Inheritance Tax Rise, Benefit Cuts Will Only Make Housing Inequality Worse

Rachel Holdsworth
By Rachel Holdsworth Last edited 86 months ago
Inheritance Tax Rise, Benefit Cuts Will Only Make Housing Inequality Worse

Lucky enough to own something like this? The budget could be your friend. Photo by LunaticDesire from the Londonist Flickr pool.

The government is planning to reduce the amount of money available to people on low incomes while increasing the inheritance tax threshold, according to information ahead of Wednesday's budget. The proposals are prompting accusations that the Chancellor is subsidising the wealthy at the expense of the poor.

It's expected that the threshold at which inheritance tax is due will be raised to cover a home worth £1m, if owned by a couple who are married or in a civil partnership. That's a rise of £175,000 per person. David Cameron and George Osborne wrote "it can only be right that when you've worked hard to own your own home, it will go to your family and not the taxman" — but the problem with that is that nothing could be less hard working than house price growth in London. Look at how much the average house in London has increased in value since 2002:

Data from Office for National Statistics.

That's a rise from £198,000 in January 2002 to £493,000 in April 2015. At the end of last year, house prices in some boroughs were rising faster over 12 months than a nurse's salary. We're at a loss as to how, simply by either being in the right place at the right time (i.e., not young) or having money to begin with, owning a cash-generating box qualifies someone as 'hard working'. You know who works hard in London? People who rent. Rents are generally higher than mortgages, increase with the market and renters don't own anything at the end. Where's their handout, hmm?

(We're aware of the argument that says since someone's already paid stamp duty on the house, the inheritors shouldn't have to pay tax again. Inheritance tax is 40% of what's above the threshold, which is currently £650,000 for a couple. That doesn't necessarily buy a lot of house in London these days; but you can still sell said house, pay the inheritance tax and have a massive deposit for something else. It is free money.)

Elsewhere, the government is also poised to cut working tax credits and lower the benefits cap — the maximum a household can claim over a year — from £26,000 to £23,000 for London. As we've previously pointed out, if you're a family on a low income in London you simply can't afford to rent privately without help. That help comes in the form of housing benefit or, as highlighted by the commenter called Watcher, working tax credit.

According to the government's tax credit calculator, a couple with two school age children working 35 hours a week on minimum wage would be entitled to £2,886 a year. Shortfalls in cuts to tax credit would apparently be made up by higher income tax thresholds or — excuse our cynicism, but we don't see this happening without state intervention — higher wages from employers. It remains to be seen whether other measures do actually make up the gaps.

Also on the cards are higher rents for people who earn more than £40,000 a year (in London) and live in council or housing association homes. They could end up paying the same as those renting from the private market, a move that's expected to raise £250m nationally by 2018-19.

This is similar to proposals from Centre for London which, in a 2013 report, suggested incremental rent increases for the 16% of social renters who earn above the London average. However, the crucial difference is that the report says income raised should be kept within London and ploughed back into housebuilding, potentially funding 3,500 extra social homes a year. The Chancellor would take revenue from his scheme straight back to the Treasury — a similar tactic for money raised under Right to Buy. Given the state of the capital's housing crisis, we think any money coming from housing should be kept in housing. More genuinely affordable homes run by decent, institutional landlords is the quickest way out of this mess — and, frankly, reducing the housing benefit bill.

Last Updated 06 July 2015