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.

Full Budget Documents

PDF download Budget 2012[707 KB]

Most computers will open PDF documents automatically, but you may need Adobe Reader

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.

Alcohol & cigarettes

Estimate how much beer, wine, spirits and cigarettes you would consume in a normal week.

You will be about £0 better off in 2012/13

"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".

 

More on This Story

Budget 2012

From other news sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +1

    Comment number 1103.

    "1076.Perpetual Sigh
    4 Minutes ago
    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."

    Brown was was a disaster as Chancellor. The problems would be 10 times worse if he had became PM in 1997

  • rate this
    +1

    Comment number 1102.

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

    @ 1071 "Because a previous government determined that they needed it! Obvious!"

    Errr... No... because the previous government tried to bribe the electorate by making everyone dependent on the state, so a vote for the then opposition was like turkeys voting for Christmas

  • rate this
    +6

    Comment number 1101.

    'Conservative MP Matthew Hancock, an adviser to Mr Osborne, said many people did not claim the allowance at the moment because the process was so complicated.' There's nothing complicated about deducting £10500 from your pension income and paying tax on what's left. If Hancock thinks this is complicated he needs to look for another job. People of West Suffolk take note.

  • rate this
    -3

    Comment number 1100.

    1091.Total Mass Retain

    So, because we don't live in a communist regime, anyone that happens to work hard and get into the higher bracket should be robbed of all their money, bringing them down to the lowest common denominator.
    In other words you want us to be a communist regime where I can't keep the money I earn and everyone is misearable.
    Oh yeah, but at least well be equal......ly miserable!

  • rate this
    -4

    Comment number 1099.

    What a whingeing lot there are in this country, ably abetted by the carping media. We are in the midst of a difficult financial recession in no small part due to the previous government's policy of spend, spend, spend. And all anyone can say is, ' let it be anybody but me who suffers.' Is there any good reason why everybody should not bear the

  • rate this
    +5

    Comment number 1098.

    1090.Ed the Ted
    Yet again, like MOST comments people do not understand things. Current strategy still costs them the same, yet the yield is now 50% less!!! So not cost effective. So they'll pay the tax. So the revenue goes up.

    Really how do know they are actually going to pay the tax?? "Oh now its come down I'll pay it and not get my accountant to wangle it." Yep that'll work.

  • rate this
    +7

    Comment number 1097.

    So here I am, a millionaire (VOTE TORY, says I) and Ozzie has given me a £800 a week bonus pay rise. I currently swerve paying much tax, as do most of us. Hands up those who believe I and my rich pals will be phoning my accountant today to request him to arrange for me to pay the full 45% tax in future ?

    What, none of you ? Quite right too.

  • rate this
    +1

    Comment number 1096.

    Second point ... can anyone explain the logic behind armed forces personnel paying zero council tax when abroad. This just doesn't make sense whichever way you look at it ... why one career should be given a break in this way is ludicrous ... especially if there is (for example) a partner & children living the house, using all the services that the tax is meant to cover.

  • rate this
    +11

    Comment number 1095.

    There is absolutely no evidence to suggest that a millionaire with tax breaks is going to boost the economy.

    This is old fashioned Tory-ism. Only difference this time around is that they're dragging the Lib Dems down with them.

  • rate this
    -5

    Comment number 1094.

    Hold on...please...pensioners will not be worse off. The tabloid press have it wrong. They didn't listen to George.
    Why is it that following a Budget people complain without reading any of the facts.
    Please only complain if you have 1. read, 2. understood the information/data.
    Pensioners will be BETTER off!

  • rate this
    +7

    Comment number 1093.

    I am all for breaks for folk who have worked hard and smart. Have Cameron and Clegg EVER worked hard and smart - of course not - the old school tie still has influence in this nation of ours. I am sick and tired of this millionaires club in Downing Street making ill informed decisions about working folks lives. A recent idea was that minister's ought to try life on benefits - bring it on..

  • rate this
    +6

    Comment number 1092.

    076.
    Perpetual Sigh
    3 Minutes ago

    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.
    -----------------------------------------

    And I wonder what the comments would be if the Tories had won the 2005 election. How would the Tories explain the World economic crash of 2008 oh blame Labour

  • rate this
    +1

    Comment number 1091.

    "Ppuj
    Why should I pay a higher % than you just because I have worked hard."

    Because you are only able to do that because you live in a free society with laws in which live people known as "customers" with disposable income to buy the fruits of your labour and employees who have skills you need to produce stuff. Try living in a society that provides none of these and see how much you can keep.

  • rate this
    -3

    Comment number 1090.

    @656 "If someone is already taking steps to avoid paying 50% tax are they going to change their approach now that it's 45%? I doubt it, much easier to maintain their current strategy."

    Yet again, like MOST comments people do not understand things. Current strategy still costs them the same, yet the yield is now 50% less!!! So not cost effective. So they'll pay the tax. So the revenue goes up.

  • rate this
    +8

    Comment number 1089.

    is anyone else perplexed by the govt saying they will target tax avoidance over the coming year, but at the same time letting goldman, vodafone and co off 16 billion in tax because the HMRC boss got a free lunch?

    Makes you wonder how sincere they are being...

  • rate this
    +1

    Comment number 1088.

    1019. sheila coleman

    ''Let them eat cake'

    Or fat-filling Sponsored London Olympic Mac the knife Burger!

    And healthy fat-plus milk shake! Or a Tory favoured Sponsored cola drink with 18 spoons of Olympic ''healthy'' sugar to induce early-onset diabetes!

    ''Free'' Sponsored ''competition'' but no cabs for hire only on VIP ''Contract'' Blue Lanes for duration of the Olympic ''free'' games?

  • rate this
    0

    Comment number 1087.

    "843.JD
    1 Hour ago
    HellMS

    When you become a pensioner and have your earnings erroded I wonder what you will say then!"

    I personally will say, god those lucky pensioners from 20-30 years ago for getting us to pay for a state pension for them. If only the state pension still existed now...

  • rate this
    +2

    Comment number 1086.

    This is rediculas the government need new members as this country is going to fall apart!!!

  • rate this
    +1

    Comment number 1085.

    14,000,000,000 of tax cuts for ordinary people like me who do not pay higher rate tax. 100m of tax cuts for those earning over 150k offset by tax rises on allowances and mansions which will bring in a lot more and yet still it is a budget for the rich?
    The £1000 extra in my pocket will let me overcome my envy - how about you?

  • rate this
    +2

    Comment number 1084.

    1068. Ppuj " Why should I pay a higher % than you just because I have worked hard and smart to make a good income."

    Because you can afford to and people at the bottom of the salary scale can't!

 

Page 42 of 97

 

More Politics stories

RSS

Features

  • Nigel Farage (left) and Douglas CarswellWho's next?

    The Tory MPs being tipped to follow Carswell to UKIP


  • A painting of the White House on fire by Tom FreemanFinders keepers

    The odd objects looted by the British from Washington in 1814


  • President Barack Obama pauses during a press conference on 28 August.'No strategy'

    Obama's gaffe on Islamic State reveals political truth


  • Chris and Regina Catrambone with their daughter Maria LuisaSOS

    The millionaires who rescue people at sea


  • Plane7 days quiz

    What unusual offence got a Frenchman thrown off a plane?


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.