Osborne's shrewd tax tactic to inherit political support
The Chancellor’s bid to net backing from home owners through inheritance tax cuts is a cunning and well-considered strategy, says our political columnist
During a Parliament in which he has dished out numerous doses of unpalatable economic medicine, George Osborne has built a formidable reputation as a political operator.
The slim-line Chancellor who delivered today’s 2015 budget commands a clear lead over the opposition on economic competence – a far cry from 2012 when he delivered the “omnishambles” Budget and was booed at the Paralympics. While socially liberal and not at ease with Conservative instincts on immigration and Europe, he manages to keep his bond with the party faithful.
What’s his secret?
As with any long-term relationship, it helps to hear three little words every now and again. And in George Osborne’s case, those words seem to be… Inheritance Tax Cuts.
When he uttered those sweet little nothings for the first time, at the Conservative Party Conference in 2007, the Chancellor’s political reputation was hugely enhanced. As Gordon Brown prepared for a snap election, the Conservative pledge to raise the inheritance tax threshold from £325,000 was widely credited with a surge in support at the polls – and Labour’s subsequent, ill-fated decision not to go to the country. With the Coalition of 2010, the Conservatives were able to step away from their promise in order to prioritise income-tax cuts for those on lower incomes.
Now, the issue of a further cut has been cleverly floated around Budget Day – allowing better-off, home-owning voters in the South East to digest and discuss the idea without the tedious business of it having to be announced. The Chancellor is far from a one-trick pony – but when your trick has been so well received in the past, why deprive the crowd of a repeat?
In macro-economic terms, the policy is perhaps not that significant. When it was floated by the prime minister last year, George Eaton noted in a New Statesman piece that only 6% of estates would be affected. But as a statement of priorities, and in terms of cultural impact, this is a big deal.
The proposed new rules would provide married couples (or rather their beneficiaries) with an additional £350,000 of tax relief linked to a family home. The language around the move almost suggests that people in the fortunate position to own a £1 million house have been somehow burdened by its increase in value. But as Stuart Adam, a senior research economist at the Institute of Fiscal Studies, has said: “It is just not clear why you would want to favour those whose wealth is held in that particular form.” You could add to that the favouring of those people who are also married. Single people with their wealth invested across a portfolio of businesses won’t be eligible, nor those who chose to rent in order to move flexibly for work. Will inheritance tax lawyers be encouraging people in older age to head down the aisle and consolidate their wealth in a Mayfair flat? They could even provide the matchmaking service.
But this is great politics. People are happy to use their houses as sources of wealth by borrowing against their value, but also expect them to be sacrosanct family heirlooms. House ownership is a British obsession. The Chancellor can feed that obsession without making any actual commitments. If it worked once, why not say the words again?
Jon Bennett is managing director of corporate communications consultancy Linstock Communications.