The terrain of British politics is full of hills on which principled politicians can choose to die. Driven to take a stand by their consciences or their activists, or unable to tell the difference between these twin architects of electoral disaster, political parties cling to their unpopular positions in defiance of the electorate. The electorate wins.
The Labour party seems to be strangely keen on this particular strain of foolhardy courage. Whether it is misguided unilateralism or an over-fondness for nationalisation, the party has been on the wrong end of more than its fair share of entirely predictable reverses in its time. What distinguishes the current leadership is not the tendency itself, but the shallowness of the incline on which they will plant their standards. The campaign to hand the Falklands back to Argentina, for example, would be as short as it is inglorious.
Visible from a mile off, most sensible politicians navigate around these undulations, preferring to ignore issues on which they will lose heavily and seek more advantageous terrain. But there is one particular summit which continues to divide opinion, even on the end of the party which normally has little patience with doomed heroics.
Inheritance tax is on one of the great battlefields of British politics. Pitting the left’s desire to redistribute unearned income and equalise opportunities against the right’s belief that those who have ‘worked hard’ should be able to hand on the vast majority of their wealth to their children. It is so difficult because it embodies such a fundamental difference in values. The fact that inheritance is unearned and contributes so much to inequality lures in Labour politicians, even those who would normally shy away from punitive tax rises. However the public have never really bought this line, continuing to abhor ‘death taxes’ even though the vast majority of people do not own enough to ever be inconvenienced by them.
As a result, George Osborne has felt able to slash inheritance tax, even in a budget which imposed cuts on the poorest while David Cameron this week jumped at the chance to pivot onto the issue to distract from his own connection to offshore tax havens. The Tories were so confident this is a trump card for them that they believed the accusation that the prime minister’s family tried to avoid thousands of pounds of inheritance tax would actually be a winner for them. They may even have been right. Certainly they were more in tune with the public than John McDonnell’s suicidal suggestion that even gifts to family members should be taxed.
So how should Labour approach this thorniest of issues? One option is to accept inevitable defeat and decide not to fight. The most powerful case for this strategy has been argued by John McTernan who claims that ‘a party that does not understand the way the voters feel about inheritance tax will never win a general election’. It is a variation of this view which led to Gordon Brown’s fateful retreat from an early election in 2007 once the Tories had signaled their intent to fight on inheritance tax. This realism is also adopted by Times columnist Philip Collins, who enjoyed a day of baiting the internet about his plan to set inheritance tax at 100 per cent but would not seriously advise Labour to go anywhere near it.
But it is symptomatic of the way this issue splits the party that it was Liz Kendall, the preferred candidate of both McTernan and Collins for Labour leader, who came out swinging in defiance of George Osborne’s cuts, arguing that further tax giveaways to the wealthy are unjustified. Kendall’s argument, linking inheritance tax rises to opportunity and to a policy to fund early years interventions, while supporting the human instinct to look after your family, is one of the best versions of the counter-case that has been made so far. But it is still insufficient. While I share her desire to hold firm on inheritance tax, I am not sure it can be done without placing it in the context of a broader tax reform agenda.
The Fabian Society’s Andrew Harrop has written that inheritance tax is so unpopular that it should be abolished altogether. Instead inheritance should be treated as income and taxed accordingly. This may sound superficially attractive, but the reality is that it would mean inherited wealth being taxed at a much higher rate than currently. Importantly it would mean that those who inherit less than the current threshold would suddenly find themselves being dragged into taxation. Once this is pointed out to voters, there is no chance they will buy this sleight of hand.
Instead I would argue Labour can only make inheritance tax sellable by doing two things. If you want to raise inheritance tax then this must be done in a way which safeguards large gifts to the immediate family. For example, the government could explicitly demarcate a tax-free amount that can be left to your spouse and each child upon your death. Say £100k each. Everything over that would then be hit by a high tax rate of around 50 per cent or higher. Stage two is to link this reform to reductions in income tax, either by raising the thresholds or bringing back the 10p band. The theme would be ‘keep more of what you earn, and less of what you don’t’.
This is more a direction of travel than a worked-through approach, but it may be the way to square Labour’s inheritance tax circle. It would be a reform package that backed aspiration and the desire to work hard and look after your kids, but was tough on excessive inherited privilege. If done properly it could raise revenue and reduce inequality. Perhaps it would still prove an unwinnable fight, even for a leader with plenty of political capital in the bank. After all, there are many who have found out the hard way that they are Custer, not Caesar. But there may just be a way Labour can climb this hill without dying on it.
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Tom Railton is a member of Progress. He tweets @TomRailton1
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