Rees-Mogg Backs Badenoch's Plan to Abolish Death Duties

In 2007, amidst high popularity for then-Prime Minister Gordon Brown, George Osborne, speaking at the Tory party conference, announced plans to alter death duties. This announcement led to a significant shift in public opinion, ultimately contributing to Gordon Brown's electoral defeat.

This historical event underscores the potential for tax policy, particularly changes to death duties, to influence the political landscape and public sentiment.

Kemi Badenoch, a prominent Conservative figure, is reportedly considering a proposal to completely abolish death duties. Jacob Rees-Mogg expressed strong approval for this plan, labeling it as a "great proposal" and highlighting its economic wisdom.

He emphasizes that the core argument for abolition is its potential to rectify current distortions in investment.

Death duties are identified as a detrimental tax because they inherently distort investment decisions. This distortion manifests as investors holding onto underperforming assets longer than necessary, primarily to benefit from tax relief.

Furthermore, the tax incentivizes investments in specific categories, such as AIM companies, rather than directing capital towards ventures that promise the highest returns, like larger firms such as BP. This misallocation of capital leads to higher costs for major companies and ultimately impairs the overall national economic performance by preventing efficient capital distribution within the capitalist system.

The annual revenue generated from death duties, amounting to £7 billion, is considered insignificant when weighed against the economic damage it inflicts. The efficiency of capital allocation is paramount to the functioning of a capitalist system, and death duties undermine this efficiency.

The argument posits that the negative impact on investment and economic growth far outweighs the direct tax income.

Beyond economic arguments, death duties are characterized as a "nasty" and "cruel" tax due to their nature. The presence of HMRC, metaphorically "sneaking behind" a funeral cortège, to claim a share of an estate is seen as intrusive and morally objectionable.

This criticism stems from the fact that the tax is levied on money that individuals have already earned and on which they have already paid taxes. Rees-Mogg suggests that abolishing this tax could ultimately pay for itself through increased economic growth.