Byers Throws IHT Cat Among New Labour Pigeons

by Robert Lee, Tax-News.com, London

23 August 2006

Stephen Byers, a former Labour cabinet minister and close ally of Tony Blair, has called for the abolition of the UK's Inheritance Tax, calling the levy a "penalty on hard work, thrift and enterprise."

Writing in the Sunday Telegraph, Byers said that the IHT is "unfair and punitive" and a form of "double taxation" because it taxes assets acquired with income which have already been taxed.

Currently, the 40% levy kicks in on estates worth more than GBP285,000, but the threshold at which the tax becomes payable has only kept pace with retail price inflation, not house prices, which have increased by 129% between 1997 and 2004. Consequently, the number of estates dragged into the IHT net has roughly doubled since Labour came to power from 3% to 6%.

The Treasury has issued an unequivocal riposte to Byers's statement, pointing out through statements published in various press reports that the tax is both fair, affecting only a small percentage of estates, and an integral part of the Chancellor's budget. IHT is expected to yield about GBP3.6 billion in revenues this year, the equivalent of a penny on the rate of income tax.

However, Byers, a former Secretary of State for Transport, has suggested that the Treasury could make up revenue lost through the elimination of IHT by imposing levies on "environmentally harmful activities."

The timing of Byers's assertion is significant because some within the Labour Party are interpreting his remarks as a veiled challenge on Chancellor of the Exchequer Gordon Brown, whose remit includes taxation and who is widely expected to succeed Blair as Prime Minster in the next year to eighteen months.

With many observers suspecting that Brown will take the party back towards the left, Byers argued that abolishing IHT would show that the party would remain "relevant and meaningful" to the middle classes.

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