mackay (Bracknell) (Con): Why does the Chancellor think that he has managed this amazing feat of uniting the CBI, the Institute of Directors, the Federation of Small Businesses and the British Chambers of Commerce in condemning his capital gains proposals? Between now and next April, when he is due to implement the proposals, in which month does he think he will have to withdraw them?

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Mr. Darling: I have made my proposals because I think that they are the right thing to do. Having a single rate of capital gains tax is right. It will help businesses and, taken together with other measures that we have put in place that help businesses, especially those that are starting up, it will be good for the economy. As I said, one of the single biggest things that helps business in this country is the fact that we have a strong, stable economy, precisely because we have not made irresponsible promises on tax and spending, which would undermine the stability upon which businesses depend.

Mr. George Osborne (Tatton) (Con): May I press the Chancellor on the one part of his pre-Budget report that was not written by us? The four leading business organisations in the United Kingdom say that the capital gains tax increase came as a

the point made by the hon. Member for Stafford (Mr. Kidney)—and will

Even the Chief Secretary—we welcome the candour that he brings to his job—says that

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