Thursday, October 19, 2006

Forsyth still doing the Lady's bidding

It would be easy to dismiss the report of the Tories' Tax Commission under Lord Michael Forsyth as a political event of no great consequence, given that its proposals have not only been rubbished by Ed Balls on behalf of Labour, but also that the Tories' own Shadow Chancellor Gideon George Osbourne has felt the need to distance himself from them.

That wouldn't, however, be quite right. Although Osbourne has made clear today that the Tories will not be promising an overall reduction in the tax take, and that any cuts in personal taxes will be paid for by increases in environmental taxes, I would nevertheless expect some of the Commission's ideas to make it into the next Tory manifesto. Or even the next Labour one.

Chief among these, surely, is the replacement of Inheritance Tax by a new form of Capital Gains Tax that would exempt the family home, an idea which is looking increasingly like its time has come.

Originally envisaged as a tax that would affect only the very richest, the exponential increase in house prices over the last 20 years has now brought many hundreds of thousands of estates within its ambit, causing much anguish to elderly people whose home is their only asset and who want to be able to pass on something to their children.

If Labour had any sense, they would nick this idea pretty damn quick. Most of the newspapers are already behind it, and my bet is that it's going to be as certain a vote winner among potential Labour-Tory switchers as council house sales were in the late 70s.

Fortunately for the Tories, Brown and Balls appear set on continuing to regard the abolition of IT as a tax cut designed to help the rich, missing the point that, because of the uneven pattern of house prices, it's really a tax that nowadays owes much more to location than social class.

One thing is for certain - that Margaret Thatcher would certainly approve of the work her old protege Forsyth has done in putting tax cuts firmly back on the Tories' longer-term agenda.

An old friend from my Lobby days, who was certainly in a position to know, once told me that Thatcher had actually marked him out as her long-term successor, and that, had she been able to fulfill her ambition to go "on and on and on," would eventually have anointed him ahead of the other Michael, Portillo. I wonder.

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cassilis said...

Interesting post Paul. I've been caught up in another thread over on 'Whose News' on this very subject - I'm a moderate Tory with no particular enthusiasm for radical tax cuts but the inheritance tax situation is appalling and, as you suggest, is perhaps an idea whose time has come...

Mike Ion said...

It will be interesting to see what Gordon does later in the autumn or spring next year re inheritance tax.

MorrisOx said...

Don't over-estimate Forsyth of Drumlean's influence, Paul.

He's got some time on his hands now that he's retired from JP Morgan but I fancy most of it will still be taken up with fly fishing rather than government tax policy.

Bryan McGrath said...

Inheritance Tax reform would undoubtably be popular, but is it affordable.

Unless Brown can actually cut public expediture the mounting gap between revenue and expediture will result in higher interest rates. The old 'duke of york' approach, march interest rate up; sell lots of gilts; march interest rate back down.

However, an overstretched housing market suggests 'sitting on hands' might be the easiest approach, and let Inheritance Tax receipts take the strain