Rachel Reeves’ inheritance tax changes are pitiful. We need a system rethink.

Labour Party chancellor Rachel Reeves announced at the Autumn Budget an increase in capital gains tax and has lowered the relief for investors on inheritance tax.

On both measures, the changes are welcome but ultimately pitiful. Indeed, Reeves boasted that:

The UK will still have the lowest capital gains tax rate of any European G7 economy

The lower rate of capital gains tax will increase from 10% to 18% and the rate for higher earners will increase from 20% to 24%. The changes would rebalance the economy away from passive income at a rate of £2.5bn.

But equalising capital gains tax with the income tax charged on working people would rebalance society by £15.2bn, according to Tax Justice UK. Research from Oxford University shows that this measure has the support of 62% of the public.

Additionally, ahead of the budget, Jeremy Corbyn, John McDonnell, and all the Green MPs were among the 30 parliamentarians who demanded a wealth tax of 2% on “extreme wealth” of over £10m. This would be more potent than Reeves’s slight reforms, given 1% of the country holds a staggering 70% of the wealth. Around 75% of the public support such wealth taxes, according to YouGov.

The case for progressive inheritance tax

Another way to address the rampant, impossible to defend, scale of inequality in the UK is through reforming the inheritance tax system. In the budget, the chancellor froze the rate of inheritance tax until 2030 at the flat rate of 40% for estates worth more than £325,000. In this sense, estates are the value of the person’s property, savings, and possessions.

Instead, we could scale down nepotistic family dynasties and scale up first class public services through introducing a progressive tax system for inheritance. For example, there could be another higher rate of 50% for inherited wealth above the threshold of £800,000, 60% on estate value above the threshold of £5m, and 70% for those above £10m.

This would still mean a vast amount of wealth is inherited. But, at present, 60% of people’s wealth is inherited. That doesn’t make work pay.

Many countries have replaced flat inheritance tax systems with a progressive one. South Korea, Germany, France, and Japan all have a progressive, higher rate of inheritance tax at 50% or more.

One to ponder: a Job Guarantee

All of this could help balance the economy towards investment in a training and Job Guarantee package in support of the private and public sector. The optional Job Guarantee could deliver a basic universal standard of living for an attractive level of working hours. Then people could work, train or both for more time on top of that for a higher standard of living.

Obviously, the job a person can do depends on their preferences, capabilities, as well as the teaching skills of their mentors. Any training and Job Guarantee package would have to account for this.

Featured image via Channel 4 News – YouTube