Wealthy baby boomers are going for gold. Not literally, in the sense that they crave the yellow metal; the gold they want is a mix of tax breaks and subsidies that will enrich them in retirement and feather-bed their offspring in a way unimaginable a couple of decades ago.
Like winners at life’s casino, they want to cash in their chips and bank their winnings. In the main, their assets boil down to property and pensions. And both need to be safeguarded to make sure they are immune to the trials and tribulations of the wider economy.
Jeremy Hunt is clearly feeling the pressure from rightwing newspapers that champion the baby boomer cause. With a budget due next March, the chancellor is understood to be preparing a cut in the rate of tax on inheritances that will allow better-off boomers to protect more of their assets when they pass them on to relatives.
Hunt is especially conscious of voters in the country’s richer neighbourhoods, where home values have soared over the past 30 years. A three-bedroom house can now command a price well in excess of the standard inheritance tax (IHT) threshold of £325,000, and the additional £175,000 so-called nil rate band on property that is passed to children or grandchildren, taking the total exemption to £500,000.
In many cases, relatively ordinary homes in towns from Solihull to Surbiton are valued at above the £1m threshold for couples who combine their allowances.
The voters occupying these properties form the bedrock of Tory support. And what they fear is the state taxing their gains when they need all the money locked up in property to pay for their old age.
In addition, they want to provide chunky sums to help their children buy property and to fund the additional university degrees and PhDs their children and grandchildren see as the only way to shine at a job interview.
They no longer trust the state to provide a mixed economy of opportunities that would allow them to take a hands-off approach to their adult children.
And they are not alone. English voters of all political persuasions are finding themselves behaving as if they are Italian – distrusting the state and putting family first.
If Hunt takes the opportunity in his next budget to cut IHT rates, the left will point out that only 4% of estates will pay inheritance tax at all, and the biggest gainers will be the super wealthy.
Labour strategists know, however, that the appeal of a cut in IHT is not so much to the people currently wrestling with the tax authorities over how much tax to pay, but to the many millions of households who believe, rightly or wrongly, that they will be caught in the IHT trap when the wealthiest people in their family die off.
George Osborne – chancellor from 2010 to 2016 – understood this concern when he introduced the nil rate band in 2017, honouring a promise he made in 2007 that only millionaires would pay IHT while the Tories were in charge at No 10.
Gordon Brown was spooked by Osborne’s IHT pledge. It was one reason why he delayed holding an election until 2010, with disastrous consequences for Labour’s chances of a fourth consecutive term.
The left dismisses Tory pledges on IHT at its peril. Osborne used the word millionaire in 2007 to describe someone who is “other” to the ordinary well-off household. These days, millionaires are everywhere, and their accidental wealth from gains in the property market is considered sacrosanct.
This year has proved to be better than most for the over-60s for whom Hunt will be a champion. A dramatic rise in interest rates has considerably boosted baby boomer bank balances, and rising stock markets have safeguarded their retirement incomes. Property prices that flatlined this year are likely to bounce back in 2024.
The Resolution Foundation thinktank has calculated that a Bank of England interest rate of 5.25% hands Britons an annualised gain of £35bn, almost all of which will be captured by ordinary boomers.
Interest rates hit 5% in July 2023 and could remain at 5% or above until next July, despite calls for early cuts, so that £35bn may well be paid in full.
In an uncertain world, what could be better than a chancellor’s guarantee that the state will allow this wealth to cascade down the generations unimpeded?
As the foundation has said, this situation is unprecedented because rising rates have historically made households poorer.
We are in a new situation because wealthy boomers are largely debt free. They have paid off their mortgage and clear credit card bills at the end of the month. Only their children pay interest.
There is an argument for saying not all boomers are the same. Some are on low incomes, while others who are doing well financially look after their grandchildren, care for the environment and vote Labour at election time.
But the Tories know this group is small. And an IHT cut in March is likely to please the rest.