Death duty will leave Britain paying the price

Rachel Reeves and Keir Starmer
Rachel Reeves and Keir Starmer

Speculation is mounting that Chancellor Rachel Reeves will announce a hike to inheritance tax later this month, raising rates, lowering thresholds or cutting reliefs as part of what promises to be one of the biggest tax-raising budgets in history. If this is correct, it is an act of staggering folly.

Inheritance tax currently raises some £7 billion each year, less than 1 per cent of government revenue. It does so, however, in a particularly damaging way.

By targeting bequests, the death duty reduces the incentive to save and invest in the present day. The argument that only 4 per cent of estates pay the tax holds little water; the tax will still diminish the effort of those who would like to be among their number at some distant date.

Weighted down by taxes and red tape as it is, the British economy is not blessed with an excessive level of savings, or an overabundance of dynamic entrepreneurialism. Raising inheritance tax further would make matters worse.

It would also be politically unwise. Death duty is widely loathed because people rightly view it as invasive and immoral. The tax is not just a form of double taxation – although that surely enters into the calculation – but it goes against the basic human desire to provide for our families after we are gone. So unpopular is the tax that the Conservative pledge to raise thresholds in 2007 famously spooked Gordon Brown out of calling an election.

That Sir Keir Starmer and Ms Reeves apparently plan to raise it now speaks volumes to their lack of economic and political wisdom – and Labour’s politics of envy.