Death and taxes

Stephen Byers’ call to abolish inheritance tax in this week’s Sunday Telegraph has provoked something of a backlash – Ministers and fellow Blairite MPs queued up to trash him in the Guardian, he got a pasting on Labour blogs such as Newer Labour, Take Back The Voice, Political Hack UK, Tygerland, A Councillor Writes and Freemania while Alex Hilton led further recriminations over at LabourHome. 

Even Luke Akehurst could manage only the defence that Byers had “earned the right to speak out” while hastily adding that he didn’t agree with the proposal himself.

Emily Thornberry followed up with a statement rebutting Byers’ claim that the move would help her retain her marginal seat, itself prompting a denunciation from Luke Akehurst but agreement from yet more Labour bloggers such as Kerron Cross and Antonia Bance.

Quite rightly the debate has focused around social justice, but there is a danger that this tacitly accepts Byers’ intellectual premise that IHT is “a form of double taxation because it is applied to assets which themselves have been acquired from earned income that itself has been taxed … It is a penalty on hard work, thrift and enterprise.”

What Byers appears to have missed is that you don’t pay tax on assets that you have already paid income tax on, for the simple reason that when the tax is levied, you are dead.

The person who effectively loses out on the tax take is the heir, who did not earn the income through hard work and enterprise, or any other way.

You can argue that many things are double taxation – most people pay income tax on their wages and VAT when they spend them – but ironically IHT isn’t a very good example.

There may be practical arguments for reforming IHT to combat tax avoidance, and even for simple electoral appeal, but Byers’ position is so deeply flawed that it begs the question as to what his purpose was in advocating it in the first place.