Finance Bill - Inheritance Tax

Charles raises his concerns that inheritance tax penalises people living in the east and south-east of England.

Mr. Charles Walker (Broxbourne) (Con): Does my hon. Friend agree that the tax at the current threshold penalises most people living in the east and south-east who might be on moderate incomes and have moderate homes? Does he believe that the original intention of the tax when introduced was to hit such people?

Mr. Hammond: My hon. Friend makes two very good points. Clearly, it was not the intention of inheritance tax when introduced to hit the estates of modestly-off people-it was a tax at death on the estates of the wealthy, and was originally conceived as a tax on land. Its scope is now far wider than was originally intended, and it has become one of the great stealth taxes, largely because of the rapid increase in house prices.

My hon. Friend makes another excellent point: its incidence is not evenly distributed across the country because of the historic disparity in the rise in house prices and the level of house prices. People on average incomes in parts of the south-east, London and eastern England are likely to be caught by the tax, and people on average earnings in other parts of the country are much less likely to be caught by it, because of the less rapid escalation in the value of their housing assets. That is another aspect to the unfairness of using fiscal drag as a way of expanding the scope of a tax.