Inheritance Tax

Mandelson is trying to stir things, and so are the newspapers which still support labour, - there are one or two, believe or not.

Kenneth Clarke, digressing from his area in an interview on Sunday, declared that raising the level at which inheritance tax begins was an aspiration but not likely to happen early if the Conservatives win a general election this year or next.

He is right to sound a caution. The public finances are in such a mess, but could even get worse, that tax concessions or increases in government spending are difficult to envisage. Later, when there has been some recovery, the reduction in tax could be realistic. Significantly, we have heard very little from Labour recently how they propose to fund the budget deficit gap. Even the 45% tax on those earning over £150,000 will produce very little, especially if many professions decide to emigrate.

No-one knows what the government accounts will look like in 2010, however. Last November Chancellor Darling forecast a budget deficit for the tax year 2009/2010 of £118 billion. Already, after a sharp deterioration in the economy, respected forecasters are saying that the figure will be much higher, and a figure of £180 billion has been mentioned.

The party leadership have reiterated their determination to press ahead with the tax reduction.

In support they could argue:
- It is already costed and allowed for.

- The burden on the exchequer is very small - of the order of two or three billion, (compared with £20 billion reduction in VAT, £60 billion in "easing"), and it is declining as house and other assets values have fallen, and savings have been savaged by Brown and the recession. Many people will now find that they are lifted out of tax because their assets are below the starting point.

- the people most affected are those who will die in the next five years, and their families, and these are precisely the people who have suffered during the past few years - higher inflation, lower interest rates, poor pension increases, and they will not be able to claim anything back if the tax reduction is delayed for, say, 5 years.

-principles are important. If it is wrong that millionaires escape much of the tax by well-advised schemes, and that people on very average incomes and smaller estates are paying the bulk, then it is wrong!