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
    +3

    Comment number 1083.

    Your run this bbc & the other media but yet to hear,read or see anything about the 10bn being cut from welfare in next 4 years obviously the rest of the people you don't care about

  • rate this
    +5

    Comment number 1082.

    According to George Osborne's adviser, Matthew Hancock, many older people don't claim their personal tax allowance because the process is so complicated. I found it very straight forward - I retired in 2010 aged 64, contacted the Revenue to advise them and they adjusted my details. No further action required by me. When I turned 65 last year they adjusted my tax code accordingly - simple!

  • rate this
    +2

    Comment number 1081.

    1046.Ppuj

    I'm sick to death of hearing this so called reason as an excuse for all of the governments "diffcult' decisions over the last 22 months in power. Did the previous government cause the world wide financial crisis that affected nearly all of the major economies?? That excuse has worn more than a little thin. Its about time the record changed on that excuse.

  • rate this
    +4

    Comment number 1080.

    Could anyone please explain this George Osborne said all pensions are going up by £5.00 in April. This he gave out at last years Budget when he also said he vwas raising the lever of Pension Credit at the same time so all pensioners kept the whole £5.
    Well that is not being done when the increase of goes on the Pension credit you recieve goes down. So what happened to all keeping the rise

  • rate this
    +5

    Comment number 1079.

    so much to be unhappy about … why do both sides go out of their way to alienate anybody who doesn't have children with continual references to 'hard working families' as opposed to 'hard working people' ... a position that is backed up by policies that actively penalize non parents who ironically are a far smaller drain on resources than anyone with kids. (for the record, I have kids)

  • rate this
    -1

    Comment number 1078.

    1045.bigmouth strikes again

    Generalisation? Ah, so you one of those believers in the rich EMPLOYEES (you know, ones benefitting from 5% reduction) contributing to the wealth of the country?

    I'll be keen to hear of some examples for I struggle with a single one. Clue the generalisation...

    What, Bob Diamond perhaps....?

    Ehem...

  • rate this
    -1

    Comment number 1077.

    1002

    June

    What you might have paid in is long ago spent

    You can afford run a car to travel to your charity works. You can afford a PC and internet connection.

    Why are you entitled to anything?

    Its what's wrong with the entire system Everyone is a client of the state with one little deal or another.

  • rate this
    +1

    Comment number 1076.

    I can't help but wonder how different things may have been if Gordon Brown had been Labour leader and elected Prime Minister in 1997 instead of Tory B. Liar.

  • rate this
    +1

    Comment number 1075.

    The system where wealth is created for a few at the cost of monetary disenfranchisement for the many is alive and well.

    Not satisfied with continuing to borrow from the now, Osborne has chosen to borrow from the future, if lowering the standard of living of the poorest pensioners to come can be referred to as 'borrowing'

    At least Clegg looked uneasy. Cameron? Pleased as punch.

  • rate this
    -1

    Comment number 1074.

    Being a man of almost 80 and seeing that my allowances are to be frozen My question is that being over 75 with that tax allowance of £10660 at the present will this remain next tax year and the year after or will it drop either next year or the year after to what ever the common tax allowance will be as tax will rise with each increment in pension if any.

  • rate this
    -1

    Comment number 1073.

    The 2 main political parties clearly regard the 30% of the electorate on pensions or approaching pension age as irrelevant. Labour destroyed private pensions and the Tories are assaulting state pensions. If you are over 55, time to exercise a protest vote. If you are under 40 don't bother saving for a pension. By the time you retire one party or the other will have nicked your savings.

  • rate this
    +6

    Comment number 1072.

    Dare to question the amount of foreign aid we provide in times of austerity, we you are to lectured about how the British people have a long tradition of helping those less fortunate. Rather a shame then when it comes to our own less fortunate; the elderly, the disabled & low incomes families, the Eton elite choose to ignore them & introduce swinging cuts to benefits, the NHS and public services.

  • rate this
    +1

    Comment number 1071.

    @1033 "Why the blazes was there a different threshold for pensions in the first place, I ask?"

    Because a previous government determined that they needed it! Obvious!

  • rate this
    +1

    Comment number 1070.

    what rubbish is being thrown about this budget. I agree with 90% for purely economic reasons as we need to live within our means. As far as the grannie tax - never heard such misunderstood rubbish quoted as fact. I am surprised it did not happen sooner to balance up the tax system and I agree with Osbourne - simplify it. Its the complexity that allows people to dodge taxes in the first place

  • rate this
    +3

    Comment number 1069.

    Corporate and city lobbyists must be laughing their heads off at the way the rest of us nit pick about a few quid being redistributed here and there within the bottom 99% while the top 1% go on massively increasing their share of GDP and at the same time organise the world to ensure that we don't tax them effectively. The rich are running rings round democracy - how long will we put up with it?

  • rate this
    +1

    Comment number 1068.

    This board is full of some of the most twisted, chip on the shoulder, divisive left wing hypocrites I have come across for a long time. I reckon we should all pay flat taxes. Why should I pay a higher % than you just because I have worked hard and smart to make a good income. I will pay more in total but should not have to pay a higher rate. That destroys incentive.

  • rate this
    +4

    Comment number 1067.

    They say that pensioners will not be worse off cash-wise but there is a small thing called inflation and by freezing benefits as they did two years ago with the "second" pension that loss can never be regained. Unfortunately pensioners are unable to make up these losses in any other way. They have also changed the inflation index from RPI to CPI because CPI means they have to pay less in increases

  • rate this
    +3

    Comment number 1066.

    "unknown_legend
    Noone pays (paid) 50% tax on all their earnings"

    I think someone on £10m/year salary would have paid 50% of income in tax (when the 2% NI is added in). Upto that they'll pay less than 50%. I don't think anyone on >10m could be described as "suffering" and keeping 50% of a lot is still far more than keeping 68% of a modest salary.

  • rate this
    +5

    Comment number 1065.

    we all hope to be pensioners one day - dont forget mr osborne you reap what you sow>

  • rate this
    0

    Comment number 1064.

    1037.Total Mass Retain
    If you want to spend less on fuel, buy a fuel efficient car, save taxes and support manufacturing.
    ------
    Was merely pointing out that Balls is a hypocrite.

 

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