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 1803.

    @dceilar
    And this attitude will help exactly whom? Somebody needs compassion; it seems many politicians do not possess it, and it's very hard when an apparently regular voter doesn't have any either. What are your own actions to 'so something about it'?

  • rate this
    +6

    Comment number 1802.

    In answer to1770,s remarks, we old ones where conscripted into uniforms and sent to fight for this country and I think that gives us the right to bus passes, free T/V, and tax perks, unlike you young and healthy people of today, we cant work over time to boost our pay and we still have to pay the same for food,petrol,gas,electric and other every day items that you do , you will be old one day.

  • rate this
    +3

    Comment number 1801.

    Having heard of the RM pension scheme and the government taking the Billions that it contains, I'm a little confused. I take it that RM employees contributed to that fund and it was in surplus, therefore able to pay all it's pensioners. Then what happened to the public sector pensions funds, same people investing them, same market conditions but no money to pay their pensioners.

  • rate this
    +6

    Comment number 1800.

    Will I still get the SERPs I paid into or will they just disappear into the coffers of government to make things simpler for everybody and I become a big loser. The marriage allowance disappeared now they are pinching our age allowance so they can tax us even more from all income,but that wont affect top civil servants,MPs,bankers,and the rich, so it must be OK.

  • rate this
    +8

    Comment number 1799.

    1758. krokodil
    Labour were in charge...not the bankers. Yes? The buck stops at Brown.

    The key here is in the name "Global Financial Crisis". You understand what "Global" means? Brown was our Prime Minister, he was not the one trading in sub-prime mortgages and other toxic assets. That was Cameron's "greed is good" friends.

  • rate this
    +8

    Comment number 1798.

    Cameron and Osborne keep going on about the £5 pension rise in pensions next month. I presume they are referring to the REDUCED inflation increase (using the lower CPI compared to the higher RPI) figure Are they deliberately trying to give the impression that there is some other kind of increase in pensions for everyone. I can't quie decide whether they are disingenuous or just incompetenrt

  • rate this
    -6

    Comment number 1797.

    1786. casbah
    Pension contributions -- Your choice

    Sky High Utility Bills - get a water meter and be more economic

    Car - get a more fuel efficient and lower tax car

    Don't expect others to pay for your lifestyle choices

  • rate this
    -5

    Comment number 1796.

    Thanks to Labour's 13 yr reign of economic incompetence on an intergalactic scale, the UK now faces hard times.

    And during hard times, people will suffer. Who suffers most? Those who have done the least to secure adequate financial resources to sustain them during a recession.

    This is only natural and will always be so.

    Deal with it!

  • rate this
    +3

    Comment number 1795.

    1771. Tsunami of Logic
    Those who are rich are rich because they have worked hard and been successful - what is wrong with that? Nothing!!

    Absolutely.

    Unfortunately, most of the tories are there with inherited money, so they have no concept of what it is like to struggle financially and treat the treat of us plebeians with total contempt.

  • rate this
    0

    Comment number 1794.

    We have moved from a personal tax allowance of £8105 in 2012 to £9205 in 2013 an increase of £1100.

    The age related allowance was £10500 so an increase in personal allowances in 2014 will see us there anyway.

    This is obviously too clever for the Labour party and Ed Balls in particular to understand. And how much better off would be my PERSONAL pension had not Brown plundered it in the past.

  • rate this
    0

    Comment number 1793.

    Stop moaning, because what are you going to do about it? Nothing! We have the Tories doing all this hideous stuff to us while giving tax cuts for the rich; yet they only got 22% support from the electorate! If you had any backbone in your jellyfish bodies you would have done something about it, but you're not so stop moaning! You have the govt you all so richly deserve. Enjoy!

  • rate this
    +3

    Comment number 1792.

    1783. SLF

    Let's be clear: deregulation of banks and lending was de-rigeur in many developed countries. The US, Japan, Ireland, Iceland and other places. Even in the Eurozone many governments borrowed too much. Had the Tories been in power in 2000-2007 you can be sure we would still have had a major banking crisis due to private borrowing. We may or may not have had a public borrowing problem.

  • rate this
    +2

    Comment number 1791.

    1777.Maxone

    My point in 1735 is that each gov is as bad as the other, just in different ways. With each party politics pushing its cause to the extreme the next comes in and undoes it so it can get its extreme, so instead of a sustainable static policy we get extreme generosity followed by cuts to pay for them. Policies & plans span gov's so fair to point finger at none or all gov's.

  • rate this
    +8

    Comment number 1790.

    Osbourne's assertion that the £5 a week increase in pensions offsets the phasing out the pensioner's allowance is a fib. The rise in pensions is merely so they can catch up with last year's wage and cost inflation. The structural advantage pensioners had of the additional allowance has been lost. Nothing replaces it on a year-on-year basis. The pensioners have funded tax reductions for the rich.

  • rate this
    +2

    Comment number 1789.

    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."

    please do. personally, I do not support party politics -- any party -- and I also remember the outcry caused by Bliar's 'vision' among actual Labour supporters. it seems you don't, why not go to your local library and do a bit of research? (library closed?)

  • rate this
    +4

    Comment number 1788.

    @1767
    The budget calculator shows I'll be worse off. I've recently been made redundant so have to rely on benefits until I find a job. To find a job I need a car so have to pay the increased Car Tax & fuel duty levied in yesterday's budget. These increases actually make it harder to keep my car & harder to find a job because travel costs become prohibitive. I feel in a trap not of my making

  • rate this
    0

    Comment number 1787.

    How many of today's pensioners, over the course of their past working lives, have ever said,
    "Wait a minute, shouldn't we all be contributing more national insurance, to ensure that there's enough to pay us when we retire, because we'll be living longer, to avoid future generations inheriting a country that is likely to become a comple basket case through our greed and lack of forsight?"

    Well?

  • rate this
    +4

    Comment number 1786.

    These politians don't know what its like to live hand to mouth. We are having to pay into a private pension, pay sky high utility bills and keep a car on the road because the cost of using public transport is ridiculous.
    Mind you, whats the point in having a pension, the government is going to keep us working. Soon there will be no such thing as 'retirement ' unless you are a politian.

  • rate this
    +3

    Comment number 1785.

    "The move will save the government £360m in 2013-14."

    Interesting this one.

    Isn't this approximately the cost incurred by the UK govt enforcing the no-fly zone over Libya last year?

    Always knew SOMEBODY would have to pick up the tab for that one,NOW we know to WHOM its been sent don't we??

  • Comment number 1784.

    This comment was removed because the moderators found it broke the house rules. Explain.

 

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