Dominic Lawson: Why can't David Cameron accept the obvious? Lower taxes bring higher growth

On Boxing Day 2004 a total of 428 Swedes were killed by the tsunami which swept through the Indian Ocean. No other European country suffered such a catastrophic loss of life and this sparsely-populated Scandinavian nation grieved, especially for the hundreds of children who had been suddenly orphaned. Many thought of how they could help those children through donations. The Social Democrat government, however, had already done its bit. A week earlier it had abolished inheritance tax.

Last week the uber-Thatcherite John Redwood, head of the Conservative policy commission on the economy, made a less radical suggestion: that family homes should be exempt from inheritance tax. Naturally the Labour Party immediately suggested that the cost of such a proposal could do dreadful damage to the nation's "schools 'n hospitals". This mantra is constantly intoned, but like all mantras it has long since lost any meaning.

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The money raised by inheritance tax - close to £4bn - is much less than 1 per cent of the Exchequer's total annual revenues. Anyone who has run a business - or indeed a family budget - knows that this is well below even the margin of error. To put it in perspective: yesterday the Economic Research Council produced a report showing that last year we paid £167.5bn to keep 883 quangos in the style to which they have grown accustomed. When New Labour came to power these bodies - or rather, many fewer of them - cost the taxpayer £24bn.

There was a time when inheritance tax was a concern to relatively few - and these were the sort of families who employ tax advisors to avoid its worst effects. Because of the sharp rise in property prices, especially in the South-east, the Halifax estimates that by 2020 the tax will affect more than 4 million households. That might be why opinion polls now show an overwhelming support, and not just in the South-east, for the exemption of homes from inheritance tax.

In intellectual - as opposed to political - terms, there is a better argument for complete abolition, as the Swedes have done. It is quite natural that there should be some form of tax on property - it is one of the three great bases of taxation, after income and spending. On the other hand, through sharp increases in stamp duty, Gordon Brown dramatically raised the levy on owning a home. There is also council tax, which has grown even faster - and with revaluation imminent, will become a toxic political issue.

There is something particularly unsatisfactory about inheritance tax, however. You might argue that, since it doesn't bite until an estate has reached £300,000, those who are affected are not likely to be impoverished. Yet the taxman has no idea of the financial state of the recipients - and, of course, he doesn't care. While an inheritance of more than £300,000 might be a lot of money for one beneficiary, the 40 per cent tax bites equally harshly regardless of how many children are left to share the pot. In this sense it truly is a tax on death, rather than inheritance.

The Shadow Chancellor, George Osborne, has given a very warm welcome to Mr Redwood's proposals - in sharp contrast to his brusque reaction last year to a very similar package of measures proposed by Michael Forsyth, who led the Tories' policy commission on the tax system. Not surprisingly, since Forsyth is from the same wing of the party as Redwood, his proposals had been remarkably close in philosophy and intent.

The difference is that the Conservative leadership is now rather more worried about its core supporters, having thoroughly alienated so many of them with its gratuitously dismissive remarks about the benefits of selective education. After all, the sort of parents who have a fierce desire to give their children the very best education available are likely to be those who would feel outraged at the idea that their grandchildren's chances of a good selective education might be reduced by a posthumous tax on their savings.

Nevertheless, David Cameron, interviewed yesterday by James Naughtie on the BBC Today programme, stuck rigidly to his own refusal to name any specific tax cuts that the Conservatives might make if in Government. In principle it is absolutely reasonable not to make any such commitment when a General Election could still be at last two years away. Yet just as Jim Naughtie "kebabbed" a flailing Neil Kinnock in 1989 when he quizzed the then Labour leader over his plans for the economy, the veteran broadcaster did a good job of skewering David Cameron. This time the BBC did not save the Leader of the Opposition's blushes by scrapping the interview and re-recording it.

When Cameron trotted out his usual soundbite about "sharing the proceeds of growth" as an antithesis to a commitment to tax-cuts, Naughtie came up with a devastating counter. Did Mr Cameron believe that tax cuts in countries such as Ireland and Australia had had the effect of growing those economies and thus providing greater tax revenues to fund the public services?

Yes, said Cameron, he did. In that case, asked Naughtie, why don't you commit to tax cuts, as your Mr Redwood recommends? If Mr Cameron gave a coherent response, then I missed it - although being the man he is, he remained perfectly calm, unlike Neil Kinnock, who shouted and swore when confronted with the confusion in his own position.

There are two things that worry me about David Cameron's strategy on the issue of tax. First, it seems based on the notion that the overall balance between taxation and spending imposed by Gordon Brown is unchallengeable. Second - and much more worrying - it contributes to the widespread and appallingly ignorant delusion that the economy is like a cake: that if one person gets a bigger slice then everybody else must get a smaller slice.

If that were so, then the Irish economic miracle would have been logically impossible - indeed the whole of supply-side economics would have been as illusory as the Loch Ness monster: a gigantic fraud would have been committed by the economics faculties of every university across the world.

I suppose there is one good reason for Mr Cameron's reticence. Ever since the Conservative Party under John Major comprehensively shattered the Tories' reputation as a tax-cutting party, the public has been with good reason sceptical about the worth of such promises from such a source: John Major, you might recall, claimed he would remove Inheritance Tax.

In other words, the electorate is not firmly against tax cuts: what it can't stand is politicians who pledge to make them and then do the opposite. On present form, however, Mr Cameron will not even get the opportunity to break any promises.

d.lawson@independent.co.uk

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