Here's a funny story in the FT from yesterday:
A group of cross-party MPs have called for a radical overhaul of the inheritance tax system — recommending a substantial cut in the standard 40 per cent rate to 10 per cent and the scrapping of most reliefs including the “seven-year rule”.
Cutting inheritance tax by 75% is a strange way to increase fairness between generations. Of course, plans to scrap relief are welcome, but the problem with inheritance tax currently is that rich people can usually find ways to avoid it, whereas middle-earners and savers can't. The APPG's recommendations take on faith that a cut would reduce avoidance, but the evidence that capital-friendly policies reduce tax avoidance in general is very thin. In addition, wealth transfers on estates worth more than £2m would be taxed at 20% under the recommendations, giving the very rich more reason to keep avoiding the levy.In a report published on Wednesday, members of the All-Party Parliamentary Group on Inheritance and Intergenerational Fairness said inheritance tax was “unpopular and ripe for reform” and that their recommendations would “increase fairness, cut complexity and reduce avoidance”.
Intergenerational fairness is somewhat of a unicorn in a society with the levels of inequality the UK has. Those on the political right sometimes draw a distinction between 'equality of opportunity' and 'equality of outcome', the former being desirable over the latter. But if equality of opportunity is truly what you're after, getting there would require almost unthinkably radical policies. Inheritance tax would have to be set at 100%; private schools would have to be abolished; nepotism would have to be outlawed.
Is that really what we're after? Most people would obviously answer no. So why don't we try something a little more moderate: keep the levy the same, scrap relief, reduce avoidance, and actually invest in poor communities to give young people from low-income families the best start in life.
