Budget 2012: Will the 'granny tax' backlash last?

 

Nick Robinson's Budget explainer

It was the only surprise left in the chancellor's Budget box. It was the only bit of "news" which the media could feast on.

What's more - thanks in large part to the power of Twitter - it quickly acquired a snappy name: the Granny Tax.

The result? A terrible set of headlines for George Osborne on a day he must have hoped his party and the Tory press would have given him a pat him on the back for delivering a tax cut for most people and scrapping the hated 50p rate - even when he had absolutely no money to spend.

Tony Blair once compared angry pensioners to "rottweilers on speed". He learnt the lesson that in a battle between the old and any politician there is only ever one winner.

He and Gordon Brown increased the state pension by 75p a week - in line with inflation and in line with the official advice, but out of line with what pensioners thought was just. Brown was so shaken by the outcry he invented the non means-tested winter fuel allowance to placate his elderly critics. So will George Osborne have to make a similar climbdown?

The chancellor has spent the morning pointing out that no pensioner will lose any cash and that this is a freezing of a tax allowance not a new tax or an increase in an old one. He has pointed to the recommendation to make this change from the Office of Tax Simplification.

This lunchtime the Institute for Fiscal Studies - so long the scourge of the Treasury - came to his rescue on the "granny tax"

"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 one per cent of their income in 2014."

By "well sheltered from tax and benefit changes" they mean that the state pension is rising in line with whichever of inflation or earnings is higher and benefits like the free TV licence, free bus pass and the winter fuel allowance have been kept (even though the last increase in winter fuel allowance has not been sustained)

In contrast working families have potentially lost tax credit, child benefit, pay rises and much more besides.

In reply pensioners groups point out that their savings and their private pensions have dwindled in the era of low interest rates.

The Blair/Brown battle involved sending every pensioner a letter informing them that their weekly pension was rising by just 75p. George Osborne is doing nothing so provocative.

However, his critics will soon find a top rate taxpayer gaining thousands of pounds and contrast them with a struggling pensioner who's lost - or, rather, will not gain tax relief - of a few hundred pounds.

In the battle between the chancellor and "the rottweilers on speed" only a brave man would bet on the chancellor.

 
Nick Robinson Article written by Nick Robinson Nick Robinson Political editor

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  • rate this
    0

    Comment number 336.

    #334

    According to the Mirllees Report, the revenue-maximising tax rate on earned income for the 1% of highest earners is 56%, which implies an income tax rate of 40% +NICs + indirect taxes.

    The uncertainty comes from the fact that the research is based on the 1980s. However, in a more global world skilled labour may be more mobile now, and the maximum revenue-raising rate may be lower.

  • rate this
    0

    Comment number 335.

    #333

    Almost all economic policy decisions are to a greater or lesser extent based on uncertainty. That's why most economic forecasters use central projections and fan diagrams.

    If you are using the existence of forecasting uncertainty to criticise the coalition then I accuse you of political partisanship. It would be the same whatever government was in power, and whatever policy.

  • rate this
    0

    Comment number 334.

    TGF 330
    Very strange. If the figures were massively distorted wouldn't that mean they weren't typical? And if there is huge uncertainty about estimates of behavioural change wouldn't another year or so of data be useful to reach a decision? Why would 45% be better? (Someone said IFS thought 48% optimal?) And to top it all I said the optimal rate was 49% but like GO have little or no evidence.

  • rate this
    0

    Comment number 333.

    jh66 327
    'Yes, uncertainty.'
    No, you missed something 'huge'.
    Your second point is well taken. It would be foolish to place too much weight on the guesstimates of the OBR. Almost as foolish as attempting to use them as a vindication for policy decisions based on belief (assumptions) rather than fact.

  • rate this
    0

    Comment number 332.

    328 brism1948

    Perhaps you might like to point out where it is on your direct.gov page that it says the flat rate pension will only apply to those who reach state pension age after 2015, that being the point that you asserted at 322 and that I challenged at 323.

 

Comments 5 of 336

 

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