Dominic Lawson: Mess with family ties at your peril

Inheritance tax is a levy on parental love – which is why the Tories' commitment has had such an effect
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The Independent Online

The man responsible for that mesmerising exercise in financial voyeurism, the Sunday Times Rich List, claims to have discovered the identity of the wealthiest Briton of them all. Actually – if Mr Philip Beresford is to be believed – the person in question was not a Briton but a Breton: Alan Rufus, who joined the invasion led by his uncle, William the Conqueror, and, after many years of successful pillaging, died in 1093 with a fortune of £11,000.

Mr Beresford claims this means that Mr Rufus "was worth more than £81bn, three times the wealth of Bill Gates"—and this astounding estimate has been dutifully reprinted by various other newspapers. Closer examination reveals this figure to be spurious. What the Rich List compiler has done is to determine that £11,000 was 7 per cent of the British net national income in 1093, and because 7 per cent of our current net national net income is £81.3bn, hey presto! – that is what Alan Rufus was "worth". On the same basis, I might as well declare that the original Adam, or if you prefer, the first homo sapiens, was the richest man in history, "worth" £25 trillion, the current size of the global economy.

History – or Mr Beresford – does not relate what became of Alan Rufus's inheritors. He died long before the advent of estate duties – which were introduced six centuries later in order to finance a war against the French. If the present-day defenders of our system of inheritance tax are right, then Rufus's descendants would still be dominating the commercial life of this country - but the intense meritocracy of capitalism long ago shattered the ability of mere inheritance to control economic and political power.

The advent of the market economy also changed the moral terms of the debate over inheritance: the likes of Alan Rufus gained their wealth through brute force, frequently involving murder. The successful modern entrepreneur, however, becomes rich only by selling to people what they want to buy – in competition against lots of other businesses with rival products. There is nothing intrinsically immoral in this process – unless the creation of new wealth is intrinsically bad. You would think, however, that we were still in the age of the robber barons, to judge from some of the arguments that have been levelled against the Conservative Party's recent pledge to exempt estates of under £1 million from inheritance tax.

The more sophisticated among them argue that they have nothing against the accumulation of wealth by families, but that not to have a high rate of inheritance tax "destroys social mobility". They never explain just how it is that the money taken from those families is dedicated to the creation of "social mobility" – because it isn't. What they really mean is that if families are taxed less on the death of the last surviving parent, then the children or grandchildren might experience too much upwards social mobility – for example by having the wherewithal to pay for school fees.

Mr Will Hutton argues that it is for the sake of the inheritors that such taxes must actually be increased, rather than reduced: "Easy access to unearned wealth destroys the incentive to work and to experiment". There is quite a lot to this argument – it has also been used to attack welfare payments – but if inherited wealth does wipe out get-up-and-go within two generations then it cannot simultaneously be described as something which destroys economic mobility in society as a whole: on this argument those less favoured by inheritance will have the incentive and personality to gain by their own endeavours what they have not been handed on a plate by a loving parent.

For inheritance tax is a levy on parental love – which is why it is so hated and why the Tories' commitment has had such a galvanising effect on their level of popular support. It is one of the most basic, if not the most basic, of human emotions to do everything we can to secure our children's – and grandchildren's – future. When governments appear to want to reduce our ability to do that, then politically they are walking on very thin ice indeed.

It is certainly true that the children of the very rich are often horribly damaged by the removal of any financial checks on what they can do; but this has very little to do with inheritance. The problems start well before they inherit, while their parents are still alive. Wealth brings its own peculiar problems, which only the individual families concerned can deal with.

My mother's family, who had left what was then East Prussia for the East End of London and created out of nothing but their wits the J.Lyons catering empire, had their own way of dealing with this problem. Every male family member in the business would receive an identical pay packet – and even males not in the business would be awarded the same, on the understanding that they paid into the general pot any earnings they accumulated personally. They all lived in the same part of London – and would move en masse from one postal district to the next, as they went up in the world. None of them had country estates, still less exotic villas overseas - although they certainly could have afforded such pleasures. When one of them died, his property would not automatically be his children's, but its value would go back into the general family fund.

It was not even acceptable to own a fancy car – a Bentley, for example, would have been seen as horribly ostentatious. The point, however, is that this was a way of life they chose for themselves as a family – it was not one forced on them by "society" or a government which thought it knew best how people should lead their private lives.

In any case, the current political debate on inheritance taxes has nothing to do with the rich, as we normally understand the term. Because the inheritance tax threshold has not kept pace with the dramatic rise in property prices over the past ten years or so, families who would never have thought they would be caught by the tax now fear that they will have to pay it – or rather that their children will.

Even now, almost three quarters of inheritance tax is paid by those inheriting shares in estates worth under half a million pounds. These are not the sort of people who were meant to be paying estate duty, when it was first devised – and they know it. They also know that they have paid income tax, and tax on any income from their savings – and they don't think they should have to hand a croupier's take to the Inland Revenue out of what they have managed to preserve.

Gordon Brown has claimed that the Tory pledge to cut inheritance tax is "unfunded" – as if the £3.5bn involved would be impossible to find in a total public expenditure budget of over £600bn. Mr Brown will find it.