Observations On Granny Tax To Do It Justice I have Included The Whole Article Below:
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 Glaxo Smith Kline on Thursday that it was to invest £500m in manufacturing in theUK.
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.”
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.
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.
“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”.
“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.
Well here comes the boys and girls in blue and yellow to hit our elderly between the legs well done #Coalition Government.
If people thought that the The Former Chancellor of the Exchequer Gordon Brown was bad then look toward the Osbourne Anyone doubting the nature of George Osborne’s stealth tax on pensioners should ask themselves why, during a Budget process that leaked like a sieve, this was the only measure kept under wraps.
It even slipped past most commentators during the Chancellor’s speech, as he dispensed with detail, implying that he planned to simplify pensioners’ personal allowances to obviate any confusion.
He’s still at it now, choosing his words ever so clearly to suggest one thing while meaning another entirely.
Osborne insisted that no pensioner “is going to lose any cash as a result” of scrapping the age-related allowances that have existed for nearly 90 years and have not been a subject of public debate.
His reasoning is that any loss would be compensated by the higher state pension, which is to rise shortly by £5 a week.
But this rise comes about because of an inflation-linked provision. It responds to price rises that have already hit pensioners’ incomes. The annual pension increase is not a shock absorber to nullify the impact of Budget dirty tricks.
Even the Treasury admits that 4.5 million pensioners will be worse off courtesy of Osborne’s sleight of hand.
Existing age-related allowances of £10,500 for the over-65s and £10,660 for the over-75s will be abolished for those reaching pensionable age next year and will be frozen for those already in receipt.
If no pensioner will lose out on these new arrangements, how can the government look forward to saving £3 billion a year as a consequence?
Osborne is playing fast and loose with the truth and he has been caught out.
He will also be rumbled in time over his claim that there will be a huge increase in tax paid, up to £2.9bn, by the richest 1 per cent of the population handed a Budget Day bonanza of a cut in the top rate tax band from 50p to 45p.
These are the people who the Chancellor himself said have driven a coach and horses through the last Labour government’s tax policy by having their accountants search successfully for loopholes to avoid paying it.
So instead of coming down like a ton of bricks on these tax dodgers as he pledged so unconvincingly that he would, Osborne handed them the Budget day star prize of a golden handout.
Faced with a choice between protecting pensioners’ living standards and cosseting the richest 1 per of the population, he prioritised his own people.
While the plutocratic elite basks in its significantly expended wealth, the Chancellor makes much of the above-inflation increase to the threshold rate for income tax, but he ignores the effect of his earlier decision to cut working tax credits, which will leave many families substantially worse off.
Osborne is showing a measure of loyalty to his class that many workers wished Gordon Brown had shown to them rather than to the bankers that he and Alistair Darling bailed out.
Abolishing the 10p tax rate and awarding state pensioners a miserable 75p-a-week rise were massive own goals that convinced many working-class people not to vote Labour at the general election.
The conservative coalition’s brazen determination to champion the interests of the minted minority raises the need for a new class response by the majority to demand a real alternative to the bankers’ agenda favoured for too long by both front benches.