Prime minister David Cameron is right to commit himself to increasing inheritance tax thresholds if he wins the next general election. His timid colleagues who fear a political backlash should think again. This government has been at its best when it has been at its boldest – just as we saw with pensions reform.
Britain’s ‘death tax’ bites at levels well below the super-wealthy who can afford to transfer most of their wealth more than seven years before their death. In practical terms, it hits those who die unexpectedly early or those who are comfortably off but not rich enough to pay lawyers lavishly to set up complex avoidance structures.
Inheritance tax is a rotten tax and has rightly been abolished in countries including New Zealand, Australia, Canada and Sweden. It runs counter to the very natural and human instinct to transfer gains to look after the next generation, and it taxes a second time wealth on which tax has already been paid.
There could be a halfway house. Today there’s no capital gains tax at death – just inheritance tax. An incoming chancellor could merge inheritance tax with capital gains tax; there is simply no need for two taxes on capital, which require complex rules for their interaction. One idea to look at could be scrapping inheritance tax but introducing capital gains tax liability at death on the gains since their acquisition – this would be seen as fair but would also mean capital appreciation was taxed once, and only once.
Co-op crisis focuses boardroom debate
Warren Buffett said it can take 20 years to build a corporate reputation and five minutes to destroy it. The poor old Co-operative Group has been battered so repeatedly over the past months that its standing must seem beyond remedy.
There’s nothing in its structure that dooms co-operative enterprises. The John Lewis Partnership shows mutual models work. Lord Myners’s struggle to rationalise the Co-op’s governance brings into sharp focus a debate about the purpose of a board of directors. Should it be a parliament of stakeholder groups? Or is it a professional decision-making body tasked with achieving the objectives of an organisation? The IoD’s view is firmly the latter.
A strong business voice in Europe
One of the biggest decisions the government will face after this month’s European elections is the appointment of the next British EU commissioner. Baroness [Cathy] Ashton has had some successes in the foreign relations portfolio, but British business has suffered from not having a representative with a key economic portfolio.
The new appointee will probably be a Conservative politician – what is important is that it is an individual who understands the needs of UK business. It should not be a consolation prize for a politician who has been unlucky or a peer whose nomination will avoid the need for a by-election.
Tax system must promote growth
The Treasury has just published an analysis of the ‘dynamic’ effects of reducing fuel duty, suggesting that tax cuts can boost economic activity and pay for themselves. This may seem a technical exercise, but it gets to the heart of the role of the state. In New Zealand recently, I was heartened to hear a minister argue that it is government’s role to keep public spending low to minimise the tax burden on businesses and individuals. In the UK, we must aim for a tax system designed to promote growth, not one that seeks to raise more and more cash for the Exchequer.