Listen to Adam Smith: inheritance tax is good

Politics trumps economics. That’s the best summary of the Tory and Labour competition to pander to those who until now have been threatened with paying to the Treasury a portion of the money they receive for just ‘being there’.

Let’s de-emotionalise this issue. An inheritance tax is not a death duty. The slogan ‘No taxation without respiration’ is too clever by half. Even a Chancellor of the Exchequer as powerful as the previous occupant of the office could not get a corpse to sign a cheque. It is a tax paid by the recipient of this income, the inheritor, the lucky winner in the sperm lottery.

Nor, finally, is it a tax on a lifetime of thrift. In most cases the wealth being taxed results from a rise in the value of houses — not something brought about by the acumen and hard work of the owner, but by a decade of low interest rates and economic growth, or the good fortune of having a public amenity plunked down in the neighbourhood.

That out of the way, let’s consider why the rush to appease a few voters in a few marginals is bad economic policy.

Barry Bracewell-Milnes, a student and an opponent of these taxes, concedes that ‘Inheritance without taxation weakens the beneficiary’s incentive to work.’ Surveys by the Economic and Social Research Council show that only a very small minority of people say they work for ‘enjoyment’; most work for what ESRC researchers call ‘mainly instrumental reasons’ — to keep a roof over their head and food on the table. Studies by the Policy Studies Institute and the London School of Economics support this conclusion: 70 per cent of the men and half the women questioned say the main reason they work is to ‘earn money for necessities’.