My Lords, the Government have given your Lordships the opportunity to debate the economy in the light of the Budget, billed by the Minister as the last one in spring—until, of course, a future Chancellor switches it back again. But they then fielded a flyweight contender of a Budget whose likely fiscal impact will be minimal—going out with a whimper, as the director of the IFS has said. It is rather remarkable that the Government have been able to whip up such a political storm out of a mouse of a Budget. But that is perhaps more a reflection of the cynical and irresponsible triple-lock commitment in the Conservative Party’s manifesto—to which the noble Lord, Lord Macpherson, referred in more diplomatic terms—than of any radical streak in last week’s measures.
In the interests of time I shall confine myself largely to one issue—one which was only elliptically included in this year’s Budget. In table 2.2 of the Budget report there is a list of items announced in previous Budgets or Autumn Statements but only now taking effect. In passing, I note that by far the largest numbers are in column BG concerning the cost of the phased reduction in corporation tax to 18%: £17.7 billion in the five years to 2021-22—a figure dwarfed by the £64 billion estimated to have been given up by the Exchequer in the period from this year as a result of all corporation tax cuts enacted since 2010. I had understood the Prime Minister and the Chancellor to have only threatened to turn the UK into a corporate tax haven as part of their sophisticated negotiating tactics with the EU, but now I realise, of course, that the process is already well under way—even before we knew that we were leaving the EU, let alone before the only too possible breakdown of negotiations. As we struggle to pay for the NHS, social care, education and other public services, can we justify the corporation tax cuts already introduced, let alone contemplate any further reduction implied by the, frankly, incredible negotiating position suggested by the Government?
My principal theme, however, relates to one of the other significant line items, in column BE: the cost of the new inheritance tax nil-rate band for main residences —an estimated total of £2.8 billion over five years, which compares with a total IHT take in 2013-14 of only £3.4 billion. Other noble Lords and I highlighted in last week’s debate on housing the folly of introducing new distortions to an already overheated housing market. As the noble Lord, Lord Macpherson, said, a sensible tax system should not favour one group over another. But then this falls under two of the no-go areas he identified: residential property and inheritance. Even before this measure—and indeed the Government’s cack-handed introduction of a stealth tax in the form of hugely increased, albeit graduated, probate fees—the Nobel economics laureate Sir James Mirrlees wrote in his IFS review on taxation in 2011 that,
“the current UK system does not stack up terribly well against any reasonable set of principles for the design of a tax on inherited wealth”.
The “biggest barrier”, Sir James concluded,
“to the effective working of inheritance tax … is that it is levied only at or close to death, allowing the wealthy to avoid it altogether by the simple expedient of passing on wealth well before they die”.
My noble friend Lord Eatwell, five years ago, asked the then Commercial Secretary whether the Government would undertake a comprehensive review of inheritance tax and the case for moving to tax the lifetime receipt of gifts by individuals rather than the estates of those who have died. Since then the system has become only more unfair and more complicated. In addition to the simple expedient of giving assets away long before death, which of course only the very wealthiest can afford, there is also a plethora of reliefs to be exploited, further increasing unfairness and reducing the reasonable tax take for the Exchequer. Agricultural land and business reliefs alone amounted in 2013-14 to more than the total net IHT take.
A moment searching on the internet provides a plethora of fund managers offering AIM portfolios with the specific and principal aim of reducing individuals’ liability for IHT.
“Our Inheritance Tax Portfolio Service is a bespoke, discretionary service designed to reduce … IHT”,
says one firm.
“A plan to reduce your IHT liability”,
“We adopt a conservative approach … in order to diversify the risk we seek to hold a minimum of 15 different companies”,
says another. Does the Minister not agree that that sounds very much like aggressive tax avoidance, and what are the Government going to do about it?
The current inheritance tax system is deeply flawed, sacrificing revenue for the public purse, and manifestly unfair, infecting the public trust in the tax system overall. I urge the Minister and her colleagues in the Treasury to overcome the taboos identified by the noble Lord, Lord Macpherson, and institute urgently the comprehensive review advocated by these Benches for so many years.