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Last Updated: Friday, 17 August 2007, 12:16 GMT 13:16 UK
Axe inheritance tax, Tories urged
Houses
Rising house prices are hitting too many people, the group says

A Conservative government should abolish inheritance tax because it penalises too many middle-income families, a policy group recommends.

It says rising property prices mean that estates of those "who could not in any sense be described as rich" are now above the 300,000 payment threshold.

Shadow chancellor George Osborne said he would look very closely at the idea.

But Chancellor Alistair Darling said it would mean a "lurch to the right" if the Tories adopted the policy.

The report also calls for business tax cuts to make the economy more competitive.

'Not popular'

Led by former Cabinet minister John Redwood, the Competitive Challenge working group says the government has introduced many "stealth taxes" since Labour came to power 10 years ago.

Its report, which is not binding on the party, says: "Inheritance tax is not a popular tax.

HAVE YOUR SAY
Inheritance tax is double taxation and should be scrapped as soon as possible
Matt, Knutsford

"This has become even more true as the swift rise of house prices in much of the country has resulted in many people, who could not in any sense be described as rich, suddenly finding that their family will be liable to pay quite substantial amounts upon their estate.

"We recommend the abolition of inheritance tax."

Estates worth up to 300,000 are exempt from inheritance tax. Any value after that is taxed at 40%.

'Proceeds of growth'

No inheritance tax is currently payable on 94% of estates, according to official figures.

The 300,000 threshold is due to increase to 350,000 by 2010, which the government says will ensure this remains the case.

George Osborne
Mr Osborne has promised to make economic stability the priority

Mr Redwood told BBC Radio 4's Today programme his proposals would not require cuts in public services because they would help the economy grow.

He said: "They're paid for out of the proceeds of growth."

Mr Redwood added: "The shadow chancellor's rightly said he will share that money. Some of that money should go to improve public services and some of it can go to tax reductions."

Mr Osborne described the report as "the most impressive and comprehensive analysis of the state of the British economy produced by any political party in recent times."

But while he said that he would look "very carefully" at the proposals, he said that there could be no commitment to specific tax cuts unless they could be fully afforded.

'Global league'

"Any reductions in specific taxes will have to be balanced by tax increases elsewhere, most notably green taxes," he added.

The Tory working group's report says corporation tax, payable on business profits, should be reduced from 30p to 25p in the pound.

Evan Davis
John Major said that tackling red tape was like trying to wrestle with a greasy pig
Evan Davis,
BBC economics editor

For small businesses it should be 20p - the same as the standard income tax rate - it adds.

The report warns that, since 1997, the UK has "slipped down the global league tables of tax competitiveness, as other countries have reduced both corporate and income tax".

Countries with lower rates, such as the Republic of Ireland and the US, have seen business "grow especially quickly," it adds.

The group says one million more people in the UK are paying the higher rate of income tax - of 40% - than in 1997 and that the threshold "should be raised".

It also recommends that capital gains tax should not be paid on any asset held for more than 10 years.

Conservative MP Michael Fallon said: "In London and the south particularly, but also in areas of the north, because of rising house prices there are hundreds of thousands of couples who are going to suddenly be hit with this inheritance tax when their parents die.

"It's not paid by the wealthy. It's paid by those of course who inherit."

The working group which produced the report is one of several set up by Conservative leader David Cameron.

Mr Osborne has said the Conservatives will ensure economic stability before promising tax cuts and promised there will be no "lurching right".

This stance has been criticised by several prominent figures within the party, including former chairman Lord Tebbit.

Mr Darling said: "What the Tories are proposing is actually 21bn of tax reductions, but they don't say how they are going to pay for them."

Liberal Democrat Treasury spokesman Vince Cable said: "This report shows that David Cameron's Conservative party is stuck in Thatcherite Britain."

The proposals would "widen the divide between rich and poor", he added.


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