Booming property prices mean more households are levied for inheritance tax, but proposals to reform the rate of taxation are merely tinkering – they don’t resolve the underlying issues

“Yorkshire Day” has a long way to go before it competes with the Notting Hill Carnival. But with a Yorkshireman, Michael Vaughan, leading the English cricket squad to victory against the West Indies to the accompaniment of the lugubrious voice of Geoffrey Boycott, on Channel 4, it was a jolly little event – even if most people living in Yorkshire, indigenous or not, were unaware it was even taking place.

Halifax Estate Agents, a subsidiary of HBOS, decided Yorkshire Day (it was on 1 August, since you ask) was a good time to provide the Yorkshiremen with some good news. It pointed out that their region continued to be one of the strongest performers in the national property market with a 25% average price increase over the previous year and house prices doubled over five years.

The average price of £128,262 may seem modest by the standards of the South-east or East Anglia. But 10 Yorkshire towns top the national average house price of £170,760 including Skipton, York and Bingley. The roll-call of the towns with the biggest house price rise in 2003/4 reads like the credits for The Last of the Summer Wine – Brighouse, Sowerby Bridge, Huddersfield, Halifax, Pontefract, Batley, Driffield, Bradford and Bridlington. Bingley, boasting a new bypass, led the entire field to an average price of £177,886.

The Halifax has had a busy summer. Having given Yorkshire the feel-good factor at the start of the month it cheered us up at the end of the wettest August on record by saying why we really should like to be beside the seaside – provided we owned a bit of it. House prices in some seaside towns had doubled in three years. Dorset, Devon, Cornwall and Hampshire coastal properties led the way, although the Welsh coast has also done its owners proud.

There was always going to be someone to spoil the fun. Amid all the glad tidings of soaring values the Institute for Public Policy Research launched its summer shocker. The IPPR is a think-tank with which Labour has close links: its director, Matthew Taylor, is currently on secondment to 10 Downing Street to do a spot of “blue-skies” thinking on policy. Rising property values have one simple consequence: they drag people into the territory of inheritance tax upon succession (provided it hasn’t all gone on nursing home fees). People whose only fiscal mistake has been longevity find the house they have lived in for decades has increased in value by far more than either their own income or, more importantly, the threshold for payment of inheritance tax.

The IPPR has therefore suggested a “reform” of the tax: replace the flat 40% rate above the £263,000 tax-free limit with a series of graduated marginal rates starting at 22% and hitting 50% at about £500,000. This would net out at a gain of some £150m for the Treasury and provide the architecture for what it delicately calls “incremental tightening”.

The Daily Mail hailed this as a rescue plan for the middle classes. The Daily Telegraph condemned it as an assault on the middle classes. Neither pointed out that only a small minority of estates pay the tax because a whole industry exists advising people how to escape it. Indeed, Roy Jenkins, that most urbane of chancellors, once observed that those who did pay it were simply demonstrating that they disliked their relatives more than they disliked the Inland Revenue. The tax’s contribution to total tax revenue has fallen by some two-thirds over 30 years and now delivers about £2.5bn to the chancellor – roughly a penny yield on the basic rate of income tax.

And this is what makes the IPPR’s proposal so devoid of any real substance. The political issue, seen from the government’s perspective, is no doubt the expediency of placating the growing number of households being dragged over the threshold by the price boom. It is exactly analogous to the proposal to widen council tax bands and revalue property so as to prevent houses being dragged into higher council tax bands. But the serious economic – and dare one say moral – issue is whether it is sensible and right that a tax should be, to all intents and purposes, voluntary. Indeed, the higher the marginal rate of tax the greater the incentive to take refuge in avoidance schemes.

The government should decide either that inheritance tax is well conceived and, in an age when many people inherit when they are already property-owners themselves, should be levied rigorously so as to catch the rich as well as the notionally rich or whether it is flawed, perverse and unfair. What it will do, of course, is neither.

David Curry is MP for Skipton and Ripon