Ministers plot a U-turn on inheritance tax cuts

It emerged yesterday that Labour ministers and backbenchers see it as a way to ease the Government’s cash crisis.

In a new drive to increase taxes, they are urging the Chancellor to scrap his ­doubling of the death duty threshold to more than £600,000 announced two years ago.

The move is understood to be under consideration because Treasury tax revenues are collapsing, with income from property taxes – such as inheritance tax and stamp duty – hit by the slump in house prices and sales.

Mr Darling confirmed yesterday that his Budget forecasts need to be drastically revised because of the unexpected severity of the economic downturn.

And in an indication of Budget preparations, Treasury Minister Angela Eagle claimed inheritance tax cuts helped only “the wealthiest few”. Many Labour MPs are now pressing for the death duty to be raised.

They also want a proposed 45 per cent top rate of income tax for people earning more than £150,000 to be increased and widened to include more taxpayers.

Pressure for the moves will increase concern that Labour is reverting to old-fashioned “class war” taxation policies and penalising bereaved families.

Inheritance tax is widely seen as a way of squeezing tax out of middle-class families.

Ms Eagle attacked the Tories for refusing to drop their pledge to scrap inheritance tax for estates worth under £1million.

She said the plan would “do nothing for 96 per cent of families”.

Instead, the Tories should support Labour’s £145 tax cut for 22million basic-rate taxpayers, she said. Mr Darling doubled the inheritance tax threshold in his first Pre-Budget Report in October 2007 by allowing married couples to combine their allowances.

The threshold is now £312,000 for an individual and £624,000 for a married couple.

The issue had been thrust on to the political agenda by a hugely popular Daily Express crusade calling for the abolition of the hated tax on the dead.

More than 300,000 readers signed our coupons calling for the abolition of inheritance tax, and over 120,000 backed an internet petition on the 10 Downing Street website.

Mark Wallace, of the Tax­Payers’ Alliance, said: “Not only is the tax unjust and unfair, but with house prices crashing any change in thresholds is unlikely to be more than a drop in the ocean in terms of their budget black hole.”