Fury as Byers calls for end to inheritance tax

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A close political ally of Tony Blair has infuriated his Labour colleagues by suggesting that inheritance tax should be scaled back or even abolished.

Stephen Byers, the former Transport secretary, has launched an attack on inheritance tax which has been interpreted as a thinly veiled assault on Gordon Brown.

The move, which threatens to ignite a fresh row between Downing Street and No 11, has infuriated the Treasury and Labour MPs, including loyal Blairites who say the plan to abolish the tax is "a Tory idea".

Loyal Blairite MPs, including Chris Bryant, the MP for Rhondda, and Siôn Simon, the MP for Birmingham Erdington, yesterday rounded on Mr Byers, saying his proposals did not represent mainstream Labour thinking.

One Labour MP said the suggestion that inheritance tax should be abolished amounted to "an attack on the Brown succession". "This is stupid in my view. All it can do is undermine a future Labour election victory," he said.

Mr Simon, who is known as close ally of Tony Blair, said that among Blairites the idea of abolishing inheritance tax had no currency. He had heard about Mr Byers' plans, he said, but did not agree with them.

"He is very isolated to suggest the middle classes cannot trust Brown on tax. This is not clever and not true," he said.

Inheritance tax is charged on the value of estates worth more than £285,000 which do not pass to spouses or civil partners. It is charged at 40 per cent. While 94 per cent of people do not have to pay inheritance tax, many elderly people with modest means have become liable because of the spiralling value of their homes.

A Treasury spokesman said that abolishing inheritance tax would lead to tax rises and cuts in public spending. Because of a decision to raise the threshold year on year, most estates would stay exempt.

"Anyone proposing to abolish it would have to explain where they would find the £3.6bn annual cost equivalent to more than a penny on income tax, 15p on a litre of fuel and almost double the amount of spending this year on counter-terrorism and security."

In 2004, the Tories floated the possibility of abolishing inheritance tax, which is payable on assets, including property and possessions.

Many stately homes, facing massive inheritance bills, have traded in major artworks in lieu of bills which could force them to sell their homes.

Art by Picasso, J M W Turner and Barbara Hepworth are among the masterpieces worth more than £25m donated to the nation over the past year in lieu of the tax. Works by Kandinsky, a painting by the limerick writer Edward Lear and a Stradivarius violin have also been traded.

The scheme is the most important method by which the nation acquires works of art.