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 943.

    Years ago I took out a private pension. I fell in to hard times,could not afford the monthly payments. Years later I wanted to pay more nto it and was disallowed. I lost it. When it came to fruition I got a £1000 one off payment. I also worked in the social services (yes I was a public service worker) I paid into their pension scheme for 17 years and now receive monthly pension of £350. Whopee!

  • rate this

    Comment number 942.

    Well I surpose that the future pensioners are to some extent resposable for the ruined economy that Labour left. it is ofcourse a shame for those who saved and did not vote for Labour but just as child benefit hits all wheb removed so does this. Maybe the chancellor could have reduced the tax payable on savings which would have helped pensioners more.

  • rate this

    Comment number 941.

    Cameron has failed by turning Liberal and my only hope was Osborne who has just made the biggest mistake of his career which will be exposed when he sees the Grey Voters turning their back on him - which I suppose will give him an opportunity to stab them again!

  • rate this

    Comment number 940.

    The average CEO of aUK company has voted himself a 105% pay rise over the last 2 years ,for on average an 8% rise in production. Osborne's millionaire give away has granted them at least another £150,000 after tax.

    Is this in any shape or form justified other than on Planet Tory when it is on the back of effectively a £250 tax rise on anyone retiring from next year on over £200 a week!

  • rate this

    Comment number 939.

    905 oldyoungun I think the grey vote do not know when they are well off.
    How do Brown upset them - after increased personal allowances, bus passes, free eye test, free prescription , increased winter fuel allowances.
    All these given when Brown was in power.

  • rate this

    Comment number 938.

    All I want to know is how many jobs do these people who earn more than £150k create or enable. These guys usually run businesses or manage large groups. I'd rather give an extra £5k (and that's what we're talking about) to someone providing or enabling jobs, than £100 to 50 people creating nothing. I do not earn £150k. This is a budget that is our best hope of encouraging investment.

  • rate this

    Comment number 937.

    Just when I thought I actually might get something out of budget, the basic tax uplift, the over 65 allowance gets frozen. I should have known better, Peter always gets robbed to pay Paul, and my, was it sneaky. Not trailed like everything else, and mumbled when everything else was shouted. I'm not quite 65 and have a small company pension, so 'marking time' for things to catch up is not helpful.

  • rate this

    Comment number 936.

    863. mrsbloggs13c2
    Over 75 on £10k contributes £72, gets TV licence, bus passes, heating allowances, free presciptions etc
    Employee under 65 on £200,000 contributes £83,279
    Do the maths

    OK I will. It seems to me that your pensioner has £9,928 to live on while your rich man has £116,721. I make that £106,793 more. What's your point? You could buy an awful lot of bus tickets with £106,793.

  • rate this

    Comment number 935.

    894. farkyss

    There is a system in place to combat that. It's called IR35.

    However it only seems to be used against contractors.

  • rate this

    Comment number 934.

    The party system and its inherent rather childish point scoring is pathetic and does not endure the public to them in fact most are embarrassed at these theatrics in the house. We must move to an independent system and do what is right regardless of who is right. I am fed with parties of circa 250k members imposing/inflicting their political ideology on the rest of us.

  • rate this

    Comment number 933.

    So the elderly will have to cut back on the bingo and eat less jaffa cakes -hardly the Weimar republic is it?

    Stop whining & get on with it!!!

  • rate this

    Comment number 932.

    Paolo, do you understand that we have one of the highest levels of taxation?"

    That's simply not true. Tax burden in the UK is about on the OECD average (around 35% of GDP). In Italy it's around 43%, France 42%, Germany 37%. Spain, Portugal and Greece are below the UK which probably explains their credit rating problems. Sweden is 46% and DK 48%.

  • rate this

    Comment number 931.

    I'm looking forward to the London Mayoral Elections...

    Hopefully there will be a total Tory toff and LibDem wipe out!

    A united class vote should do the trick!

    After all arrogant Tory boy Boris claims to be part of the toff class too!

    A total wipe out should take the smug smile of his bloated Tory face!

  • rate this

    Comment number 930.

    I'm fed up with this government constantly targeting pensioners, those approaching retirement and ordinary working families. The reduction in the 50p tax to 45p, and the lowering of the 40% higher tax threshold, plus the grossly unfair withdrawal of child benefit if the only earner in the family earns more than 60 grand are just further evidence of how much this government is out of touch.

  • rate this

    Comment number 929.

    When I'm old, shivering and starving in a tent, riddled with disease because the population expanded so much that food and water became scarce and the benefits/health/social care system collapsed because it couldn't cope.... I'll rightly be thinking to myself how hard done by todays middle-class pensioners were when they had their tax thresholds pulled in line with everyone else.

  • rate this

    Comment number 928.

    Why do people still get outraged year after year? We have never "all been in this together" and we never will. The rich will continue to rip off the ordinary man because they can get away with it, simple as that. People need to wake up and force change, history shows this is the only way progress has ever been made.

  • rate this

    Comment number 927.

    No many, possibly most, receiving enough to hit the 45p rate do not really earn it. Exploiters of private monopolies like copyright. One hours work a lifetime of free money. Many more work harder and are not basically lucky. So it is much more of a mixed bag. No easy way to differentiate. Buy to let spivs are not hard working for example. They create nothing, just exploit.

  • rate this

    Comment number 926.

    Just shut up go home and put your i-pads etc away and live your life. Fill your life with honest endeavour rather than wasting it writing to blogs as it will make little if no difference to anything.

  • rate this

    Comment number 925.

    208. Moodin

    That'd be one of the those cars that simply appears out of thin air on his drive rather than one of the ones that has to be manufactured by people I guess.

  • rate this

    Comment number 924.

    @854 armchairlife

    This is a tough budget for many undeserving people who are being asked to carry the costs of yrs of Labour...

    Painful as it is for many we have to incentivise the entrepreneurs & wealthy to do business & live in the UK
    Labour were indeed awful, but few of the rich will actually create jobs, most will just indulge more!

    Not exactly an efficient way to boost the economy is it?


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