Finance Bill

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Ruth Kelly: We have had a very interesting debate on inheritance tax, with contributions from many Members. I am grateful to the hon. Member for Mid-Worcestershire (Mr. Luff) for reminding the Committee that in the Budget the Chancellor raised the rate at which inheritance tax becomes due from £247,000 to £250,000. I would like to remind the Committee that the legislation says that the inheritance tax threshold, along with other tax measures, rises with inflation unless otherwise specified by the Chancellor. The Chancellor specified otherwise this year. It is useful to set the recent modest increase in context.

I am also grateful to the hon. Gentleman for reminding the Committee that various organisations and representative bodies, and indeed hon. Members, make different predictions about what will happen to house prices. While some claim that house prices may rise because of the buy-to-let phenomenon, others argue that house prices may be about to suffer a sharp correction. It would be wrong to infer too much about future policy from the recent increase in house prices. The Government take a longer-term view, rather than acting on the basis of last month's—or last year's—figures, and I very much hope that we continue to do so.

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It might have been useful had the hon. Gentleman also reminded the Committee that this modest measure still raises £2.5 billion for the Exchequer each year. That is the latest estimate for the revenue from this measure that we have for the current financial year. The hon. Member for Cities of London and Westminster (Mr. Field) and others who propose the abolition of inheritance tax must argue for a replacement source of finance, otherwise it would be only right if my hon. Friends were to tally up the spending commitments in this Committee and hold Conservative Members to account at a later date, a point ably made by the hon. Member for Kingston and Surbiton (Mr. Davey).

The right hon. Member for Fylde, as well as the hon. Member for Kingston and Surbiton, argued on several fronts that the tax was somehow historic and a hangover from the past with no relevance today.

Mr. Bercow: I know that the Financial Secretary will not be tempted to misbehave in important matters of costing, but can I put it on the record for the avoidance of doubt that, although a very stimulating debate has already taken place, there has been no spending commitment by the Conservatives on the matter? That point is clear to me, it is clear to my hon. Friend the Member for Arundel and South Downs, and to the person to whom both of us defer, my hon. Friend the Member for Mid-Worcestershire.

Ruth Kelly: I thank the hon. Member for Buckingham, who speaks for the Opposition on such matters, for clarifying that for the record. It would indeed be quite a significant spending commitment had the Opposition said today that they proposed to abolish inheritance tax. I am glad that that has been put right for the record. However, that does not mean to say that we cannot hold individual hon. Members to account in future for the spending commitments that have been made, and I am sure that that will be done.

The debate has betrayed, in many senses, the Opposition's obsession with housing wealth and house price rises at the expense of increases in other asset prices, depending on the assets to which one is referring. It is only right that housing is seen as part of a portfolio of different sources of wealth, and inheritance tax makes no specific distinction between the different sources of wealth. It is understandable that housing should dominate thinking at this time of rapid house price rises, but it is certainly not the case that housing is the dominant asset for people paying inheritance tax.

The latest figures that we have for inheritance tax payers are for 1998-99, but that is not too distant for us to refer to them usefully today. They show that inheritance tax payers in the 80 to 84 age group, a very typical age for those paying the tax, had less than a quarter of their total wealth in housing. That was matched by their holdings of cash and was far less than their holdings of stocks and shares. Even in the under–65 age group, about 8 per cent. of all inheritance tax payers, stocks and shares were a greater proportion of wealth holdings than property. Of course, that does not mean to say that house prices have no effect on

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that group. They do have an effect, but that should be put in context and seen in proportion.

Some hon. Members have been arguing that house price rises have drawn more and more people into the inheritance tax net recently and they have particularly pointed to differential property prices in London and the south-east compared with other parts of the country. I remind the Committee that we should not look merely at the short term, but see house prices in a longer context. It would be foolhardy to react solely on the basis of a recent surge in house prices. Those with long memories will no doubt recall the housing boom that preceded the recent one.

Ann McKechin (Glasgow, Maryhill): My hon. Friend the Financial Secretary has made a very good point about looking at the long term. While house prices have been increasing in certain parts of the country, the stock market has suffered a serious decrease in valuation. As she correctly pointed out, most estates involved in inheritance tax have a fairly significant stocks and shares portfolio. There is a degree of balance going on between the two elements. As the hon. Member for Mid-Worcestershire pointed out, some people are now moving into property to try to counter that, but it has to be seen that most people who have assets liable to inheritance tax are likely to have a different balance of assets to cover the different risks that occur at different times in stock and property valuations.

Ruth Kelly: I thank my hon. Friend for an extremely important point. It is true that people have the opportunity to diversify their portfolios. It is also the case that if the value of their house has increased significantly, people have the opportunity to cash in on that and move. For example, 40 per cent. of Londoners have been in their homes for less than five years. It is not the case that death leads to an unexpected tax for which people did not have an opportunity to prepare.

While house prices have been growing faster than the inheritance tax threshold in recent years, that reflects a rebound after house prices fell by 30 per cent. in real terms in the late 1980s and early 1990s. Looking at the longer-term picture, even just for house prices, the threshold has kept pace and the picture is much more balanced. If we include other assets, the threshold for inheritance tax has clearly kept pace with the overall increase in assets over a slightly longer time period.

I do not accept the point that inheritance tax is sometimes a form of double taxation. That is just not the case.

Mr. Luff: It is.

Ruth Kelly: Let us look at VAT and changes in VAT. The hon. Member for Mid-Worcestershire, from a sedentary position, suggests that VAT is a double tax as well. I would not accept that point, but clearly we start our debate on taxation from different bases. In many respects, inheritance tax is not fundamentally dissimilar to that.

Mr. Luff: If one earns income and pays tax on it and then buys goods and pays VAT, it is double

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taxation, and the same thing applies to inheritance tax. If one earns income, builds up assets and pays tax on them when one dies, it is double taxation. That may be justifiable, but the Financial Secretary cannot deny the truth.

Ruth Kelly: It is often the case that housing wealth and assets built up through increases in house prices come from sources that are not taxed, or certainly not taxed fully. I do not accept that that is a form of double taxation.

6.30 pm

Chris Grayling: The Financial Secretary is trying to have her cake and eat it. The wealth of a key group of inheritance tax payers does not largely come from property, but she is using the property example to defend double taxation. It is surely the case that if one earns money, pays income tax on it, puts one's money into a savings account, pays tax on the interest and then dies and pays inheritance tax on one's estate, that is treble, rather than double, taxation.

Ruth Kelly: The hon. Gentleman can define double or treble taxation in any manner that he chooses, but that is not an argument that the Government and I accept, and we never have. No one has ever argued that one should be exempt from a tax such as VAT because one has already paid income tax. I do not accept the principle of the argument that inheritance tax is different from other forms of tax.

Several hon. Members have suggested that abolition or changes to the inheritance tax threshold could combat undersaving by people who are attempting to build up savings for their retirement. I certainly do not accept that that is the case. It is not the case that those who have accumulated vast wealth in housing are those who currently have difficulties in retirement. I will not bore or detain the Committee with the details of what we are doing on the retirement front, but I do not accept that reforms to the inheritance tax threshold would somehow help. I do not accept the thesis that it is inevitably for the good of the nation that people are able to hand down from generation to generation vast amounts of wealth that has been built up during the course of one generation. That is not necessarily a good thing.

Mr. Burnett: The perversity of this tax is, of course, that the richer one is, the less likely one is to pay it. I hope that the Financial Secretary will accept that that is because it is easy legitimately to organise one's affairs to avoid tax if one has a lot of assets and money. The people in the middle ground are the ones who will get caught. Sometimes we talk about people being in the middle ground, but some of them are not well off.

 
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