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Personal effects

It probably won’t surprise regular readers to discover that I am not a natural friend of the Conservative Party.

Indeed, during my full-time stint at Money Marketing a decade or more ago, I bunked off work one lunchtime to take part in a “Support the Miners” march through central London.

When Tony Blair became PM back in 1997, I was cautiously pleased. At last it seemed as if there was an opportunity for changes in key areas of personal finance.

Ten years on and, when a general election is called, there is a real possibility that the Tories under David Cameron might pull it off.

If they do, the irony is that personal finance issues will have played a central role in bringing down Gordon Brown’s government. The Tory promise last week to scrap inheritance tax on estates worth up to £1m, coupled with proposals to raise stamp duty levels to £250,000 for first-time buyers, have resonated with large swathes of Middle England – and not a few working-class families.

That should hardly surprise us. After all, it has become increasingly obvious that both IHT and stamp duty were serious problems that needed to be resolved.

For years now, ahead of every one of Gordon Brown’s Budget speeches, there have been a succession of press releases from Halifax, among others, saying more and more estates were falling under the IHT net. Back in 2005, the UK’s biggest lender was already warning that this tax could be an issue for one in four UK households.

The bank said then that 25 per cent of property transactions in about 100 constituencies, mainly in the South of England, were occurring above the then IHT threshold of £263,000.

Only last week, as the Tory shadow Chancellor George Osborne was refining his ground-breaking conference speech to the party faithful in Blackpool, the Halifax returned to the assault, estimating that 50,000 extra properties will be pushed over the IHT limit in the next 12 months alone.

These will be in addition to the 2.3 million homes already worth more than the IHT threshold – and this despite the fact that thresholds have risen to £300,000 and will reach £312,000 next April.

Over the years, there have been successive calls for reform of the IHT system. Yet every year, the most that Gordon Brown offered as Chancellor was to inflation-match the IHT threshold despite property prices rising well above the cost of living for more than a decade.

The same picture applies to stamp duty. Almost every neutral observer has pointed out for years that the current “slab system” of taxing home purchases is grossly unfair.

By charging the full rate of tax on every penny above various set levels, the Government has ensured that almost all home purchasers in South-east England, and in many other urban areas, pays thousands in stamp duty.

It is not beyond human intelligence to invent a better system. Some 18 months ago, the Royal Institution of Chartered Surveyors (RICS) actually proposed a fairer way of levying stamp duty, based on a marginal set of rates, just like income tax.

The RICS argued that the bottom threshold should be raised to £150,000. This would have removed 17 per cent of all transactions from stamp duty and ensured nearly 50 per cent of house purchases would fall outside the tax. In fact, most people buying a property below £1m would have paid less.

Meanwhile, a new marginal rate of 5.5 per cent could have been applied on purchases above £1m. The beauty of this system was that, apart from its inherent fairness, it was revenue-neutral.

Yet, as with so many other areas of personal finance reform, this government has refused to listen even to neutral observers.

Nor are these isolated examples. Labour’s shameful refusal to offer compensation to 125,000 members of final salary schemes is another case in point.

And although the full effect of its pension reforms will not be felt until well after 2012, it is willfully ignoring all those who have called for a decoupling of the link between fairly moderate savings and means-tested benefits, which make it increasingly pointless for large swathes of the population to bother putting aside any money towards their retirement.

The experience of Labour’s decade in office has been that of a party arrogant beyond belief, unable to understand, let alone accept, any viewpoint other than its own. If it loses the next election, it will be in large measure because the Tories’ populist proposals more accurately articulate a mood of finan-cial fair play.

What a damning indictment of Labour’s wasted 10 years in office.

Nic Cicutti is editor of moneysupermarket.com. He can be contacted at nic.cicutti@moneysupermarket.com

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