With just a year until the next election, and the party badly behind in the polls, next Wednesday’s Autumn Statement is likely to be one of the last opportunities for the Conservative party to make a permanent change for the better.
The most obvious opportunity available to Chancellor Jeremy Hunt and to Prime Minister Rishi Sunak is to alter Britain’s system of taxation. As Mr Hunt observed earlier in the week, “taxes are too high”, and “this is the moment” to focus on growth.
Whatever steps they take should be permanent ones. They must make an unassailable moral and economic case for permanently lower taxation, making it impossible for Sir Keir Starmer’s Labour party to undo their actions. The outstanding candidate for such a cut is inheritance tax.
The political arguments for such a step are well worn. The tax, while paid by less than 4 per cent of estates, remains deeply unpopular with the public; the 2007 election-that-never-was is a potent illustration of this. But the economic and moral arguments are stronger still.
Inheritance tax, at its heart, is a tax on saving, and therefore on capital accumulation. It discourages the accumulation of assets to pass on to the next generation, and in doing so likely reduces Britain’s capital stock.
The size of this effect has not been quantified, but in the United States the Tax Foundation economist Alan Cole has argued that it is significant. His calculations show that abolishing the US estate tax would add around 2.2 per cent to that country’s capital stock, create in the region of 150,000 additional jobs, and, eventually, be fiscally neutral.
In Britain, we might also expect to see a significant improvement in the manner in which capital is deployed. The existence of carve outs for certain types of shares, or agricultural land, distorts asset prices and surely results in the misallocation of investment to less productive uses.
Indeed, it may not be too much to hope that many lawyers and accountants who currently spend their time wrangling with the intricacies of the inheritance tax system might find a more productive use for their talents.
It is these effects that make the economic case for the abolition of inheritance tax so strong. The claim that it is paid only by a handful of rich people is simply wrong; the tax is paid by the whole of society, by people working in jobs with less productive equipment, by people who do not work for the businesses that might have been started.
But beyond this economic argument, there is a moral one. It is not right for the state to tax in death what was already taxed in life. People work hard to provide a last hand up to their children and their loved ones, and ensure that they are taken care of; for the state to insist on its cut is grotesque.
Mr Hunt and Mr Sunak have the opportunity to leave a lasting legacy, and improve Britain for the better. They should be bold. Rather than tinkering with inheritance tax, adjusting rates and thresholds, they should abolish it entirely, make a strong moral and economic case for doing so, and make it all but unthinkable for Sir Keir to even contemplate attempting to bring it back.