Labour’s manifesto launch went well but it’s tin ear on aspiration could prove costly

by Samuel Dale

Labour’s manifesto launch went well. The focus on tackling the deficit was right and Ed Miliband’s performance was assured.

But on Tuesday it’s the turn of the Tories and how Labour responds to their retail offer will be critical to deciding the outcome of the election.

We already know one of the centre-pieces of the Tory prospectus: inheritance tax cuts were widely trailed across the media, over the weekend. And so far, Labour has seriously mishandled its response.

George Osborne first floated a £1m inheritance tax-free allowance in the autumn of 2007 when its popularity saw off the election that never was.

The latest plan removes family homes worth up to £1m from inheritance tax from 2017.

It comes hot on the heels of big cuts to inheritance taxes related to pensions and Isas.

The current inheritance tax rules offer a £325,000 individual allowance with an additional £325,000 transferable allowance from your husband or wife. In effect £625,000 can be passed tax free to a married couple’s children.

Labour has been keen to point out that only 4% of people will benefit from the changes. The IFS says “over 90%” of estates are unaffected.

The implication has been that only the rich will benefit and as such this can’t turn an election.

So why do the Tories think it is a big vote winner? The £1bn centre-piece of their manifesto.

Firstly, it gives a bottom-line financial incentive to the wealthy estates who will directly benefit. They are the better-off pensioners who vote in large numbers (and the Ukip vote the Tories desperately need back).

Secondly, and more importantly, it is about aspiration.

Even if you are not directly affected today many more will expect to benefit in the future. This is how aspiration works.

There is a psychological impact of raising inheritance tax above £325,000, which is close to the average property price in the south east .

In March, the Nationwide House Price Index showed annual UK house price growth of 5.1%. London has double digit annual house price growth in some areas.

Although most do not own homes worth £325,000 or more, they aspire to, and for many, this aspiration will be realised as they get older. This applies not just in London and the south east, but across large swathes of Britain.

For home-owners who have worked hard all of their lives, being able to leave the most tangible of the fruits of their labour  to their loved ones is part of the reason they have struggled to get on.

Cutting inheritance tax a policy that connects emotionally with many.

The aspirational factor means many personal tax policies that seem to appeal only to the wealthy affect voting pattens of the middle classes too.

It works the same way for income taxes.

Only 15% of workers earn more than £42,385 to pay the 40p rate.

Only 1% earn more than £150,000 to pay the 45p rate.

As the economy recovers middle earners are optimistic about their wage prospects.

The Hay Group expects wages to grow 2.5% this year, alongside 0% inflation.

In January the Markit Household Finance Index saw household optimism about their finances hit the highest levels since the financial crash.

Unemployment has fallen to 6% and job security is increasing,

In these economic circumstances a Tory tax increase in the 40p income tax band to £50,000 appeals to more than the 15% who benefit.

It appeals to anyone who expects to join the 40p band one day – and look at the growing optimism on wage growth.

By the same logic, more people will be concerned about Labour plans for a 50p income tax on £150,000 incomes or mansion tax on £2m homes.

When Osborne disastrously lowered the 50p income tax rate to 45p in 2012 he did it in the teeth of an economic slowdown and a climate of aggressive spending cuts. Wage growth was non-existent, optimism was at crushing lows. Things have changed.

Whatever the dubious merits of these Tory tax cuts for the wealthiest, it is clear they could have wider appeal than first appears.

Labour thinks it can portray “the rich” as another world but in reality that it is where most of the middle classes aspire to be.

Labour cannot continue to justify it’s policies as taxing someone else, not you.

The middle classes want to earn £150,000, own a £2m home and pass it all to their kids tax free. Whether they ever actually will is irrelevant.

Judging from the weekend’s reaction to inheritance tax, Labour seems to have a tin ear on aspiration.

This doesn’t bode well for Labour’s response to Tuesday’s Tory manifesto.

Sam Dale is a financial and political journalist

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6 Responses to “Labour’s manifesto launch went well but it’s tin ear on aspiration could prove costly”

  1. Bradshaw says:

    Although only 15% of people may pay higher rate tax at any one time, considerably more will pay it at some point during their working lives. They may also have friends and family members who pay it, so in practice it touches the lives of a lot more than 15%.

  2. BenM says:

    IHT is about “aspiration”?

    What… the aspiration of beneficiaries to will their parents dead?

    What a load of nonsense.

  3. Michael says:

    the high tax situation makes it very hard for ordinary people to save for old age. The liberals raising of the tax threshold is great. Most tradespeople and professionals eg teachers are paying a higher rate tax so this should also be raised. The ones that do best out of the current tax system are people who have inherited businesses, farms or trusts that do not pay any inheritance tax how can that be progressive?

  4. John P Reid says:

    BenM,aspiration,is more popular than,the polls suggest.
    Basically the public admit they need Thatcherite policies, but can’t bare the thought of suffering to get it too happen, unless a winter of discontent,or oil, or we have A government who says we’re secretly Thatcheite, but we pretend to be one nation, and it’s not the saving for a rainy day approach,we can use to fix it, secretly we let the banking crisis happen due to ,devil take the high road, Thatcherite, ‘the markets know best approach’,
    That caused the problem we’re in,in the first place
    Plus push the idea ,that the Tories are nasty,and we can’t admit,that the left were wrong, as Thatcher won,and we let her!

  5. Madasafish says:


    Does anyone want to be poor? No.Well apart from the greens that is.

    Does anyone want to be better off? Yes. Most people. Apart from the Greens of course.

    That is aspiration.

    Aspiration is the wish to better oneself and one’s family/friends.

    Being taxed more is not something many people aspire to…

  6. Tafia says:

    BenM, do you actually have any life experience? If you don’t see the connect between IHT and aspiration you are wither a teenager or suffer from some rare form of autism.

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