Richard Murphy: Nadhim Zahawi is wrong but inheritance tax isn't right

But Zahawi is a Tory and apparently shameless, and that is despite also ­managing to be just about the shortest-serving ­Chancellor of the Exchequer in UK history. As a result, he was back in the headlines talking about tax this last week.

Zahawi wrote a column in the Daily ­Telegraph in which he said that inheritance tax is “a spectre that haunts us alongside death”. He described the tax as “morally wrong” and said that it was every parent’s desire to leave something to their children.

There is, of course, nothing about ­inheritance tax that prevents any parent from leaving gifts to their children. Zahawi is straightforwardly wrong to suggest that this is the case. It does not confiscate a dead person’s whole estate.

He also revealed his ignorance of the tax and the way it works when he suggested in his article that it can be the death knell of small businesses, on the value of which he claimed inheritance tax had to be paid when in reality, there are ­exceptionally generous tax reliefs to ensure that this should not happen. It’s bad enough hearing an incredibly wealthy Tory whining about tax without them whining about tax bills that will never exist.

But is Zahawi right? Is ­inheritance tax a spectre that haunts us? In my experience (and I am still a practising chartered accountant amongst the other activities that I undertake), those who moan about inheritance taxes tend to be small-minded, overwhelmingly mean, and are possessed of a belief in their own enormous importance (Zahawi described himself as a “self-made man” in his article).

What those of such inclination tend to share in common is a hatred of government and all that it can do for ­society, from which they deny they have ever benefitted. That Zahawi built his ­business on the basis of employing state-educated people, whose good health was underpinned by the state, with the business he created only being possible because company law permitted it and contract law upheld it, are facts Zahawi conveniently ignores when making his claim to be “self-made”.

More importantly, what he ignores when making that claim is the fact that most people in Britain as a whole now think it is broken. There is good reason for that. The evidence that this is the case is all around us.

One very good reason why that is the case is that inequality in this country as a whole – and in Scotland – is increasing.

When it comes to wealth, those in the bottom half of the population have very little at all. That’s the shocking reality of modern Britain.

In contrast, the wealthiest 10% of ­people have an average wealth, including their pensions, of £1.4 million. Those in the 10% below them have an average wealth of around £400,000 and next 10% below them (which covers people who have way above average wealth as a result) have ­assets of maybe £200,000 on average. But when it comes to the top 1%, and less, the sky is the limit. Zahawi should know that. Even after settling his tax bill, I am fairly confident he is in it.

So, given that inheritance tax is only ever charged on wealth over £325,000, with that limit usually doubling for ­legally related couples, then “the ­spectre of inheritance tax” clearly does not haunt most people, whatever Zahawi has to say. The fact is that most people are never going to come near paying it.

So, in the politest possible way, we can safely conclude that Zahawi’s bleating was that of a very rich, ­selfish, and in my opinion, both ­ill-informed and insensitive person. Or a Tory MP, in other words.

But does that mean inheritance tax is a good tax? Actually, the ­answer is that it is not. If Scotland was to be independent I would ­suggest it took a very different ­approach to taxing wealth.

What I stress though is that it should tax wealth. That’s because the future health of its economy would ­demand it. Right now, so imbalanced is our economy that the wealthiest have far more wealth than they need or that the economy can use. ­Reducing that wealth by taxing it and then ­redistributing it to those who might spend what they get as a result would massively boost ­incomes and so economic activity in Scotland as a whole. So, unambiguously I am in favour of taxing wealth more.

That said, the best way to do this is not via a wealth tax – because waiting for people to die is really not a good ­basis for charging tax. I would instead start by increasing the taxes due on income from wealth. That is because, as a result of the bias that both the Tories and Labour have towards the wealthy, their ­income is at present subject to much lower rates of tax than are due on income from work.

Partly that is because those with ­income from wealth do not pay national insurance. That’s absurd when if both employee and employer’s contributions are allowed for, that tax can be charged at rates exceeding 25% on work.

To level things up here an additional 15% income tax rate should be payable by anyone with investment income exceeding £5000 a year (pensions excluded). That requires savings of way more than £100,000 in most cases, even now.

Then I would make the tax charge on capital gains – which are the profits made when selling shares, second homes, rental properties, artworks and businesses – payable at the same rate as income tax. Why taxes on capital gains are payable at half of income tax rates at present is very hard to explain. All pounds arriving in anyone’s pocket, whatever the source, should, in my opinion, be taxed at the same rate.

Local authority taxes also need ­looking at – the top rate band for properties under Scottish council tax rules is too low. To be fair, there need to be many more bands.

To be fair as well, Scotland needs a land value tax payable by estates, and most especially for those used for the ­entertainment of the wealthy, such as grouse moors, especially when it is known how harmful these are to the environment.

And what would I do on death? I would charge capital gains tax on all assets ­gifted at that time, or in the years coming up to death.

This would include a gift on family homes when last used by the survivor of a legally related couple (with special rules for carers) because we can’t take those homes with us. Nor do almost any of us move into our parent’s homes when we die, precisely because most of us hope for (and usually succeed in) having our own homes well before our parents pass away.

The pretence that to charge tax on ­parental homes denies children a chance of a place to live is, in that case, usually quite absurd, unless you are royalty.

So, Scotland needs to tax wealth. It also needs to give a cold shoulder to wealthy, bleeding-heart Tories.

Social justice, economic justice, environmental justice, housing justice and straightforward fairness demands that wealth be taxed. But we need to do it properly.

Scotland needs to be thinking now about how it might do that. I’ve just ­offered a plan.