Janan Ganesh: Tories should target millionaire property heirs

In 2004, a young MP staring down the barrel of prolonged opposition thought about writing a book. George Osborne wanted to chart the social reforms that moulded modern Britain, including the Factory Acts and the abolition of slavery.

There was sincerity in his itch to write, but calculation too. These reforms owed something to the Conservatives. Airing the stories might remind doubters that his party possessed a conscience.

The literary project vaporised in the afterburners of Mr Osborne’s career, which took off suddenly, but the image problem it was meant to fix remained. Now, as chancellor of the exchequer, he still wrestles with the hardnosed reputation of the Tories.

It is not just the fact of Mr Osborne's impending cuts to tax credits that has made them the political stink of the day. A Labour government could get away with reducing income supplements for low-paid workers to close the budget deficit. The Tories cannot. It is a matter of trust and moral licence. The identity of the executioner matters.

After an imperious summer, Mr Osborne is boxed in. He cannot abandon the cuts without losing face and billions of pounds. He can offset the reductions in fiddly ways but they tend not to target poorer workers. One month before a spending review that could have been a lap of honour after his July Budget, he has few ways to sweeten the policy.

Political cover

What he can do is buy political cover. He should raise more money from the rich, especially the asset-rich, to reduce the deficit. This must be in addition to, not instead of, the tax credit policy. Ostensibly, the two moving parts are not connected. Wealth taxes alone do not help in-work claimants about to lose out. But politically, even morally, the one secures permission for the other.

The last parliament taught us that voters will bear government retrenchment on two conditions. It must serve a pressing national cause and the misery must be spread around. On both counts, the Tories have grown sloppy since renewing their title to office in May. They seldom bring up deficit reduction – favouring messianic talk of becoming the “workers’ party” instead – and they have not picked a conspicuous fight with people of entrenched wealth.

If average Britons feel the deficit is yesterday’s concern and the working poor are being singled out, the Tories should blame themselves.

Mr Osborne understands the notion of political cover – his aborted book was a study in exactly that – and he assumed he had bought plenty by raising the minimum wage. But even aside from the question of whether this truly compensates low earners, it does not ask much of the wealthy. Businesses can simply decide to not hire the marginal worker rather than meet the wage costs. And most employers – the cafes eking out an existence, the startups that fail as a matter of course – are not rich.

Eye-catching policy

In fact, the budget’s most eye-catching policy on wealth was anything but austere. The threshold for inheritance tax rose to £1 million (€1.4 million). On its own, this policy is popular. But it also cuts across the government’s twin truths: that funds are scarce, and that hard work must be rewarded before anything else.

For five years, the fact of austerity has been vastly less controversial than many, including Mr Osborne himself, had expected. It is the distribution of austerity that rankles. Conservatives will deny any logical equivalence between tax credits and wealth. When the government cuts benefits, it is tampering with something that only exists because the state itself created it. When the government taxes wealth, it is interfering with outcomes that arose from free exchanges between adults. But there are university departments for people who want to practise metaphysics. Mr Osborne is a politician.

The Tories have been mulling a wealth tax for most of their time in office, only to be spooked by nerves and a Burkean regard for inheritance. If they are ever going to levy a tax on the sale of first homes, or an annual property charge, now is the moment.

This would remind voters of the deficit, which is now 13 years old. It would reframe the tax credit policy as part of a wider national effort, not a vindictive war of choice. It would sharpen the Tories’ identity as champions of earned income, which still sadly vies with the party’s ancestral blind spot for rich kids and rentier capitalism.

The revenue might even allow Mr Osborne to soften the departmental spending cuts he has to announce next month. The Tories should ask more of the accidental property millionaire, as they once asked more of the mill owner. Someone would write a book about it one day. – Copyright The Financial Times Limited 2015