Cutting inheritance tax is not just fiscally unsound – it’s unfair (Ben Ramanauskas, 11/20/23, Cap X)
[U]sing this increased revenue to cut inheritance tax would not only be fiscally unsound, it would be deeply unfair. It would represent an even greater shift away from taxing wealth and towards wages. Cutting inheritance tax at this time would therefore be a giveaway to the wealthiest funded by working people.
Rather than cutting inheritance tax, the Chancellor should instead eliminate fiscal drag by unfreezing the income tax and national insurance thresholds.
The main reason for this is that it will allow people to keep more of their money. While inflation is returning to target, there is still a cost of living crisis gripping the country. Millions of households across the country are struggling to make ends meet despite working hard, often in multiple jobs. Increasing tax thresholds in line with inflation will mean that they have more money to spend on themselves and their families.
Ending fiscal drag would also boost productivity. We have seen stagnant productivity growth in the UK since the Global Financial Crisis and while the tax rate is far from being the main cause of this, it has almost certainly contributed to it. As Paul Krugman pointed out, ‘Productivity isn’t everything, but, in the long run, it is almost everything’. Productivity is the key driver of economic growth, which has been persistently low and is forecast to be non-existent over the next year. We have already experienced one lost decade in the UK and we are set to experience another if we don’t turn things around. The government should be doing whatever it takes to boost productivity, and so ending fiscal drag should be a priority.
Unfreezing tax thresholds could also help with the labour shortages facing many areas of the economy. While the labour market is loosening, it is tight by historical standards. Firms are really struggling to get staff to work for them, especially in hospitality and social care. If a person knows that they will be no better off in real terms then they are unlikely to say yes to an extra shift or take on another job. Allowing them to keep more of their money will incentivise them to work longer hours or look for another job.
In other words, stop punishing work, investment, and savings to make them more attractive.