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."

BUDGET AT A GLANCE

  • 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
    -1

    Comment number 903.

    Moodin, its not that simple.

    What he has to do is BOTH influence investment decisions AS WELL AS create spending with tax cuts.

    So far as I can see he has had a pretty good shot at doing both.

  • rate this
    +2

    Comment number 902.

    So giveaways to the rich are to encourage businesses to move to the city along with their top execs. Just wait till they find out it will take 3-4 hours to commute, either be ripped off by train fares, drive and be ripped off on petrol, parking and congestion charges, pay over the top for rents, utilities, entertainment etc. And then find there are no traditional pubs, they will soon go home.

  • rate this
    +5

    Comment number 901.

    783.paolo43
    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
    __
    Paolo, do you understand that we have one of the highest levels of taxation? That tax pays for our "free" NHS, it pays for our state pensions, it pays for our social welfare system. It's not "free" because we pay TAXES all our lives!

  • rate this
    0

    Comment number 900.

    Im interested in the pension set at £140, based on contributions. Does anyone know any more on this, as I hope this rewards those that have put into the system ( at last )

  • rate this
    +1

    Comment number 899.

    Phew! And relax - the rich WILL be getting richer. The poor and the old are just a drain on society. Apart from all the tax they pay, and the work they do.

  • rate this
    -3

    Comment number 898.

    Post 872 - Do you work for the Labour party?

  • rate this
    +2

    Comment number 897.

    735.Courtking
    43 Minutes ago
    ...........
    By buying that new car the millionaire is supporting employment in the motor industry. So your own comment shows that trickle down DOES work

    Yes, it does for the Stuttgart based motor industry

  • rate this
    +1

    Comment number 896.

    841. mathsman

    No, I'd combine tax and NI together and have no upper threshold reduction. I'd have the personal allowance at around 50% of average wage. The actual amount set to have a small net gain in revenue.

    Call employer's NI tax for what it is. Employment tax. I'd reduce that but have no threshold minimum threshold, to stop the part-time fiddle of employers not pay not enough for NI.

  • rate this
    0

    Comment number 895.

    "Athame57
    That's the Willie Brandt doctrine, alas it also means more of them can end up affording a passage here...and here they come!"

    To be fair very few of the developed countries actually met the 0.7% of GDP that they committed to in the 1980s and often(like the US) applied strings such as buying arms etc so the money never made it to the people it was meant to help.

  • rate this
    0

    Comment number 894.

    @860.merseychris
    "Is there some creative tax evasion involved here?"

    Income from dividends and capital gains probably makes up most of George's income and is taxed differently from Income Tax. Setting up a company to have your pay metered out in dividends is a common tax avoidance measure - ask Ken Livingstone

  • rate this
    +1

    Comment number 893.

    Ending age related tax allowances hits those who have paid into the exchequer all their working lives. Pensions have been bought and paid for with years of NI contributions. Osborne has no right to take this money. The pension vote is increasing in size and effectiveness, it can and will remove this government at the next election.

  • rate this
    +103

    Comment number 892.

    Today's pensioners (including me) are the lucky generation. We have lived through a period of relative peace and prosperity and as pensioners have income and benefits that our parents could only dream of. We have bus passes, free eye tests, free presciptions. It is unlikely that our children and grandchildren will enjoy the same advantages and have to struggle to live day to day. STOP MOANING!

  • rate this
    +28

    Comment number 891.

    I'm in my 20's, with a mortgage and and family, and have much higher essential outgoings than a normal pensioner. My pension scheme has been dramatically, unfairly hit, and before long I will have to wait until 75 before I retire to take mine, I will have worked 57 years. In my profession, I'm contantly getting clients commenting on how they're the lucky golden age generation with Final salary pen

  • rate this
    +2

    Comment number 890.

    Like others BG did not lower MY Gas price nor Southern Electric MY electric - I am already out of pocket due to inflation even with the latest pension rise in April! 5p less tax for a high earner is more than any state pension I shall ever receive in my whole life!

    Not all in it together, I feel!!!

  • rate this
    +1

    Comment number 889.

    What a lot of intemperate comments.

    Govts own report on UK demographics show that something has to be done about the cost of pensions and social care and soon otherwise it will be totally unaffordable.

    Simplifying the tax system by removing aged allowances is a start. There is more to come because it has to

  • rate this
    +4

    Comment number 888.

    @686. Anguilo
    50pc was removed for three reasons:
    1) it didn't raise much, but it cost money to implement;
    2) it cost money in accounting fees to avoid paying even more money in tax;
    3) it damaged foreign investment. if you want to invest in a foreign country you might peruse tabulated summaries of worldwide taxes. last year, 50pc made UK look like a stinker. 45pc is still bad, but not as bad.

  • rate this
    +1

    Comment number 887.

    The ponzi scheme of our present national pension arrangements is no basis for a secure retirement. My advice is don't rely on the government, or be conned by tax relief on pension contributions. You will be taxed on the pension, if you ever get it. Get a job, even if low-paid to start with, and make your own secure long-term savings investments as you go, starting as soon as you start earning.

  • rate this
    -3

    Comment number 886.

    Regional Pay???? Is Mr Osbourne really serious on this subject? The PM has obviously told him to keep the more wealthy Conservative areas happy by paying them more ( that way they will keep votes). They are well aware that Labour voters are from hard working, less wealthy backgrounds - so they don't care about us.
    So of course, he really is serious. Why did I even have to ask?

  • rate this
    +10

    Comment number 885.

    Ed Balls track record =

    - Predicts a Double Dip Recession and general doom unless we spend, spend, spend.
    - Leaves government with record debts, record over-spending, biggest ever public sector, record immigration, record numbers on welfare, education in a mess, a ruined banking sector & the poor getting poorer.

    Hmmm.

    Now he wants us to believe he is our economic saviour!

    Ha, ha.

  • rate this
    +22

    Comment number 884.

    I am a pensioner, with a very small private pension pot - so my pension is nearly all state pension. I am not complaining, I have enough and why if the country is in such dire financial straits should I not contribute to try and sort the problem out. The problem was caused by labours profigalacy and not by the current government, this is fact. I feel it is a very fair budget, no problem here then.

 

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