Govt accused of ‘cynicism’ as it cuts inheritance tax

The chancellor was today accused of stealing the Conservatives clothes after he announced reforms to inheritance tax and non-domicile tax benefits.

The Conservatives effectively ended Gordon Brown’s honeymoon period last week, when they announced plans to scrap inheritance tax for all but millionaires.

Their resultant leap in the opinion polls was this weekend seen by many as the real reason the prime minister ruled out a snap election.

Alistair Darling today did not attempt to match the Conservative’s offer, but did reach out to middle class homeowners.

With immediate effect he increased the inheritance tax threshold for married couples, including those in civil partnerships, to £600,000. This will be backdated to all widows and widowers and rise again to £700,000 from 2010.

Unlike the Conservatives’ policies, this reform will not benefit everyone inheriting wealth, but will rather relieve the tax burden of spouses.

The government has come under increasing criticism over inheritance tax, nicknamed the ‘death tax’ by many on the right.

It has increasingly been stung by accusations inheritance tax has moved beyond its original purpose by taxing relatively middle-income families, due to rising house prices.

Against jeers from the opposition bench, Mr Darling said today the inheritance tax threshold will pay closer regard to property price inflation.

The chancellor was also greeted with derisive hoots when he announced plans to close the non-domicile tax loopholes enjoyed by private equity bosses.

Again, he refused to match the Tories in substance, continuing to argue the sums set out last week in Blackpool do not add up.

Mr Darling rejected plans for a flat rate non-dom levy. He said it did not make sense to charge anyone registered abroad for tax a fixed £25,000 – as suggested by the Tories – arguing this could discourage nurses and entrepreneurs.

Instead he said the government will consult on legislation. The chancellor said he wanted to see non-doms charged after seven years, with a higher rate kicking in after a decade. This way he estimated the Treasury could raise £650 million.

Mr Darling did not make any promises on stamp duty, allowing Labour to claim they have not “lifted” the Conservatives’ economic policies.

Instead the chancellor pledged to spend more than £4 billion over the next three years to help people in poor quality housing make renovations. He will also encourage lenders to provide long-term fixed rate mortgages.

Backed by vocal backbenchers, shadow chancellor George Osborne accused Mr Darling of delivering a “weak and cynical” pre-Budget report and Comprehensive Spending Review.

He questioned whether Labour had intended to tackle inheritance tax before the Tories’ announcement last week and joked Gordon Brown should have called the election and let the Conservatives deliver their own Budget.

Instead, Mr Osborne said, Mr Darling had delivered a “pre-election budget without an election”.

After the prime minister ruled out a snap election, citing a wish to set out his vision, Mr Osborne said he was waiting for the Conservatives to show him what his vision was.

Patricia Hewitt insisted the chancellor had delivered his own budget, not Mr Osborne’s.

Speaking to BBC News 24, the former health secretary said Labour were justified in looking at inheritance tax after ten years of rising house prices.

Charles Kennedy argued, however, Mr Darling had cautiously cherry picked from the Conservatives’ and Lib Dem policies.

He joked Labour MPs often seemed unclear when to cheer and agreed today’s announcements were a pre-election appeal with no poll left to fight.