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
    -4

    Comment number 1123.

    I am sick and tired of everybody moaning about spending cuts, and tax increases .
    Wake up and smell the coffee! There is only one way to pay back the deficit which previous political parties have created. Cut spending, and increase taxes. Hopefully the economy then rebalances, and we might get very modest economic growth in the future. Just get on with it.
    Stop moaning and lets get on with it.

  • rate this
    -6

    Comment number 1122.

    The British are not all immature as most on this HYS, we know who got us into this mess and whose 'smoke and mirrors' fiscal lies has made many suffer.
    Good budget that will create wealth, which children, is the ONLY way you can increase spending for the needy and less off and the services they require. Socialism destroys wealth and creates a society where all are poor and lied to (ie USSR)

  • rate this
    +18

    Comment number 1121.

    How cynical to "simplify" the system by snatching money away from pensioners while feathering the nest of the millionaire cabinet and its cronies with a big tax cut. Sickening, disgusting, and morally bankrupt

  • rate this
    -3

    Comment number 1120.

    Old people have never had it so good so they are more than capable of making a small sacrifice towards the common good!

    Don't forget many of them spent their youth being bombed by the Germans so they've dealt with alot worse.

    They can take it so stop patronising them!

  • rate this
    -4

    Comment number 1119.

    Well over a thousand comments.Many scathing about the vileness of the Government.
    I suggest that this is an unrepresentative sample of the public as most of the workers are at work and cannot comment.
    Many choose to ignore Gordon's sale of the gold and robbing the pension funds,currying favour by throwing taxpayers money to all and sundry,laying up debt for our kids
    So many are simply partizan.

  • rate this
    -1

    Comment number 1118.

    544. liberal engineering

    The reason for child benefit was because large numbers of men travelled to find work & somehow "forgot" to pay their wives & family money. This meant that the state had to support them or they starved. The authorities would then have to go to court to recover or arrange payment to the family. Tax & pay directly to the wife was a better option. A little research may help

  • rate this
    +2

    Comment number 1117.

    1092.Lucy Lastic

    "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"

    The world economic crash would not have done the same damage to our economy if someone hadn't already squirted all the money up the wall like a drunken submariner in port for the first time in months.

  • rate this
    +54

    Comment number 1116.

    It’s the perception of the reduction in the 50% tax and the message this sends to the majority of the population. The same with freezing the pensioners tax allowance. We need a complete change in how this country is run, I don’t want the Tories, and I don’t want Labour or the Liberals. How do our European neighbours seem to be able to look after their people better than we can?

  • rate this
    +4

    Comment number 1115.

    "... those paying 50% are the ones generating all the wealth! They are the ones who really matter, not the general povs ..."

    What a fatuous statement, wealth generators couldn't generate wealth without the provision of roads, bridges,NHS, rubbish collection etc etc. All provided by public servants and "povs" who on the whole are no where near the 45% tax bracket.

  • rate this
    +3

    Comment number 1114.

    1087.In Gold I Trust
    4 Minutes ago
    "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..."

    It won't if we don't all fight for it now!

  • rate this
    0

    Comment number 1113.

    all those who vote tory should hang their heads in shame.

  • rate this
    +37

    Comment number 1112.

    I am one of the poor (I use that word advisedly) women born in 1954 who with little time or money to plan for changes, has had the rug pulled out from under me, and now have to wait until I'm 66 to retire. I live alone yet had my WTC stopped last year but only have a total income of £12,000. What's all this talk about WTC being available for the low paid? Tax & benefits made simpler? Hardly!

  • rate this
    +2

    Comment number 1111.

    I liken Cameron and his cronies to King John rob the poor and weak and give to the rich ,and look after those who pay for thier expensive life style.
    I for one will not be voting for them next time. Retired pensioner

  • rate this
    +1

    Comment number 1110.

    995 Bos Kabouter

    208. Moodin
    There is no evidence that trickle-down economics works..
    --------
    When they buy a new Bentley/Aston Martin/Range Rover this leads to an increase of employees at the plant. Also 20% VAT goes to the government. See how money is trickling down.
    *
    LOL, How about spending on Champagne, Holidays etc?

    Why rely mainly on tax in VAT?

    See how your argument is utter nonsense?

  • rate this
    0

    Comment number 1109.

    Sounds like a politcal Banana skin to me!

  • rate this
    +2

    Comment number 1108.

    Obviously, the millionaires are struggling and Osborne been a very nice guy has decided to give them a helping hand. Why because our grannies haven’t got someone to lobby for them. Children, grandchildren and great grandchildren can however make sure this is the last tori government in this and next century.

  • rate this
    +3

    Comment number 1107.

    My mother has dementia and has to pay her own care home fees until virtualy all her small savings are gone. Now she may even be worse off due to the tax change. A right hook followed by a left hook. Gov really is now Condem-ed. GO go.

  • rate this
    +1

    Comment number 1106.

    Where does the £42.50 gain for 40% tax payers come from? The reduction of the threshold by £1025 all but cancels out the £1100 increase in the tax-free allowance.

    Osborne's budget speech said all earning up to £100,000 would benefit from this allowance increase. A blatant lie.

  • rate this
    +4

    Comment number 1105.

    How under any fair system can you give to the rich and take it from the weakest but clearly this sick chancellor has no problems since him and his Eton friends will benefit He clearly has all the vises and has continued Will the Conc established take what you want the natives are of no consequence we have suffered now for a thousand years its time we took what belongs to us
    Get rid of this virus

  • rate this
    +1

    Comment number 1104.

    acb5
    So because they are not as smart as me, and probably most don't work as hard as me, they deserve my money?
    I don't mind paying some taxes but it is a disincentive to work your nuts off and have it all taken away.
    Flat tax and cut benefits.

 

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