‘Money is like muck,” wrote Francis Bacon in 1625. “Not good except it be spread.” No one accuses the father of the scientific method and British empiricism of being a socialist, although doubtless the many Tory critics of inheritance tax will now want to group him with Karl Marx and the liberal elite as dark enemies of aspiration.
They should also add the Greek philosopher Aristotle to their list of leftwing enemies. “Man is by nature a social animal,” he wrote. “Society precedes the individual. Anyone who either cannot lead the common life or is so self-sufficient not to need to, and therefore does not partake of society, is either a beast or a god.”
Bacon and Aristotle identify two maxims widely shared until the birth of the modern Anglo-American right, and its unashamed advocacy of yet greater wealth for those who already have it in the name of “aspiration”. Yet we are all members of society living a common life that has claims on us as well as our claims on it; and wealth is best the more it is spread. Bacon approvingly expanded on his theme, quoting a contemporary: “When wealth lay upon a heap, it gave but a stench and ill odour; but when it was spread around, then it was cause of much fruit.”
Children are not deserving solely because they got lucky and came from a rich womb
To avoid that stench, and to finance the common life that underpins society, civilisations as disparate as feudal Europe and ancient Rome have all insisted that when wealth is transferred from one generation to another there should be a levy on the transfer. It is only fair: a recognition that we are social animals, and that to spread wealth around is the “cause of much fruit”.
Children are not deserving solely because they got lucky and came from a rich womb. Not an argument accepted by today’s Conservative right and their media outriders. As one Daily Telegraph columnist wrote last week, inveighing against inheritance tax: “At the stroke of an HMRC pen, the fruits of a lifetime of love and labour is diverted to a profligate and ungrateful state. No wonder the levy is so bitterly resented.” This “pernicious” tax should just be abolished.
Where to begin? First, almost all inheritance tax is levied on property passing overwhelmingly to adult children and relatives, generally in their late 50s or early 60s, who are already well off and whose parents lived in London and the south-east where house prices are high (businesses and farms enjoy exemptions). The reason why the yield from inheritance tax is rising is partly because the threshold has been frozen, but mainly because of the extraordinary increase in house prices. House prices are now 12 times average earnings in London – nine times in the country as a whole. The idea that being the beneficiary of this house-price boom is the result of a “lifetime of love and labour” is sentimental tosh.
To be the children of parents who own a house is already to have a phenomenal advantage in life. The bank of mum and dad passes £11bn a year to help their kids get on the housing ladder – lifetime gifts that will attract no inheritance tax as long as the donor lives seven years. By the age of 35, a study by London’s UCL finds, home ownership levels are three times higher for those lucky enough to have high-income parents owning their homes who can help them buy, compared with the unlucky whose parents are poorly educated renters. By the age of 35, the lucky group holds approximately 10 times the level of housing wealth compared with the unlucky. The number is set to double again in the decades ahead. Britain is creating a network of mini family dynasties, largely in the south-east and driven entirely by unearned good luck. The unfairness could hardly be more vivid.
As Paul Johnson, of the Institute for Fiscal Studies, says, over the last generation wealth as a proportion of GDP has roughly doubled but proportionally tax revenue from wealth has remained the same. As in the US, the British wealthy have proved wonderfully adept at avoiding contributing proportionally to the common pot. If inheritance tax were abolished, the IFS calculates that about half (47%) of the benefit would go to those with estates of £2.1m or more on death, who make up the top 1% of estates. For these wealthiest it would mean an average tax cut of about £1.1m. Aspiration? This cash from the house-price boom will go to adults nearing the end of their working lives who on average already have wealth of £830,000. The idea that this is going to unleash a wave of entrepreneurship (recall that businesses don’t pay) or entrench aspiration is for the birds. This is to reward those who already have a lot.
Is aspiration a value so unambiguously at the top of the hierarchy of values that it should trump others?
In any case, is aspiration a value so unambiguously at the top of the hierarchy of values that it should trump others? Aristotle argued that what brings human beings satisfaction is to use whatever gifts we have to make the world incrementally better in some way – not pocket as much loot as we can and devil take the hindmost. What about ensuring society in the round is healthy?
Inheritance tax may yield “only” £7bn a year, but there is a lot £7bn can buy. Britain’s five-year-olds are among the shortest in Europe largely as a result of poor nutrition; child credit being denied to third and fourth children is one of the chief reasons that by 2027, 77% of four-child families are projected to be living in poverty. Funding training and apprenticeship places is capped. Incredibly, spending in real terms in sixth forms and further education is lower than it was in 2010. The backlog of unheard crown court cases is at an all time peak. A profligate state?
There is certainly scope to reform inheritance tax – arguably the reliefs on businesses, farms and personal pensions are too generous and by broadening its base it should be possible to lift and reform tax-free thresholds and lower taper rates. The 30% of the population who crazily think they may be liable to inheritance tax (the actual number is 4%) need to be assured there is no risk. It should be clear that the state will only ever claim a fraction of the value of bequests and gifts. But the principle is unarguably right.
There will be much jubilation and cheering from the greying Tory members at their conference this week if, as trailed, Rishi Sunak promises to abolish or eviscerate inheritance tax. Bacon and Aristotle will turn in their graves. In their denial of society are the Tories beasts or gods? The stench of yet more muck going unspread will be overwhelming.
• Will Hutton is an Observer columnist