“There is no magic money tree” say the people who think there's a magic housing tree, health, education and police trees

OUR RELATED STORIES:

£100bn a year is missing from our high streets thanks to 50 years of pay squeezes

Why does everyone say inequality is falling, when it's rising? Because they're only counting incomes, not all wealth (property, pensions, etc.)

The NHS is not a “cost”. It creates nationwide jobs, technology, growth and wealth. Oh, and health

FTSE bosses take 2.5 days to earn what you earn all year. Data shows they don't deserve it

All governments agree to fix the housing crisis. Latest figures show we're still not even trying

Recovery? What recovery?! Bank of England director explains why broke Britain is still broken

Brexit was about inequality in Britain, not immigration. Have our politicians realised this?

See the Stats: Osborne's 2016 budget protected the wealthiest while the most vulnerable suffer

Inequality: the UK has 9 of the 10 poorest regions in Northern Europe. But Inner London is the richest

Graphs at a glance: With highest pay and highest job growth is London sucking the life out of Britain?

Londoners earn 15% more 'cos London is damn expensive! But the poorest 5th in London are paid only 4% more

Graphs at a glance: Britain is already a low-pay economy with falling average wages

Is your Cost of Living crisis over?! Average wages are still back where they were 10 years ago

Election 2020: since 1997 the percentage of those under 55 who don't vote has doubled

Don't be fooled: the top 1% are paying more income tax? Because their income has doubled since 1995 while the bottom 90%'s has stagnated

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Hoping for a Brexit U-turn? Then let's U-turn inequality. Except Hammond’s budget is making it worse.

Almost four decades of widening inequality caused Brexit. Who seriously thinks we’d have voted Brexit if low-end wages had risen in line with growing national wealth? If low income workers had been saving, rather than borrowing or going without? Instead, since 1979, the Tories increased inequality. Worse, Labour failed to reverse it. In fact, it crept up further. Immigration and the EU is getting the blame for that poverty. But neither caused it.

Source: Institute for Fiscal Studies http://www.ifs.org.uk/publications/4637
NOTE: The “Gini coefficient” is an internationally used measure of inequality, where zero corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income, and everyone else has zero income).

Inequality so what? It means we’ve become a nation of borrowers. Since the 1980s the bottom 50% have actually had to borrow money to cover their living costs. As the graph shows, the poorer you are, the more you had to borrow. And before you shout “If you can’t afford it, don’t buy it!” where do you think that huge chunk of the nation’s high street spending is going to come from, that’s paying your wages?! The "Savings Ratio" in the graph shows what percentage of income different groups (the poorest to the richest) save. A negative Savings Ratio means they are borrowing. 

SOURCE: Resolution Foundation report "Gaining from growth: The final report of the Commission on Living Standards"

So, anyone hoping that Brexit voters will change their mind before the EU plug is pulled must therefore pray that inequality gets better. But Chancellor Philip Hammond’s budget is about to make it worse.

Here’s a graph of how incomes changed in the first four years of the “cataclysmically awful” bank bust (2007/8 to 2011/12), overlaid with how incomes will change thanks to Hammond’s budget (2016/17 to 2021/22).
SOURCE: Resolution Foundation report: “Are we nearly there yet? Spring Budget 2017 and the 15 year squeeze on family and public finances”

The lines show household net income growth (i.e. after including tax and benefits, and housing costs) for all working-age households. The poorest are on the left, the richest on the right. The bank-bust brown line shows everyone’s growth was negative, but the poorest suffered least and the super-rich most. Hammond’s blue line shows the poorest will suffer more than anyone has since 2007/8, while incomes will actually grow for the top 50%, the richer the better.

The graph comes from a report by the Resolution Foundation, who said: “the final four years of the current parliament look like being worse for poorer households than the financial crisis period itself.”

And before you accuse the Resolution Foundation of being too lefty, its boss is David Willetts, the Tory peer and former cabinet minister.

Someone needs to tell Hammond that a recovery needs people to spend money. But Hammond’s plan is to give more money to people who will save it, and less to people who would spend it. It’s not going to work. Duh!

What of UK average earnings as a whole? Overall, has the UK got a pay rise yet, since the bank bust? Paul Johnson is the boss of the Institute for Fiscal Studies. The IFS is one of the few research bodies that politicians don’t argue with, such is the robustness of their work. He said: “On current forecasts average earnings will be no higher in 2022 than they were in 2007. Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented.”

Unprecedented. The never-ending stagnation has forced commentators to dive deeper and deeper into their tattered history books as every year passes. Yup, this has been the worst recovery for wages since... Napoleonic times!

SOURCE: Resolution Foundation report: “Are we nearly there yet? Spring Budget 2017 and the 15 year squeeze on family and public finances”

The Resolution Foundation report confirms it: “we are on course for average pay across the decade to 2020 to be lower than the average for the decade before. That would represent the worst decade for real earnings growth in 210 years.”

“But Brexit is not simply about inequality and wages. Get real! Plenty of Brexiters just don’t like immigration and the EU.” Sure, but there aren’t nearly enough of them to win a referendum on their own.

Both Theresa May and Philip Hammond voted Remain. Now they are the PM and Chancellor of Brexit Britain. What are they doing to prove their Brexit credentials? By deepening inequality, they ensure the fervour for Brexit never goes away. I guess that’s kind of pro-Brexit.

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"Austerity” cuts to tax credits/benefits have hit women hardest: £79bn against £13bn for men

Fee and Chris wonder whether a female PM's chancellor will do better...

SOURCE GUARDIAN: Women bearing 86% of austerity burden, Commons figures reveal

Labour has urged the Conservatives to carry out a gender audit of its tax and spending policies, as the shadow equalities minister, Sarah Champion, published analysis showing that 86% of the burden of austerity since 2010 has fallen on women. Champion said research carried out by the House of Commons library revealed that women were paying a “disproportionate” price for balancing the government’s books. The analysis is based on tax and benefit changes since 2010, with the losses apportioned to whichever individual within a household receives the payments. In total, the analysis estimates that the cuts will have cost women a total of £79bn since 2010, against £13bn for men. It shows that, by 2020, men will have borne just 14% of the total burden of welfare cuts, compared with 86% for women. Many of the cuts announced in earlier years by former chancellor George Osborne, including a four-year freeze on many in-work benefits and reductions in the universal credit, are yet to bite. Hammond has loosened Osborne’s fiscal rules, but he will press ahead with most of the pre-planned austerity measures – though the tax credits rebellion forced the government to promise not to look for fresh savings from the welfare bill in future years. Mary-Ann Stephenson, co-director of the Women’s Budget Group lobby group, condemned the Tories in light of the new research. She said: “The chancellor’s decision to continue with the decisions of his predecessor to cut social security for these low income families, at the same time as cutting taxes, is effectively a transfer from the purses of poorer women into the wallets of richer men.” The government publishes an analysis of the differential impact of its policies at different points on the income scale, but does not carry out a gender analysis.

OUR RELATED STORIES:

Why does everyone say inequality is falling, when it's rising? Because they're only counting incomes, not all wealth (property, pensions, etc.)

The NHS is not a “cost”. It creates nationwide jobs, technology, growth and wealth. Oh, and health

FTSE bosses take 2.5 days to earn what you earn all year. Data shows they don't deserve it

All governments agree to fix the housing crisis. Latest figures show we're still not even trying

Recovery? What recovery?! Bank of England director explains why broke Britain is still broken

Brexit was about inequality in Britain, not immigration. Have our politicians realised this?

See the Stats: Osborne's 2016 budget protected the wealthiest while the most vulnerable suffer

Inequality: the UK has 9 of the 10 poorest regions in Northern Europe. But Inner London is the richest

Graphs at a glance: With highest pay and highest job growth is London sucking the life out of Britain?

Londoners earn 15% more 'cos London is damn expensive! But the poorest 5th in London are paid only 4% more

Graphs at a glance: Britain is already a low-pay economy with falling average wages

Is your Cost of Living crisis over?! Average wages are still back where they were 10 years ago

Election 2020: since 1997 the percentage of those under 55 who don't vote has doubled

Don't be fooled: the top 1% are paying more income tax? Because their income has doubled since 1995 while the bottom 90%'s has stagnated

Read More

Why does everyone say inequality is falling, when it's rising? Because they're only counting incomes, not all wealth (property, pensions, etc.)

Inequality has reduced!

No it hasn’t.

Yes it has! I heard Dimbleby say it on Question Time. And the Lefties all nodded solemnly.

“...the statistics show the gap is narrowing” David Dimbleby 2nd February 2017

That’s because they‘re all clueless.

Never!

They don’t realise they’re only talking about income inequality, not wealth inequality.

What’s that?

Wealth inequality measures all your assets – property, shares, pension pot, that sort of thing.

You mean the really big numbers.

Right. Income is just what’s going into your bank account – pay, dividends, pension payouts, and the rest. Net Income – what they’re referring to when they talk about income inequality - is all that after benefits and taxes have been added and subtracted.

Let me guess. Wealth inequality has risen?

You win a free Question Time T-shirt and nodding duck pencil sharpener. Generally, asset prices have continued to recover since the bank crash, but the poor hardly have any assets!

So the gap between rich and poor continues to rise.

Yup.

And what of the gap between Dimbleby’s ears, and the ears of every card carrying leftie who hasn’t bothered to use this shocking fact that would make every working hour of their lives so much easier?

Hmm. No official data on that one. Looks like the Office for National Statistics needs to tear itself a whole new index.

The background data

Wealth inequality is almost twice that of income inequality. The overall Gini coefficient (the official measure of inequality, where 0=minimum and 1=maximum) for net income is 0.34, while that for total wealth is 0.64.

Institute for Fiscal Studies: "Household Wealth in Great Britain: Distribution, Compositionand Changes 2006–12" 

HRP = age of household reference person

Wealth in Great Britain is even more unequally divided than income. The richest 10% of households hold 45% of all wealth. The poorest 50%, by contrast, own just 8.7%.

 

Equality Trust: The Scale of Economic Inequality in the UK

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

Wealth inequality is rising. The ONS report says: “In July 2012 to June 2014, the wealthiest 20% of households had 117 times more aggregate total wealth than the least wealthy 20% of households. In comparison, the wealthiest 20% of households had 97 times more aggregate total wealth than the least wealthy 20% of households in July 2010 to June 2012.”

It goes on the explain: “Figure 2.10 shows the median household total wealth by the levels of household net equivalised income. Households in the lowest band of income had the lowest median household total wealth, while those households in the highest income band had the highest. During July 2012 to June 2014, households in the lowest income band had a median household total wealth of £34,000 while for the highest income group that was over 26 times as big, £225,100. Between the 2 survey periods shown, the median value for those in the lowest 3 income bands fell, whilst the median value of household total wealth increased across all other income bands. The median value of household total wealth fell the most in the lowest income decile, with a 38% fall seen between July 2010 to June 2012 and July 2012 to June 2014, and the largest increase was seen in the top 2 income deciles, with a 19% increase in the median value seen over the same period.”

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

The South East’s median household total wealth (£342,400) is over twice that of the North East (£150,000). It's another sign of the growing divide between the south and the rest.

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

The poorer regions have got poorer. Yorkshire and The Humber saw a fall in median household total wealth of 8% between July 2010 to June 2012 and July 2012 to June 2014. Smaller falls were also seen in the West Midlands (2%) and East Midlands (1%).

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

Even income inequality is on an upward trend, when you include housing costs: essential costs like rent or mortgage interest, water charges, insurance premiums, and service charges. This is important as such costs can hardly be avoided. The Resolution Foundation report says “Looking at the 90/10 ratio, income inequality before housing costs peaked in 1991 and has been largely flat or falling since then. But after housing costs, this ratio was higher in 2014-15 than at any point in the 1980s or 1990s.”

Resolution Foundation: Living Standards 2017

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The NHS is not a “cost”. It creates nationwide jobs, technology, growth and wealth. Oh, and health

Where are the jobs and economic growth of tomorrow going to come from? One dead cert is healthcare. So it completely mystifies me that the NHS is always described as a “cost”, whereas increased spending on anything from cars (£71.6bn, up 3%) and games (£4.2bn, up 5%) to soft drinks (£14bn, up 2.7%) and pet products (£4.6bn, up 3%) is celebrated and can win someone a knighthood.

The champions of an economy are the sectors that use high skills, and technological innovation. They are the ones that deliver better products, services, results and overall living standards than they did the year before.

And we’ll always need low and medium skilled jobs. Not just because such jobs support the cutting edge activities, but because getting any product or service out of the door and onto the high street needs skills at every level.

Uniquely, our health industry does it all. From trolley pushers to brain surgeons. From brooms and paperclips to MRI scanners and precision surgical knives.

Healthcare creates jobs from top to bottom within the NHS, and for all the businesses that stock and service the NHS. And on top of all that, uniquely, it does it across the country in every region, rich and poor.

So why are we cutting the NHS? Spending as a percentage of GDP is dropping. Previous governments raised it, recognising it's value in terms of health and wealth.

Tory spending per head has flatlined. This is happening while the population is ageing overall, and modern treatments are better yet more expensive.

That’s the core NHS budget. But total health spending in England (which includes things like public health, education and training) is set to fall by almost £5bn over this parliament.

“We can’t afford it!” Why? What were you planning to spend your money on? What makes you think if we spend less on healthcare, we’ll spend it on technology, engineering and other pro-growth sectors in the UK? Give me a tax cut and won’t I spend it on Ubers and coffee, or an imported car that gives one job to a UK car salesman whose skills – polishing a windscreen with his cuff while you sign on the dotted line – haven’t changed since the invention of the car salesman. Our “dazzling” employment figures are holding up overwhelmingly because of the creation of low-skilled, self-employed and zero-hour jobs. As far as UK Plc is concerned, they are dead end jobs.

“We’re cutting NHS fat, not the muscle. They’re efficiency savings.” Show me a report that says the NHS is less efficient than somewhere else. They’re not easy to find. The NHS comes top of most tables. Where it’s beaten (healthy lives: mortality amenable to medical care, infant mortality, and healthy life expectancy at age 60) it’s beaten by countries that simply spend more.

[SOURCE: The Commonwealth Fund]

So what’s the difference between spending extra billions via taxes on the NHS, and keeping that money in our pockets so that we can spend it on whatever we like? Big, if you want a modern economy of the top rank (errr... and “universal healthcare free at the point of delivery for all,” you soppy twit). But if you’re offended that someone else (the state) is deciding how your damn money is spent, then you’ll see no difference. Fine, but please take your hands off the nation’s steering wheel, for all our sakes.

Yes, I get it. The right wing ideologues don’t object to spending billions more on the health sector. It’s a sector, and it’s growing, for heaven’s sake! They object to the fact that it’s overwhelmingly publicly owned, and they cannot make profits from it.

Never forget, in the USA where healthcare is the most privatised, health costs leave citizens with less money in their pockets while delivering worse results: $8,233 per capita in the US compared to our $3,268. That's almost £4,000 more spent on healthcare per person, and not on other parts of the economy. It's why the makers and sellers of cars, games, soft drinks and pet products should be the first on the barricades to defend the NHS.

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Govia’s Southern Rail made a unique deal with government. The cost of any strike action is borne by the taxpayer. £50m so far

Chris and KJ realise it's Govia Southern Rail that has us over a barrel...

SOURCE TELEGRAPH: Taxpayers foot £50m bill for Southern rail strike

Because of a deal struck with Southern by the Government, the cost of the disruption will be borne by the taxpayer. Under the seven-year deal, the Government pays Govia more than £1 billion a year to run the service. Ministers agreed to bear the financial risk of running the railway because of the significant disruption caused by the redevelopment of London Bridge station. In return, the fees that Southern collects in fares are passed to the Government. It means that during the 20 days lost to strikes this year – when there are no fares to collect – the Government must bear the cost of £38 million in lost revenue. The deal also states that the Government will pick up the tab for compensation claims likely to be filed by passengers who have paid season ticket fares but have no services to catch – an estimated £15 million. Nick Herbert, the Conservative MP for Arundel and South Downs and a former minister, said:  “Because of the way the franchise is structured, there isn’t proper accountability. It should be the company bearing the cost of compensation and failure to meet targets.” Meanwhile, Govia Thameslink Railway, the company that runs Southern, is saving an estimated £1.1 million in pay for train drivers and conductors who are out on strike this week. Govia could still be hit with financial penalties totalling tens of millions of pounds for delayed and cancelled services. However, it is claiming that disruption caused by strikes and staff sickness is a force majeure and it should therefore not have to pay the fines.

OUR RELATED STORIES:

Recovery? What recovery?! Bank of England director explains why broke Britain is still broken

Brexit was about inequality in Britain, not immigration. Have our politicians realised this?

See the Stats: Osborne's 2016 budget protected the wealthiest while the most vulnerable suffer

Inequality: the UK has 9 of the 10 poorest regions in Northern Europe. But Inner London is the richest

Graphs at a glance: With highest pay and highest job growth is London sucking the life out of Britain?

Londoners earn 15% more 'cos London is damn expensive! But the poorest 5th in London are paid only 4% more

Graphs at a glance: Britain is already a low-pay economy with falling average wages

Is your Cost of Living crisis over?! Average wages are still back where they were 10 years ago

Election 2020: since 1997 the percentage of those under 55 who don't vote has doubled

Don't be fooled: the top 1% are paying more income tax? Because their income has doubled since 1995 while the bottom 90%'s has stagnated

Read More

EU rules that Apple must pay, retrospectively, €13bn in taxes plus interest to Ireland

SOURCE BBC NEWS: Apple should give Ireland 13bn euros in unpaid taxes, European Commission rules

After a three-year investigation, the European Commission has concluded that the US firm's Irish tax benefits are illegal. The Commission said Ireland enabled the company to pay substantially less than other businesses, in effect paying a corporate tax rate of no more than 1%. Ireland and Apple both said they disagreed with the record penalty and would appeal against it. The standard rate of Irish corporate tax is 12.5%. The Commissions's investigation concluded that Apple had effectively paid 1% tax on its European profits in 2003 and about 0.005% in 2014. The company said: "Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned." The record tax bill should not be a problem for Apple, which made a net profit of $53bn in the 2015 financial year. The US Treasury, which said last week that the European Commission was in danger of becoming a "supranational tax authority", said the latest ruling could "undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU". In Apple's case, 90% of its foreign profits are legally channelled to Ireland, and then to subsidiaries which have no tax residence. At the same time, countries can scarcely afford not to co-operate when Apple comes calling; it has a stock market value of $600bn, and the attraction of the jobs it can create and the extra inward investment its favours can bring are too much for most politicians to resist.

OUR RELATED STORIES:

Tax relief costs £30bn a year and goes overwhelmingly to those who need it least

How to avoid Inheritance Tax. Easy. If you're rich, that is

Office for National Statistics reports show Tory party claims of lowering personal taxes are an illusion. Personal taxes have actually increased since 2010!

Taxes up! Public spending up! Government borrowing up! No, these aren't Corbyn's future plans. They are Osborne's 2015 budget pledges

In numbers (+ a cool animation): The trillions in global tax evasion and money laundering

Corporate scroungers: How about forcing employers to publish how much welfare top-ups their low paid staff depend on

Graphs at a glance: Budget 2014 document shows we’re growing through borrowing. Again. That's why Britain needs a pay rise

Who needs fat cat pay? The Germans don't. See the comparison with the UK

The incomes of the bottom 90% have hardly risen in 20 years, whilst the top 1%’s has doubled

The Top 1% pay more income tax? ‘cos their income’s doubled since 1995 whilst the bottom 90%'s has stagnated

How decades of consumer spending through re-mortgaging concealed low pay rises during the boom, and helped cause the bust

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EU and immigration: The fact is, the population rose just as much between the war and the 70s. Then, we built more houses, schools, hospitals. Now we don’t

KJ, Fee and Chris decide to stop blaming everyone else...

SOURCE: House of Commons Library - A Century of Change: Trends in UK Statistics Since 1900

Worldometers UK Population

OUR RELATED STORIES:

See the Stats: Osborne's 2016 budget protects the wealthiest while the most vulnerable suffer

Inequality: the UK has 9 of the 10 poorest regions in Northern Europe. But Inner London is the richest

Graphs at a glance: With highest pay and highest job growth is London sucking the life out of Britain?

Londoners earn 15% more 'cos London is damn expensive! But the poorest 5th in London are paid only 4% more

Graphs at a glance: Britain is already a low-pay economy with falling average wages

Is your Cost of Living crisis over?! Average wages are still back where they were 10 years ago

Election 2020: since 1997 the percentage of those under 55 who don't vote has doubled

Don't be fooled: the top 1% are paying more income tax? Because their income has doubled since 1995 while the bottom 90%'s has stagnated

Read More

The system of tax relief costs £30bn a year and goes overwhelmingly to those who need it least

WELFARE FOR THE WEALTHY

By tax specialist Jolyon Maugham QC at www.waitingfortax.com

Twitter @JolyonMaugham

This year we’ll collect a little less than £170bn of income tax, roughly a third of all tax receipts. We’ll also forego through reliefs about £30bn of income tax.

Spread evenly amongst the population that £30bn would deliver to every man, woman and child almost £500 a year.

But it isn’t. It goes overwhelmingly to those who need it least. And that’s not mere happenstance. It’s the inevitable consequence of two deliberate policy choices: to distribute that £30bn through the tax system. And to fail to monitor what good it does.

Let me give some specifics.

Last year we spent £480m per annum rewarding those who earn more than £54,000 per annum and make gifts to charities. We spent nothing rewarding those who earn less.

This year we’ll spend £2.6bn per annum encouraging saving in ISAs. But the average ISA holder with annual earnings of more than £150,000 will get – through higher savings relieved from income tax at higher rates – well over 6 times as much tax relief as her equivalent earning between £20,000 and £30,000 per annum.

In 2013/14 the highest earning 1% of taxpayers made almost 13% of all contributions to pension schemes. Pension scheme relief costs £21bn in income tax foregone. But that 1% of taxpayers – roughly 0.5% of adults – will get even more than 13% of that £21bn because we give them a larger tax bonus than those who earn less.

HMRC doesn’t publish much data on how the benefit of these reliefs is distributed between rich and poor. By and large you have to stitch the statistics together.

But HMRC does track one particular sub-set of reliefs: “Allowances given as tax reductions”. It comprises, in particular, Venture Capital Tax Relief, Enterprise Investment Scheme Relief and Seed Enterprise Investment Scheme Relief. Remarkably Additional Rate Payers – those earning over £150,000 – receive 69% by value of those reliefs. That figure has risen every year since 2010/11.

More striking still, the highest earning 15,000 taxpayers – an almost homeopathic 0.05% of all taxpayers – netted 5.5% of total deductions and reliefs. Most will have seen six figure reductions to their income tax bills.

Why is this? Should we be concerned?

It’s hard to find sense in it.

Take pension tax relief as an example.

The more you earn, the more likely you are to have surplus income. Because you have surplus income you’re less in need of incentives to save for your retirement. But the tax system gives you more.

That’s not sensible policy. It’s a wasteful bung.

We can make the same argument for ISAs. If a couple can afford to save what the median household earns (after direct taxes and benefits) – and that’s what the annual ISA limit for a couple represents – why do we spend money giving them incentives to save? If there’s money to be spent, surely we bolster the position of those who struggle to save rather than those compelled to by surplus income.

We don’t need to reward the wealthy for making donations to charity. The impulse to donate is a civic responsibility. It doesn’t need to be greased. Only the wealthy win, and the causes they prioritise. Good for Opera Houses; Youth Clubs, not so much.

These – I can put it no politer than ‘anomalies’ – have two related causes.

First, we deliver these reliefs through the tax system. It must be this that has led us unthinkingly to give most generously to those who have the highest earnings and so pay the most tax. But to achieve the public ends these tax reliefs serve does not require that we forego the most from those who pay the most.

That brings us to the second. We have no mechanism for assessing what public good we achieve with this £30bn. The absence means our political class need not confront the question. And what they can pretend they don’t know they can pretend they needn’t remedy. This state of affairs is convenient to them. Because the noise made by the losers from tax decisions tends to drown out the applause from those who’ve won.

But there is an answer. And a precedent.

Interest rates decisions were once heavily politicised. Were they still, now, in the hands of the Government the UK would be a more dangerous place. After seven years of near zero interest rates could any Government hold the line between depositor pensioners and the borrower working age population? But, devolved to the Bank of England, the political heat has simply evaporated.

As it was with interest rate decisions, so it could be with tax reliefs. Value for money assessments, decisions around functioning, decisions around shape; all these could be devolved to an independent body such as the Office for Budget Responsibility. Over time, and insulated from political heat, it could reshape tax reliefs to operate in the public interest.

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Inheritance Tax is easily avoided by the extremely wealthy. They don't even need to hide their wealth offshore, they can do it in plain sight.

In April 2016 the "Panama Papers", a vast document leak revealing offshore tax dodging, reminded us how extremely helpful British law is to the very wealthy around the world. 

However, one of the biggest and most exclusive UK tax loopholes of all isn't hidden offshore. It is here in plain sight right in front of you in good old Blighty, and it relates to Inheritance Tax (IHT).

We don't refer to the widely known IHT free bequests from one spouse to another. Though that perhaps opens up a loophole for the most determined IHT avoiders whatever their wealth.

We refer to a loophole available to all, but accessible only to the most wealthy. Jesus Christ apparently said "it is easier for a camel to go through the eye of a needle, than for a rich man to enter the kingdom of God." At least the heirs of rich men and women can console themselves that you really need camel-sized assets to go through this particular British tax loophole. The loophole being the Inheritance Tax "7 year rule", whereby you pay no Inheritance Tax if :

• You give away assets (property, cash, shares, polo ponies, etc.) 
• AND you take no further benefit from them (e.g. you can't give away a house and continue to live in it, or collect interest from gifted cash, or use the manure from the pony on your roses), 
• AND you live for at least seven years after the gift

Before 18th March 1986 it was so much easier. You could hand your wealth to your heirs before you drop dead, trust them to look after you, and escape inheritance tax. For instance, gifting your home: while your home would legally belong to your kids you could still live in it, and so long as you survived 7 years there would be no inheritance tax on it. 

The only risk you took was that the new owners of your property – your kids – would throw you out on the streets. In the words of Roy Jenkins, a former Labour Chancellor of the Exchequer, Inheritance Tax was “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.” 

From 18th March 1986, for the transfer to escape inheritance tax you would have to obey the "7 year rule". The economics of comfortable living and death duties are merciless. If you are moderately wealthy, with assets of £1.5 million, consisting of a £750k home plus £750k other assets (cash, equity, buy-to-let, and the like) providing an income of £30k per annum, then you probably need to keep these assets until you die to provide a place to live in and money to live on. When you die, because you were unable to give away your assets, a large proportion of your wealth will go as inheritance tax.  

However, if you have assets of £10million, then the bulk of this wealth is not required for your ‘subsistence’ in old age. Holding on to your home and keeping enough to generate a reasonable income, you could safely ‘give away’ £8 million to your heirs, potentially avoiding IHT completely on that wealth. If you are fearfully wealthy – the following table, for a single person dying in 2015/16 speaks for itself:

In the above examples, the Moderately Wealthy individual, without surplus assets to give away, pays 31% of their wealth in IHT. The Significantly and the Fearfully Wealthy individuals pay 7% and 4% in IHT respectively.

An example of how the exceedingly wealthy navigate their way around IHT is given in a book, "The British Tax System", by John Kay (academic, author, and FT columnist) and Mervyn King (formerly governor of the Bank of England):

“It is clear that individuals who are obviously far from being paupers may die leaving estates for tax purposes that bear little relation to their real wealth. 

It is generally believed that the largest sum ever paid in death duties, by a considerable margin, was the £11 million paid on an estate estimated at between £40 million and £60 million on the death of the third Duke of Westminster in 1953. 

On the subsequent death of the fourth Duke, his reported estate was a little over £4 million, on which estate duty came to around £1 million. In fact not even this sum was paid, since after a protracted legal case it was resolved that the Duke (who was partially disabled by war wounds received in 1942 and who died of cancer 1967) was entitled to the benefit of an exemption from estate duty for those killed on active military service. 

The fifth Duke died in 1979, and press reports then estimated that the family fortune controlled by the new Duke of Westminster was between £300 million and £800 million. Again the reported estate was expected to be less than £5 million (Daily Telegraph, 20 February 1979).”

Evidently loopholes will be opened when the need arises. The fourth Duke of Westminster was wounded in 1944, and died of cancer 23 years later. His executor seems to have successfully argued, for the purposes of Inheritance Tax, that the Duke was deemed to have been killed on active service. 

David Cameron's father Ian was a significantly wealthy individual. According to the Sunday Times Rich List Ian Cameron had an estimated £10 million in assets in 2009. Following his death in 2010, his Probate showed UK assets of £2.9 million (N.B. the Grant of Probate doesn't reveal offshore assets). According to a report by the Guardian newspaper, some years earlier Ian Cameron had gifted properties in Berkshire and in Kensington to his children (not including David, who received £300,000 in Ian Cameron's will plus a further gift of £200,000 from his mother a year later).

Even for the very wealthy things aren't as simple as that. One finds oneself playing a game of Chicken with the Grim Reaper (a.k.a. the taxman), trying to guess when one has just over seven years left. After all, one wants to be in full control of one's assets as long as one can. According to Office for National Statistics data for 2014, about 10% of people lived beyond 84 years. If you want a 50-50 chance of giving away your stuff in time to avoid IHT, perhaps consider handing it over by your 73rd birthday. On the other hand, there is a fair probability you would spend more than a decade without your stamp collection and granny's Renoir.

The statistics provide a pretty good idea, but not really enough to be quite sure.

Of course, if a benefactor's estate is big enough then it may become cost effective for the heirs to keep him or her on life support, or at least well hidden and plausibly fresh, until the requisite seven years is up.

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