Ken Clarke blunder puts inheritance tax back on agenda

Blundering Ken Clarke has given the middle classes a million reasons to thank him this morning. Without Clarke's bull-in-a-china-shop intervention at the weekend, David Cameron and George Osborne could have quietly ditched the Conservatives' plans to raise the threshold for inheritance tax to £1m on the grounds that the economic crisis had changed all their calculations.

The commitment was made in 2007 when many families were faced with having to sell the family home because the price of so many houses far exceeded the £300,000 ceiling for inheritance tax. The crash in house prices has left the tax a less pressing problem for most families.

Easing inheritance tax was coupled with a commitment to abolish stamp duty for first-time buyers for homes up to £250,000. Both commitments look hopelessly out of date now. The Daily Telegraph and the Daily Mail are reporting that the inheritance commitment has been ditched. The BBC is running it as the lead item this morning, saying it has caused 'confusion' over the pledge. In fact, the opposite is the case. Thanks to Ken's blundering intervention, there is no way that the the Tory leadership can completely ditch their commitments now.

Clarke was forced to issue an 'explanation' within hours of downgrading the commitment to cut inheritance to an 'aspiration'. Clarke's Mark 11 statement on the issue said: "So far as I am concerned, we are fully committed to raising the threshold for inheritance tax in the first parliament of a Conservative government, as George Osborne has promised. This measure will appear in the manifesto and I support it."

However, Clarke, in denying a split with his colleagues, also made it clear that the cut in inheritance tax would not be in the first Budget. "We also all agree that George Osborne cannot write his first Budget until we have seen what we have inherited. I cannot see any significant difference between what I have said and what my colleagues have said."

The Mole predicted last week that there would be many true-blue Tories who would be miffed by the prospect of the Tories putting taxes up, rather than down. Lord Tebbit, the former party chariman, and Boris Johnson, the London Mayor, duly led the charge of grassroots Conservatives who are particularly annoyed that Osborne is indicating the Tories will carry out the Labour plan to impose a wealth tax - 45 per cent on £150k-plus income earners - to help balance the books when they get into power.

The real split in the Tory Party is over the extent to which Cameron and Osborne are prepared to cut public expenditure to reduce the soaring public deficit. They fear they are being manoeuvred into a trap by Gordon Brown if they commit themselves to cutting budgets to balance the books.

Alistair Darling, the Chancellor, is calling for his own Cabinet colleagues to make cuts in spending of at least £5bn before the Budget on April 22. But the Tory leadership do not want to go into another election being accused of abolishing the NHS or slashing spending on schools.

That doesn't mean they are not considering huge cuts in public spending. In a comment totally overlooked at the weekend, Osborne said: "We have not bound ourselves to the unnecessary deal done at Warwick between the unions and the party they fund."

What was he on about? The Warwick Agreement included a long list of promises for the public sector unions, including giving them a right to negotiate over pension rights. With many private sector pension funds now running into difficulty, the gold-plated public sector pensions are a prime cause of anger for taxpayers who are being asked to stump up more money for pensions they can only dream about.

Repudiating the Warwick Agreement is potentially a source of great tension between a Cameron Government and the unions. Stand by for fireworks, when the penny drops with the Brown camp.

THE MOLE: TORY CONFUSION

FIRST POSTED MARCH 23, 2009