“Welcome to the pensions gold rush” and cheers for “The ultimate inheritance tax dodge”. Tory newspapers’ money pages whoop up the “super-charged” pensions tax giveaway to the wealthy: “The bigger your pot, the greater your savings.” Today, Labour forces a vote in the Commons against the chancellor’s surprise gift to the rich that removes any limit on tax-free pension contributions. These huge pension pots can be handed on free of inheritance tax to generation after generation unto the end of time – or until a Labour government abolishes the policy as soon as it gets inside the Treasury.
Pensions advisers are being inundated with calls from wealthy savers “looking for ways to protect their nest eggs from the risk of a Labour government”, says the Daily Telegraph. The rich are shifting other assets into pension pots to save tax now, but the biggest draw is that their pensions have become the best escape from inheritance tax. Why do this? Jeremy Hunt’s excuse was to stop senior doctors retiring once they reached their tax-free pension limit. How many of them? Here’s the shocker: only 105 left the NHS voluntarily for early retirement last year, according to the government’s own figures. How easily he could do as Labour proposes, and make a special NHS pension plan for them, without this great bonanza for all highest earners. His cover is blown.
This is a great political misjudgment, but it’s easy to see why Hunt was tempted. Look at previous Tory chancellors’ popular triumphs in cutting inheritance taxes. In particular, he will remember George Osborne’s 2007 party conference speech that changed the course of history. Osborne’s promise that “only millionaires will pay inheritance tax” marked out “a new dividing line in British politics”. Not only would the threshold rise to £1m but he pledged to “take the family home out of inheritance tax”, because “in a Conservative Britain you will not be punished for working hard and saving hard”. That spooked the then prime minister, Gordon Brown, out of calling an election that he would almost certainly have won at the height of his popularity, before the bank crash.
Will that magic work again to rescue these beleaguered Tories? Inheritance tax was always loathed: the Office of Tax Simplification’s report called it “an almost uniquely unpopular tax” that only 22% of people saw as fair: people said it was “paying tax twice”, though the OTS noted that many inheritances are in homes that never paid capital gains on soaring values. People (rightly) thought the very rich avoided it with trusts (the heirs of the Duke of Westminster paid zilch). Too many wrongly fear a tax that will never hit them: only 4% of estates paid it in 2020, due to become 6.7% by 2028. (Incidentally, Liz Truss’s government abolished the useful OTS.)
Hunt hoped that any cuts to pension and inheritance tax would be popular: people wouldn’t notice that it does nothing for the 99%. What an error, when voters have strong views on pensions and fairness. They have spotted this only helps the very rich, not their puny pensions.
Focus groups in the so-called red wall seats by Public First show people well understand the injustice of this. A typical responder said it “is only going to benefit rich people because who the hell can save up a million pounds pension over their lifetime?” Liam Halligan, the economics editor of GB News, writes in the Telegraph of similar soundings in Doncaster: a garage owner complains: “Who can afford to put tens of thousands of pounds each year into a private pension worth more than a million quid? No one I know.” In a focus group in Derby, voters needed no prompting to protest against this “handout for the rich” when people “like them are struggling”. Said one woman about the chance to put £60,000 into her pension tax-free: “I don’t even get paid that, let alone having it to spare.” Where Osborne posed dishonestly but cleverly as being on the side of ordinary voters over inheritance tax, Hunt’s imitation has been rumbled as yet another Tory benefit for the 1%.
Yet the right to pass on inheritance is a visceral impulse, a primal instinct to enfold and favour your children and their children. Progressives struggle to swim against that emotional tide, believing just as passionately that the injustice of the accident of birth has to be mitigated and evened out – or levelled up – for any chance of offering what even Tories pretend to want: fair opportunities for all regardless of social background. Attitudes towards inheritance are the deepest of red/blue dividing lines. I once asked the geneticist Steve Jones how heritable is intelligence. “Nothing like as heritable as money,” he said wryly: money influences lives far more. Tory talk of every child fulfilling their potential is bogus when they always resist any serious intervention in the privileges of birth. But progressives have to tread with extreme caution in this delicate territory of family instinct.
On this ancient battleground, two Tory MPs on the Treasury select committee attacked Labour’s pledge to repeal the pension/inheritance giveaway. Anthony Browne said: “They’re playing the politics of envy. This is typical Labour anti-aspiration.” John Baron said Labour is promoting “class war”.
But class war has been in the very marrow of every Tory budget of the past 13 years: the same budget that raised the inheritance tax threshold to £1m also slashed benefits and public services. Remember Rishi Sunak telling Tunbridge Wells Tories that he was “undoing” the “formulas from Labour that shoved all the funding into deprived urban areas” to “make sure areas like this are getting the funding they deserve”. Most voters agree it’s not politics of envy to focus resources less on the haves than the have-nots. But on inheritance tax, that agreement is fragile.
Andy Summers, an associate professor at LSE who serves on the Wealth Tax Commission, lists the welter of reports from the Institute for Fiscal Studies, the Resolution Foundation, Tax Justice UK and others calling for inheritance tax reforms. As a modest step he, like they, advocates abolishing inheritance tax altogether by switching from taxing estates to taxing beneficiaries on receipt of lifetime gifts and bequests at their ordinary tax rates, hoping it would spread bequests more widely. Tories weep crocodile tears for “grieving families caught in the ‘death tax’ net” but much extra woe is caused by the awful complexity of probate. Taxing recipients would end that.
That also retains the moral and social value of intervening in the passing on of massive fortunes, in this new gilded age of runaway wealth perpetuating inequality into the far future. This time the majority – who have no chance of being charged inheritance tax – is not tricked into thinking tax breaks for the 1% trickle down to anyone else.
Polly Toynbee is a Guardian columnist
Join Polly Toynbee for a Guardian Live online event on Wednesday 31 May, when she will be discussing her new book, An Uneasy Inheritance. Book tickets here
