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 1783.

    1769. TV_As_Eyes

    so much myth-making about the last 'Labour' government; Labour hasn't been in power since 1979, the previous (Bliar/Brown) government was 'New Labour' -- Thatcherism by another name.


    New Labour, Old Labour, Blue Labour - who cares what they call themselves.

    Until they come up with some policies who knows what this current lot stand for apart from being "The Opposition".

  • rate this

    Comment number 1782.

    George Osborne has no grasp on reality.
    He was on the news the other night blaming the lack of growth on public sector pay.
    Somehow even though we have have record levels of unemplyment he has managed to convince himself that there are private sector jobs available but people aren't taking them.

    Earth to George, the lights are on but clearly theres noone home.

  • rate this

    Comment number 1781.

    OK.... can someone explain what Balls and Miliband would have done?

    Do they support reducing the national debt?
    Where would their axe fall...

    Seriously....they never talk about it.

    If I did not know better, I would say its a bit uncomfortable for them and they prefer to discuss 50p tax rates and making up tales of nicking oap pensions....

  • rate this

    Comment number 1780.

    I could scream and pull my hair out, everytime I see a Labour supporter claim that our last government wasn't a labour government. "It was thatcher in disguise"
    This is not only fustrating, it is also VERY typical labour. Never take blame, always blame the Tories... even when it was us who done did dat stupid thing.

  • rate this

    Comment number 1779.

    What did you expect from FAGIN OSBORN, He,s a Tory doing what Tory,s do best, hit the most vulnerable who cant fight back. (They even got that wrong) ,wait and see at the next general election, there are millions of us pensioners who have a vote.

  • rate this

    Comment number 1778.

    'Tories raid Royal Mail £37 billion workers' pensions' fund!'

    The Royal Mail pension fund has a deficit of £8 billion which the company could never fund, so the taxpayer is left to pick up the long term bill. In return they get the current £28 billion in cash to use (wisely??) and all the long term liabilities.

  • rate this

    Comment number 1777.

    1735. Mayna 1729.Maxone "Don't let the nasty Tory pension thieves grind you down!" ''Why is it Tory? Labour also raided pensions with Brown.'

    We have a Tory led regime now - it's year 2012. Or we could go back to the Tory crisis years 1970-1974 (two General Elections) 3 day week, power cuts, rampant inflation & a crisis again in 1976 & Labour in power IMF cuts >

  • rate this

    Comment number 1776.

    Show me an MP/MeP who DOESN'T claim for their:
    Home mortgage/rent, gas, electric, water, home/car insurance, food, travel to/from work, furniture, computers, smart phones, internet, clothing, parking, Council Tax, entertaining, Car Tax, car repairs, cab fares, dental fees, health care, dry cleaning, hoovers, cleaners, gardeners, petrol, diesel, decoraters, window cleaners, accountants. Plus VAT!

  • rate this

    Comment number 1775.

    @1745.Marthoc "WOW!! I've had a comment removed by the moderators"
    They err on the side of PC or deal with complaints.

    @1759.daleriver "I will never vote for Mr Cameron's Tory Party again"
    So whom, then? Green Party?

    "Most people know that the financial crisis was caused by bankers"
    Bankers, politicians, public. No-one can escape blame for the mess, not even you.

  • rate this

    Comment number 1774.

    1745. Marthoc

    The right wing moderators are very random.

    I once copied someone's post with a correction and that was removed, but not the original post.

  • rate this

    Comment number 1773.

    I'm not a violent man . However , I'll make an exception in this man's case .

  • rate this

    Comment number 1772.

    scirop 1746.
    My dear old Dad was a peasant Tory who thought the world of Winston Churchill and shed bucket loads of tears when Labour won the post war II election. I could never argue with my elders - it wasn't the done thing in those days - but I saw so much hypocrisy amongst my uncles and aunts who thought that anything but Tory was 5th column and treacherous,believe me.

  • rate this

    Comment number 1771.

    How the left spout their bile!! Driven insane by envy & greed, shouting marxist slogans like a revolutionary with Tourettes!

    Those who are rich are rich because they have worked hard and been successful - what is wrong with that? Nothing!!

  • rate this

    Comment number 1770.

    II can’t see why pensioners think that paying their taxes all their lives entitles them to some sort of preferential treatment .Maybe they should be stripped of their bus passes, winter fuel allowance and free T.V. licence. Their pensions are paid for exclusively by the workers of today. They should be grateful for what they are handed out,

  • rate this

    Comment number 1769.

    so much myth-making about the last 'Labour' government; Labour hasn't been in power since 1979, the previous (Bliar/Brown) government was 'New Labour' -- Thatcherism by another name.

  • rate this

    Comment number 1768.

    Think Balls and co have forgotten that Brown and his cronies diddled all low earners not that long ago by getting rid of the low rate of tax and putting it at 20%....and now this (I am a pensioner) Can't think of one of them I would want to vote for. It's just work...pay up...and shut up! Noone has listened to the tax payer's voice.

  • rate this

    Comment number 1767.

    A lot of people here seem to have overlooked the huge increase in the Personal Allowance which will drop millions out of paying any tax whatsoever and lower the tax burden for everyone. I've just done the Budget Calculator and I shall be £450 better off next year. And my income is about average.
    I want to see British industry coming back to life and if lowering Corporation tax does it, thumbs up!

  • rate this

    Comment number 1766.

    1737 shorty97

    "Mug pensioners in haste. Repent at leisure."

    That's a bit rich, considering today's pensioners have lived through the peak of global properity.

    If anything, it is the inaction and greed of adults living through the post war period, and a collective desire to live unsustainably, that has condemned future generations to a bleaker future.

  • rate this

    Comment number 1765.

    Re 131
    Young people are indeed getting a tough time, whether it's jobs or tuition fees. But you dont have to be rich. If you earn £43k you pay 40% tax you also pay 2% NI and 20% VAT on most purchases. Total tax 54%. And STILL we are living beyond our means as a country. Where on earth is it all going?

  • rate this

    Comment number 1764.

    Why is the Labour government bleating on about this 5% fall in tax on earnings over £150,000? It is clearly point scoring rather than trying to work for the good of the country.

    An independent report showed the tax raised very little and it is SO short sighted to think that it doesn't damage our economy. Do we really want to drive away the most talented people for a small short-term tax gain?


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