British politics is reverting to old-fashioned class war

Published : 30 Sep 2023 09:40 PM | Updated : 30 Sep 2023 09:40 PM

Labour leader Keir Starmer (L) and Shadow Chancellor Rachel Reeves speak to the media during a visit to the London Stock Exchange on September 22, 2023 in London, England. Labour leader Starmer and Shadow Chancellor Reeves pledged to introduce legislation to ensure that the Office for Budget Responsibility (OBR) has the power to independently publish its own impact assessment. The announcement comes in a bid to prevent a repeat of the economic turmoil caused by former Prime Minister Liz Truss’s mini-budget one year ago. (Photo by Dan Kitwood/Getty Images) (Photographer: Dan Kitwood/Getty Images Europe)

Only two things are supposed to be certain in life: death and taxes. But there is a third constant: Everyone hates death taxes. So it’s no surprise that Britain’s Conservative government is mulling the abolition of inheritance tax (IHT) months before a general election that few are betting on them winning. 

History points the way. Facing certain electoral defeat in 2007, the Conservatives, then in opposition, promised to raise the threshold at which IHT was paid to £1 million ($1.2 million) from £300,000. Their opinion poll ratings jumped so sharply that Labour’s new prime minister, Gordon Brown, decided against calling a snap election. (The Tories dropped their proposal in government once recession hit the UK.) No wonder Prime Minister Rishi Sunak is tempted to repeat the trick. 

Critics, however, say that the abolition of IHT would be a handout to the rich. Nor is the timing propitious: Over the last two years, the lower-paid have seen rising prices burn a hole through their wallets.

The opposition has been playing at class war too. Labour announced this week that a 20% VAT (sales tax) charge on private school fees will take immediate effect if the party wins the general election — rather than phasing it in over years. The £1.7 billion extra revenue raised is earmarked for spending in state schools. Sunak, whose parents scrimped and saved to get him privately educated, replied that Labour “don’t understand the aspiration that people have to provide a better life for their kids. They want to punish them for that as part of some class war.” 

The UK’s private schools are perhaps the best in the world. If their tax exemptions are removed, some say they will no longer be able to afford bursaries for poor students — and their places will go to the children of the British and global elite. Hardly an egalitarian outcome.

After the turmoil of recent years when Brexit and other culture wars were all the rage, is British politics reverting to type? Class dominated the political conversation following World War II. After the economic boom of the 1990s, however, most voters began to describe themselves as “middle class” and the rhetoric of “us and against them” fell out of fashion.

But another undeclared class war has been quietly raging ever since. The Tories have set affluent, older homeowners against young, lower-income renters. This is one class war Labour doesn’t want to join in. 

Keir Starmer, the opposition leader, isn’t auditioning for the part of Lenin anytime soon. He has closed down all talk of a wealth tax or an increase in the top rate of income tax. Labour is only going after low-hanging fruit — the attack on private-school tax privileges polls well in general and even among Tories who send their children to state schools. Political strategists argue that its real purpose is to show the faithful that, contrary to appearances, Starmer will be bold if elected.

Similarly, a Tory promise to abolish or lighten IHT post-election plays to the crowd. According to a YouGov poll, only 20% of Britons think IHT is “fair,” even though the vast majority will be exempt. Just 27,000 estates paid the tax out of the 722,000 deaths recorded in 2020-2021, less than 4% of deaths. Most taxes on capital and wealth get grudging acceptance, but a large majority think that the state should let parents hand down money to their children intact. Something in human nature revolts against a death tax.

Other English-speaking countries, such as Australia, New Zealand and Canada, don’t levy death taxes. Nor does social-democratic Sweden. In the US, the threshold for payment of estate tax starts at $13 million. Britain has one of the lowest thresholds anywhere in the world at £325,000, paid at 40%.  

With impeccable timing, the politically neutral Institute for Fiscal Studies published a study of IHT on Thursday, calculating that the tax brings in a mere £7 billion out of total UK tax revenues of £950 billion. Voters say that a capital-gains tax on assets when someone dies would be fairer.  

Property taxes favor the well-off. A ratepayer in the rich London borough of Kensington and Chelsea (which tops national league tables for longevity and good health) pays on average 0.1% of the value of their home in council tax. 

In the poor Northeast town of Hartlepool, the average is 1.3% — 13 times more. There has been no revaluation of rates on houses since 1991. Neither Labour nor the Tories dare to reform the system — they remember that mighty Margaret Thatcher was brought down by a nationwide revolt against her attempt to change it.

The UK’s thicket of planning laws also favor affluent homeowners. Folks who don’t want their view spoiled by cheap new houses can make their objections felt at the planning stage. The result is that not enough homes are being built. Prices keep rising as supply is squeezed. That’s fine by those who already own a nice house, but without help from the bank of mum and dad, many young people can’t afford a deposit for a mortgage and are forced to pay high rents. 

To his credit, Sunak has tried to ease the planning regime, but his MPs in leafy southern England won’t hear of it — with good cause, as they fear that their angry constituents will transfer their votes to the Liberal Democrats who support local NIMBYs.

Inter-generational class war is also at the heart of the debate about the pension “triple lock.” The scheme ensures that the state pension rises to whichever is highest of three measures — inflation, average wage growth or 2.5%. So if inflation goes up 10% one year and wages go up 10% the following year to catch up, pensions automatically rise by over 20%. Some people who retire are better off than when they were in work. The scheme is rapidly becoming unaffordable, so the young people who pay for it are unlikely to benefit.

This class war favors the Tories. The affluent over-60s are the one age group that still overwhelmingly support the ruling party in the opinion polls. And the grey vote turns out in huge numbers at election time, while the apathetic young often sit it out. To adapt an old Conservative election slogan, the old have never had it so good.

Martin Ivens is the editor of the Times Literary Supplement. Previously, he was editor of the Sunday Times of London and its chief political commentator. 

Source: Bloomberg