Should the public subsidise immensely wealthy referendum donors?


Over Christmas, the Telegraph ran a story concerning a bit of our inheritance tax law which taxes gifts—defined as transactions which reduce your financial worth—made by individuals.

That law—which was made by our own parliament many decades ago, before we even joined the EU—is subject to various exemptions including one for charities and another for recognised political parties. But it contains no general exemption for politically motivated spending.

The story was about an application of that law to a number of very wealthy Leave donors—and one Remain donor—giving rise to an inheritance tax bill on their donations.

Now, the issue has bubbled up again because of a proposed (and, I believe, flawed) amendment to the Finance (No. 2) Bill.

The amendment seeks to extend the inheritance tax exemption to gifts to referendum campaigns. In itself, that outcome is inherently unobjectionable. It is perfectly reasonable to argue that donations to referendum campaigns should escape inheritance tax liability.

But what is profoundly objectionable is the fact that the amendment also seeks to backdate its effect.

We have exemptions from tax for a reason. That reason is to encourage behaviour that serves a public interest and which would not otherwise occur. They are—if you like—a kind of fiscal carrot. They have to serve that purpose because they carry a cost. The effect of giving a tax exemption is to forego tax that the state would otherwise receive—this is why economists describe them as “tax expenditure.” If they don’t serve that purpose they are just a transfer of money from the state to the individual.

But here’s the key thing. Backdating an exemption does nothing to encourage any type of behaviour. It serves no public interest. The behaviour to which the backdated tax exemption applies has already taken place. The only effect—the only effect—of backdating an exemption is to pass money from the state to an individual. The state gets precisely nothing in return.

Backdating this amendment would pass money to Robert Edmiston, Peter Cruddas, Arron Banks and David Harding—immensely wealthy individuals. And the amount the state would give them—either by releasing a debt or even returning cash—could run to as much as £4,300,000. And we, the people, would get precisely nothing in return.

Is this really a good use of scarce public money whilst people are dying in hospital corridors?

Quite remarkably, the amendment is supported by a number of Labour MPs including Caroline Flint, Alison McGovern, Virendra Sharma and Kate Hoey, as well as one LibDem: Alistair Carmichael (and a number of Conservatives). If I try to understand why they have supported this amendment I genuinely struggle for a reasonable explanation. The most charitable explanation I can find is that they did not spot—or did not understand the effect of—the backdating of the exemption.

We must hope they now withdraw their support.