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My grandmother married Mr. Browne and that is why the example is not directly applicable. However, I wanted to make the case because it is a perfect example of the sort of people whom the new clause would assist. Many women of that age did not get married and had to make different arrangements after the second world war that they would not have had to make in other circumstances, if such a seismic disruption to societys normal development in the United Kingdom had not occurred between 1939 and 1945. Those women made exceptional arrangements. Many were sisters who lived initially with their parents and then, when the parents died in the 1950s and the 1960s, lived together in the houses in which they had been born or brought up. The full implications are felt only when one sister dies many years laterthe social legacy of the second world war has lasted many decades. Sisters in those circumstances are aghast that
the inheritance tax burden should apply to them. There is therefore a compelling case for the new clause.
The Economic Secretary said in her intervention on the Conservative spokesman that inheritance tax would apply only to those who lived in what she implied was a posh house, which is worth more than £700,000. I appreciate that the number of houses that are worth that sum is falling by the day. This Government are perhaps trying to tackle the problem of the inheritance tax burden in their unique way. There are probably better methods, but they are doing their best. The threshold is not yet as high as £700,000, but the moral case is no different for sisters who were born in a house that is now worth £800,000 from that for those living in a house worth £600,000. They did not choose to be born in a house of a specific valueit is their home, the place in which they have lived for many decades, and they expect to live there for the rest of their lives.
I urge the Economic Secretary not to regard this as a wedge issue, with the Labour party playing to a core constituency and saying, It doesnt really matter because were only talking about rich people. Theyre the sort of people that the Conservatives speak up for and we can distinguish ourselves from them by saying that our priority is not to help rich old people but other groups in society. In the case that we are considering, people in a house now worth £700,000 are just as worthy of support, compassion and assistance as those whose houses are worth a different amount.
Mr. Browne: I am trying to explore the Governments position, because it is difficult to understand fully the motivation behind the policy, although they seem to be very responsive to speeches made at Conservative party conferences. The only guidance that I would give the Labour party is this: whenever it tries to ape the Conservatives, its woes get worse rather than better. Tomorrow we are going to spend a lot of time talking about taxation of non-doms.
Let me return to the matter at hand, which is an important one. A number of national newspapersfrom memory, The Daily Telegraph has been particularly prominenthave campaigned strongly on the issue, so people will want to understand the positions that the different parties have taken, and in particular the Conservative partys reservations.
I should be interested to hear the Economic Secretarys intellectual justification for saying that there is a significant material difference between, to take a hypothetical example, two womenlet us say two 90-year-old womenwho choose to enter a civil partnership, and therefore immediately become eligible for those benefits, and two 90-year-old women who have not met in the past few months, but who have lived together in the same house as sisters for the past 70 years. Indeed, as I said in an intervention, such a civil partnership could have been motivated by tax reasons. That would be a shamealthough it would not be beyond our comprehensionwhereas it could not possibly be the case for the two sisters who had lived together for many decades.
The Economic Secretary said that the situation would apply to very few people. Of course that is the case, but that only strengthens the argument; given that the costs are so minute, the Treasury need not worry unduly. In fact, the Treasury could be quite charitable and expand the scope of the scheme. The costs are so small that the Treasury could win a lot of good will from people who feel that they are unfairly penalised, at a small burden to taxpayers as a whole.
There are a few points in new clause 2 on which it is worth reflecting. One of them concerns the 10-year living together period. I assume that 10 years is an arbitrary figure, although any figure will inevitably be arbitrary, because it is quite hard to come up with a figure that is based on anything other than an arbitrary assessment. Some people might think that 10 years is quite a short period of time, because we are typically talking about two sisters or two brothers who have lived together for their whole lives. With higher house prices, brothers and sisters are increasingly buying flats together, in London or other parts of the country, because they cannot afford a mortgage on their own, they do not have a relationship with a partner and they regard buying a property with their brother or sister as the most safe and stable basis on which to proceed. In some cases, therefore, 10 years may be quite a short period of time. The Government may be more accommodating if that period were longer, and we could rightly consider that.
Mr. Frank Field: The 10-year period was picked because I thought that there needed to be some ring-fencing of the new clause. There are no worthwhile figures as yet for how long civil partnerships last, but 10 years is longer than the average marriage. One might say that that is because so many marriages break up so early, thereby dragging the average down, but that is the average figure.
Mr. Browne: I am grateful to the right hon. Gentleman for that intervention, because he has helpfully said that the figure was as un-arbitrary as he could make it, even though there was inevitably an arbitrary element involved. It is obviously necessary to have a figure, because we do not want people exploiting the provisions for tax purposes, even though that might not be foremost in their mind as they approach their imminent demise. I only suggest that, were the figure to be higher, the proposal would probably achieve its objective in terms of the type of people that we all have in mind while providing an even greater safeguard against potential abuses.
Hon. Members have asked where the provisions should stop. That is a fair point, and I hope that the Minister and the right hon. Member for Birkenhead (Mr. Field) will engage seriously with it. Stepbrothers and stepsisters, for example, would presumably come under the provisions. It would be strange if they did not, because it is increasingly prevalent nowadays for people to have stepbrothers and stepsisters rather than for all their siblings to have the same two parents. We could also consider other blood relatives. The hon. Member for Wolverhampton, South-West (Rob Marris) talked about cousins, but should we also consider second cousins? We could also consider people who have been adopted, carers and other categories of long-term cohabitants.
It is reasonable that the Government should look at all the implications of introducing a measure of this kind. However, it upsets people when the state appears to exercise an excessive and somewhat arbitrary power over individual citizens who are going about their business and who feel that they are being unfairly victimised. This has been a motivation for newspapers and other campaigners, and it has real resonance for people to whom the provisions do not apply. They instinctively feel that it is wrong for a very old lady to have to leave the home that she has lived in for perhaps 90 or 95 years because the sister with whom she has lived for most of that period has died.
The onus is on the Government to look into how we can address this issue. The Minister was quite right to say that the costs involved would be quite minute in the grand scheme of things. There would be no great financial barriers to making progress; it is only a matter of will.
Kitty Ussher: This has been an interesting and useful debate that will enable us to tease out some of the issues that have been considered. I would like to place on record my thanks to my right hon. Friend the Member for Birkenhead (Mr. Field) for raising this matter and for constructively engaging with us on it.
Two separate issues are involved, and perhaps it would be helpful to deal with them separately. The first concerns a point of principle; the second compassionate issues. Perhaps this will answer the point made by the hon. Member for Taunton (Mr. Browne). It is worth saying at the outset that we all have huge respect and admiration for anyone who is able to sustain a long friendship and relationship, such as those that exist between long-term cohabiting siblings. There are many families in which such relationships break down, and I have huge respect for the kind of relationships that we are talking about today.
However, I do not believe that a parallel can be drawn between such relationships on the one hand, and marriages and civil partnerships on the other, as the latter involve particular legal and financial characteristics. The civil partnership issue is rather a distraction in this context. We are talking about marriage, including marriages involving same-sex couples, and the law and society view such marriages in a fundamentally different way compared with other close relationships such as blood relationships or close friendships.
This issue has been tested in the courts, including the European Court of Human Rights in the case of Burden and Burden v. the United Kingdom, to which hon.
Members have referred. The point was specifically discussed, so let me read from the findings of 29 April this year. The court said:
The absence of... a legally binding agreement between the applicants
renders their relationship of cohabitation, despite its long duration, fundamentally different to that of a married or civil partnership couple.
marriage remains an institution which is widely accepted as conferring a particular status on those who enter into it.
That is the crucial point. Our policy on inheritance tax recognises the special position of marriage and its equivalent for homosexual couples, and we think a line should be drawn at that position. We will thus resist the new clause and amendments proposed by my right hon. Friend the Member for Birkenhead.
The hon. Member for Taunton was entirely right when he said that the cost of accepting the amendments would be low, despite the point of principle that I have set out, but the precedent from crossing the line could potentially open us up to far wider costs. We have already debated some of the issues, but if we accept the provision for long-term cohabiting siblings, where do we draw the line? Should it be extended to cousins, parents or grown-up children, for example? Why, then, for 10 years, and not for nine, eight or seven years; and why not for flatmates or any other long-enduring relationships or even business relationships? Once we had conceded the first point, the potential cost to the Exchequer could, I feel, be extremely large. That is the point of principle.
Mr. Jeremy Browne: Given that the Minister said in her opening comments that this provision would apply only to a very small number of people, because most do not have the good fortune to live in an expensive house, surely the costs would not be that large, even if she conceded quite a few different cases. By her own estimation, 96 per cent. would not be eligible for the benefit because their house would not be sufficiently valuable.
Kitty Ussher: My point was that the overall costs would be far larger than simply the cost of accepting the particular amending provision. We have not costed it in detail because we have not looked at the number of long-term relationships that would be covered. My point was simplethat the cost of implementing the amending provision might be low, but that by conceding the principle, we could open ourselves up to far wider costs. That is a secondary point, however, as it is the unique institution of marriage and its gay equivalent that makes the point of principle here.
My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) spoke extremely well. He mentioned the issue of where we draw the line and he was right technically when he said that if we accepted the new clause, it would apply to any siblings who had lived together for any period of 10 years at any stage of their lives, which I am not sure was the intention behind what I guess was a probing provision.
Let me move on to the compassionate issues. We have heard examples in respect of which our hearts automatically go out to elderly people who obviously do not want to
be forced to leave the home that they have lived in for many decades, perhaps even for the whole of their lives. Let me try to tease out some examples. I said earlier when I intervened on the hon. Member for South-West Hertfordshire (Mr. Gauke) that once the limit was raised in 2010-11, the estate would have to be worth more than £700,000 before inheritance tax even became an issue. Let us think about an example where a house is worth £800,000a round number, which makes it easier to work with. Let us suppose that such a house is owned equally by two siblings who have lived in it for a long time, perhaps having inherited it from their parents some time ago. If one of the siblings dies, the limit in 2010-11 will be £350,000, so inheritance tax will kick in on the difference between that and £400,000namely £50,000. It kicks in at 40 per cent., so the inheritance tax bill is £20,000.
Two things could then happen. The bill could be paid over 10 years, which would mean £2,000 a year. I do not know how that equates to the council tax bill on the house, but it might be possible for the individual to meet the additional amount. If not, various options would be available. If even an extremely elderly person was facing a charge of £20,000 and owns an asset of £800,000, it would be fairly easy to remortgage to get the necessary amount. Although on compassionate grounds I have sympathy for the individual on losing their elderly sibling, I am not sure that there are grounds for the state to intervene.
I want to touch on the point made by my hon. Friend the Member for Wolverhampton, South-West about deferring the charge, even beyond phasing it for 10 years. In a sense, by remortgaging to get the capital required, a person is using the private market to do exactly that. With regard to the extremely exceptional circumstances of an individual in a house worth about £800,000 who is unable to access any of those possibilities, the HMRC inheritance tax manual allows situations involving genuine hardship or serious difficulty to be considered on a case-by-case basis. In extreme cases, therefore, there is a certain amount of flexibility, which would include postponing the payment of all or part of the tax due. Given the figures involved, however, there will not be many such extreme cases.
The hon. Member for South-West Hertfordshire said that the subject under consideration affects average familieshe used that phrase. The median house price in England and Wales is £180,000, so I do not know what his definition of average is, or what the average house price is in his constituency, but from where I am standing, a property worth £700,000 is in no way average.
Mr. Gauke: If inheritance tax affects only a tiny or very small minorityI do not know what phrase the Economic Secretary would usecan she explain why the centrepiece of the pre-Budget report, which was after all prepared at a time when the Prime Minister was considering going to the country, was changes in inheritance tax?
Kitty Ussher: The hon. Gentleman completely misses the point. Our proposals related to what happens when property is passed down to children. That is not what we are discussing today. We are discussing whether the second sibling should be forced to leave the house. Of course, it has always been the case that no inheritance tax is paid when one spouse passes their part over to the other spouse.
Mr. Gauke: I fully accept that the amendment relates to siblings, but as the Economic Secretary raises the point about inheritance tax being an issue only for the very wealthy, can she explain why the centrepiece of the Governments pre-Budget report last October, in the run-up to a potential general election, was changes to inheritance tax?
Kitty Ussher: I repeat that the hon. Gentleman misses the point. First, we raised the threshold up to £350,000 from 2010-11, and made the commitment that it will continue to rise with inflation, including house price inflation. Secondly, we made it absolutely clear that the zero relief could be transferred when the second parent died. As I said, that is a different point.
The interesting thing that came out of the discussion on the pre-Budget report, as the hon. Gentleman has just confirmed, is that the Conservatives would raise the limit to £1 million. I am absolutely clear that that is not a good use of taxpayers resources. I am not sure where he would find the money to pay for it. Effectively, the proposal would take at least £1 billion and give it to people whose assets already make them millionaires. When a certain amount of public money is available, it is right to spend it on something that benefits genuinely average families, not millionaire estates as he proposes.
Rob Marris: On a slightly tangential matter, I have a constituent who was widowed in 1969 and remains a widow, but who cannot do the doubling up, to use the vernacular, because she was widowed so long ago. She did not get real benefit from the inheritance tax provisions when her husband died, but she was adjudged technically to have benefited from them, because of their wording. I do not expect my hon. Friend to deal with that matter tonight, but I hope that she can look at it again. I do not know what the cut-off date is, but a small number of people, including my constituent, are caught.
Mr. Gauke: My I endorse what was said by the hon. Member for Wolverhampton, South-West (Rob Marris)? We raised the point in Committee, and he is absolutely right. I know that the Governments proposals date back to some years ago, but it is the case that if the first spouse died before either 1974 or 1972, he or she will not benefit from the nil rate band. We urge the Government to reconsider.
Kitty Ussher: I do not know whether that is yet another example of an unfunded spending commitment from the Conservatives, but we felt that 35 years was a fairly decent point at which to draw the line.
The point of principle is beginning to emerge. We want to make it clear that there is something special about marriage that makes it necessary for a nil band rate to apply. While we have sympathy and compassion for elderly people who have been living together for the vast majority of their lives, we feel that in view of the value of the estates concerned, Government intervention is not required except in the circumstances that I have described.
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