Budget 2012: Ministers under fire over tax allowances for pensioners


George Osborne: "You've got to take it into context with a very big increase in the basic state pension."

The government has defended Budget plans to end age-related tax allowances for pensioners, amid claims they amount to a "raid" on their incomes.

It will lead to 4.4m pensioners being an average £83 a year worse off than they would have been, HMRC says.

But Chancellor George Osborne told the BBC no pensioner would be worse off in cash terms, and said state pension increases would leave them better off.

Labour said it was a hidden tax rise which would affect millions.

The change to pensioners' tax allowances dominates the newspaper coverage of Wednesday Budget speech - where it is widely described as a "granny tax".

Mr Osborne said his job in the Budget was not to write newspaper headlines, but to "get the British economy moving forward" - and pointed to an announcement by GlaxoSmithKline on Thursday that it was to invest £500m in manufacturing in the UK.

He denied that pensioners were being hit to pay for a tax cut for the very rich.

Prime Minister David Cameron said pensioners would receive the biggest ever increase in the state pension this April, adding: "It's a good Budget for our economy and it's a fair Budget for all our people."


  • Increase in personal tax allowances - the amount of income that is tax free - to £9,205 in April 2013
  • Top rate of tax reduced from 50p to 45p in April 2013
  • Measures to clamp down on tax avoidance
  • Rise in stamp duty to 7% for sales of houses worth £2m
  • Corporation tax to fall to 24% next month - 22% by 2014

The 50p tax rate for earnings over £150,000 was cut to 45p in the Budget from next year - at an estimated cost of £100m a year to the Exchequer - but Mr Osborne said other measures introduced would raise five times as much from those top earners.

He argued that the 50p rate was a "tax con" which did not raise enough money to justify the "enormous damage" it was doing to the economy. He said the richest 10% were paying the most under the government's deficit reduction plan.

Mr Osborne announced the age-related allowances freeze at the same time as revising the threshold below which under-65s pay no tax on their income - which he described as the "biggest tax cut for a generation".

That threshold will increase by £1,100 to £9,205 from April 2013 - a move the government says will benefit 23.6 million people.

Most basic rate taxpayers will gain £170 a year after inflation, while most higher rate taxpayers will benefit by £42.50 because the point at which most people start paying the higher rate is to be reduced from £42,475 to £41,450.

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But the over-65s already get a tax allowance of £10,500 up to age 74 and £10,660 after that. From 5 April 2013, those allowances - which only benefit pensioners with an income below £29,000 - will be frozen and anyone turning 65 after that date will no longer qualify for the relief. The move will save £1bn a year by 2015.

The chancellor told the BBC that, with the personal tax allowance being raised "rapidly", it would have eventually overtaken the over-65s allowance anyway.

"It creates a much simpler system for everyone. I'm not embarrassed to say that pensioners are going to get the largest increase in the state pension from next month," he said, adding that the coalition had also guaranteed that state pensions went up in line with average earnings, prices or 2.5% - whichever is the greater.

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"The net changes made by this government, including introducing this triple lock, mean that pensioners are better off."

Budget documents show that, taking inflation into account, this will leave 4.41 million people worse off, by an average of £83 a year in 2013-14. People due to turn 65 after 5 April 2013 could lose up to £322 annually.

And shadow chancellor Ed Balls told the BBC the big state pension rise was because inflation had been so high and it would not leave them better off.

"What [George Osborne] is doing is not putting the personal allowance up in line with inflation, so pensioners will actually pay more tax and people who are about to be pensioners are going to lose that allowance. Pensioners are worse off as a result of this Budget, it's a huge surprise."

He added: "The cumulative effect is to hit pensioners now, a big tax rise, families on £20,000 worse off, families on working tax credit on £17,000 massively worse off and the chancellor's decided his priority to make our economy stronger is to have one tax cut - a huge tax cut - for people above £150,000.

"I think in the country people will say: How can that be the priority how can that be fair how can than be right?"

'Relatively modest increase'

Groups representing pensioners said the measure was not fair while former Conservative Party chairman Lord Tebbit said the move was an "error" and "lousy politics".

Shadow Chancellor Ed Balls: "I think it's completely out of touch"

"Unfortunately George Osborne, partly perhaps because of the unmannerly squabbling within the coalition, seems to me to have.... hurt a vulnerable group of the elderly," he wrote in his Daily Telegraph blog.

"It hurts those who have saved enough for modest pensions. And if anyone does not know that most things become much more expensive as one gets older, then they will in the fullness of time."

The move will only affect over-65s earning more than £10,500. Those earning up to £25,400 currently receive the full age-related allowance but it is reduced in stages on earnings up to £100,000.

Ministers want to move towards a single tax allowance for those of working age and the retired, having set a goal of raising tax allowances for under-65s to £10,000 by 2015.

Paul Johnson, head of the Institute for Fiscal Studies, said poor and well-off pensioners would not be affected. Those that would lose out most were those about to turn 65 - but with a higher personal allowance for everyone, the amount lost was "much reduced".

"Despite this morning's headlines, this looks like a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes. From this Budget we calculate that pensioners will lose on average about one quarter of 1% of their income in 2014."

However he said Mr Osborne "should have avoided dressing up what is clearly a tax increase as merely a simplification".

The Institute for Public Policy Research also backed the move, arguing that younger people were facing record unemployment and cuts to benefits like education maintenance allowance, and it was "time for older people to share some of the burden of deficit reduction".


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  • rate this

    Comment number 883.

    We all seem to have forgotten it was Brown who wrecked UK pensions - sold our gold for peanuts - took Bank regulation away from the BoE - ignored collapsing balance of payments, sure the financial service cash cow would pay the bills for ever.
    Balls was a major player in all of this.
    Labour and the BBC are still peddling a failed economic strategy

  • rate this

    Comment number 882.

    Great load of nonsense over rich pensioners. They get so much in pensions they can pay at the same level as the rest of us. After all the personal allowance for everyone will very soon be as high as privileged pensioners had. It is no big deal.

    The real 'crime' is low interest rates. There people have lost 90% income in cash terms, pandering to the rich borrowers, personal and corporate.

  • rate this

    Comment number 881.

    I was 14 in November 1945; left elementary school in December; started work in a flour mill 6th January 1946. After various jobs called it a day in 1996. Its a rotten time time to be worrying about my pension. But one thing I have learned: ordinary people should never trust a Tory government. Just look at the backgrounds of these people! Do you really think they have your interests at heart?

  • rate this

    Comment number 880.

    Yes, but what many here fail to grasp is that those paying 50% are the ones generating all the wealth! They are the ones who really matter, not the general povs They wouldn't be paid so much if they weren't so important and valuable. It is simply the law of supply and demand in a market driven economy. The poor should pay a HIGHER rate than the rich who pay the most in absolute terms..

  • rate this

    Comment number 879.

    ....... a regime that ignores protest and mass marches of 500,000 people in London against public spending cuts and other un-mandated acts by Crown Ministers like NHS privatisation!

    Didn't 750k plus march against the Iraq war ? No mandate for that and lies dressed up as evidence ?

    What happened ?

    We went to war !

    Tory/Labour/LibDems.....all the same

  • rate this

    Comment number 878.

    Of much more concern to pensioners should be the proposal to merge income tax and national insurance that was referenced in the budget speech. This could result in them paying a new merged (higher) rate of income tax on their pensions and savings interest.

  • rate this

    Comment number 877.

    I've saved all my life and gone without holidays; kept clothes as long as they are still wearable; rarely had coffee out let alone eating out, and now I'm a pensioner. My kids are all doing well. I've just received a pension increase and my savings are keeping me in a decent life-style. I haven't seen many others being so prudent. Look after yourselves and don't expect the gov to give u anything.

  • rate this

    Comment number 876.

    It's obvious from the last few months that the government want the 'ordinary' people of this country to work for nothing. Hence all the cuts and talks of replacing the paid worker with 'volunteers'. It's appalling that all our vulnerable citizens who went to war so the people in government can be in government are then treated like this.

    I only hope what comes around goes around.

  • rate this

    Comment number 875.

    This government insists on taking money out of people's pockets at a time when nobody has any disposable income to speak of. By August a litre of unleaded petrol will cost in excess of £1.50. That alone is keeping people from going anywhere, let alone on shopping excursions. It's not the banking crisis doing this to us, it's not the national debt either. We're being taxed into poverty.

  • rate this

    Comment number 874.

    After all the other benefits the pensioners get (winter fuel, free bus passes, free prescriptions etc.) they are not badly off. Pensioners have benefited from house price inflation, receipt of benefits (e.g. child benefits) and low taxes (lower VAT, NI) which has left this country on its knees with debt. I do not want to saddle the young generation with debt, but it seems the over 65's do...

  • rate this

    Comment number 873.

    One of the objectives of simplifying the tax system should be to make it impossible to avoid paying tax by sharp accountancy practices.
    The benefit would be that taxation should reduce and while accountants would become consequently redundant they could be retrained to do something more useful than facilitating the treasonous act of tax avoidance.

  • rate this

    Comment number 872.

    We have a government who believe that the only way to incentivize the rich is to give them MORE money, while the only way to incentivize the poor is to give them LESS. This is not even in the realm of welfare, but in wage freezes etc. It is a farce!

  • rate this

    Comment number 871.

    826. Paul Hand

    Bringing the 40% threshold down is bringing more of us into Higher Tax
    Not Much Fun for someone who for the last 3 years has earned £34500
    and has had their income eroded by tax.


    If you can't live comfortably on a salary of £34500 then you must be financially incompetent.

  • rate this

    Comment number 870.

    After raising 4 children I returned to full time work age 44 and worked until I retired age 66.Despite still earning,at age 60 I received my state pension,NI conributions ceased,I benefitted from free prescriptions and bus pass and at age 65 a higher tax threshhold kicked in.

  • rate this

    Comment number 869.

    "The freeze of the tax allowance for Pensioners is fair. It will affect pensioners who have private pensions, many of which are final salary (guaranteed) pension."

    Rubbish! Fair? For whom? This will hit the majority of middle income pensioners who have worked hard for small private pension.

  • rate this

    Comment number 868.

    So its the usual story, the high earners get more while my 80 year old Mum gets even less. How do they expect people to run wih the we are "All in it together" .. Thanks god for the class system..at least the rich can bank on getting even more while the rest of us suffer and pay for it.
    Altough not on a pension yet the OAP`s get my vote for more.
    Disgusted of Woking.

  • rate this

    Comment number 867.

    Osbourn has just proved to all without any doubt that he does not understand what is happening.He said " We are increasing the Pension by the highest amount ever".Yes you idot you caused the inflation rate to be so high.Oh sorry it was not them it was someone else.What a bunch of idots they should be on the dole.

  • rate this

    Comment number 866.


    You english are ungrateful and miserable. You get free monery for NOT working, free heath care when you are ILL, and are one the most affluent and prosperrus countries in the world. The UK has hardly touched by economic problems. You make me sick, come to Italy and see what its like here, or Greece or Portugal. You are all pathetic.


    We stayed out of the euro buddy. You didn't

  • rate this

    Comment number 865.

    Once again folk are jumping on one piece of the budget without taking into account all the changes the Coalition have made to pensions and pensioners income. Pensioners are also being given an extra £5 per week the largest increase in decades which will more than cover the budget change particularly to those with lower pensions. Bigger picture guys, stand back and take it all in before commenting

  • rate this

    Comment number 864.

    827.People What have YOU done

    I suspect that someone who has to be rude about a psuedonym has very little worth saying!

    The Finance Sector (not just Banks) did create a crisis, and Labour played their part in allowing them to do so, in the UK.
    But Labour's biggest crime was to spend hugely in the public sector, to buy votes, reduce unemployment, and leave UK with a huge pensions headache. Thanks


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