In the realm of British politics, the familiar specter of class warfare appears to be making a comeback. The landscape is rife with political maneuvering as both the Conservative government and the opposition seek to appeal to their bases while grappling with the enduring issue of inheritance tax (IHT).
The current Conservative government is contemplating the abolition of IHT, a move that is raising eyebrows, given its timing, just months before a general election that few believe the Tories will win. Historical precedent suggests that such a gambit could yield political dividends. In 2007, facing certain defeat in an impending election, the Conservatives pledged to raise the IHT threshold from £300,000 to £1 million, prompting a significant surge in their poll ratings. The then Prime Minister Gordon Brown refrained from calling a snap election, recognizing the Tory gains. However, once in government, the Conservatives abandoned their IHT proposal due to the economic downturn. It is therefore no surprise that Prime Minister Rishi Sunak is tempted to follow a similar strategy.
Critics contend that abolishing IHT would primarily benefit the affluent, and the timing is far from ideal. Over the past two years, lower-income individuals have felt the pinch of rising prices, straining their finances.
Not to be outdone, the opposition, Labour Party, has also waded into the realm of class warfare. They recently announced that a 20 percent value-added tax (VAT) charge on private school fees would be immediately implemented if the party secures victory in the general election, instead of implementing it over a period of years. The additional revenue generated, approximately £1.7 billion, is earmarked for investment in state schools. In response, Sunak, who himself benefited from private education due to his parents’ financial sacrifices, accused Labour of lacking an understanding of parents’ aspirations to provide a better life for their children and labeled it as part of a class war.
Private schools in the UK are renowned for their quality, and removing their tax exemptions could jeopardize the provision of bursaries for less privileged students, potentially reserving these places for the offspring of the British and global elite, hardly a sign of egalitarianism.
After the tumultuous years of Brexit and other cultural battles, is British politics reverting to its traditional class-based divisions? Class distinctions were a dominant theme in the post-World War II political discourse. However, with the economic prosperity of the 1990s, most voters began identifying themselves as “middle class”, and the rhetoric of “us versus them” waned in popularity.
Yet, a covert class war has been simmering beneath the surface. The Conservatives have effectively pitted affluent, older homeowners against young, lower-income renters, a battle that Labour is reluctant to join. Keir Starmer, the opposition leader, has eschewed radical policies such as a wealth tax or an increase in the top income tax rate. Instead, Labour is pursuing policies like the tax on private schools, which resonate with the general public, including Conservative voters who send their children to state schools. This tactical approach aims to demonstrate Starmer’s boldness to the party faithful.
Likewise, the Conservative promise to abolish or lighten IHT post-election aligns with popular sentiment. According to a YouGov poll, only 20 percent of Britons consider IHT “fair,” even though the vast majority of them will be exempt from it. In the 2020-2021 fiscal year, only 27,000 estates paid IHT out of 722,000 recorded deaths, accounting for less than 4 percent of deaths. While most taxes on capital and wealth are begrudgingly accepted, a substantial majority believes that parents should be able to pass down their wealth to their children without interference from the state. There is an inherent resistance to the concept of a death tax.
Notably, other English-speaking countries, including Australia, New Zealand, and Canada, do not levy death taxes. Even social-democratic Sweden refrains from imposing such taxes. In the United States, the threshold for estate tax starts at $13 million, whereas Britain maintains one of the world’s lowest thresholds at £325,000, taxed at 40 percent.
Coincidentally, the Institute for Fiscal Studies, a politically neutral think tank, released a study on IHT, revealing that the tax contributes a mere £7 billion to total UK tax revenues of £950 billion. Many believe that a capital gains tax on assets at the time of inheritance would be a fairer alternative.
Property taxes in the UK disproportionately favor the well-off. In the affluent London borough of Kensington and Chelsea, residents pay an average of 0.1 percent of their home’s value in council tax. In contrast, residents in the less affluent town of Hartlepool in the Northeast pay an average of 1.3 percent, thirteen times more. Property rates have not been revalued since 1991, and neither Labour nor the Tories dare to reform the system, given the memory of the nationwide backlash against Margaret Thatcher’s attempt to do so.
The UK’s complex web of planning laws further tilts the scales in favor of affluent homeowners. Those who oppose new housing developments that might compromise their views have the opportunity to voice their objections during the planning phase, resulting in a shortage of housing supply and escalating prices. While this benefits homeowners, many young people, unable to secure mortgages or pay high rents without help from their parents, find themselves locked out of the property market.
To his credit, Sunak has attempted to ease planning regulations, but his efforts have faced resistance from Conservative MPs in affluent southern England, who fear losing support to the Liberal Democrats, who are sympathetic to local NIMBYs.
Intergenerational class warfare also underpins the debate over the pension “triple lock”, a scheme that ensures the state pension increases in line with the highest of three measures: inflation, average wage growth, or 2.5 percent. This scheme can result in substantial pension increases if both inflation and wage growth spike. Some retirees find themselves in a more comfortable financial position than when they were employed. However, the scheme’s affordability is increasingly in question, with younger generations footing the bill while unlikely to benefit.
This intergenerational divide tends to favor the Conservatives. Affluent individuals over the age of 60 overwhelmingly support the ruling party, and this demographic group reliably turns out to vote during elections. In contrast, the apathetic youth demographic often abstains from voting. In the words of an old Conservative election slogan, “the old have never had it so good”.
