Budget 2012: George Osborne Under Fire Over Granny Tax

PA/The Huffington Post UK  |  By   |  Posted: 22/03/2012 06:49 Updated: 22/03/2012 08:56

George Osborne

George Osborne is facing a mounting backlash over his £1 billion "granny tax" raid on the incomes of millions of pensioners.

The Chancellor's move to scrap age-related allowances introduced by Winston Churchill in 1925 was condemned as "outrageous" by older people's groups.

Writing on The Huffington Post UK Geraldine Bedell, Editor of Gransnet said: "With the stroke of his pen (or at least a couple of lines of prosaic text in the red book) 4.5m pensioners, nearly half of all pensioners, will be worse off in real terms."

But Osborne defended the move, insisting that no pensioners would lose cash as a result of the allowance freeze.

"They're not going to lose cash, we're going to increase the benefit. At the same time they'll be better off because the basic state pension is going up in a couple of weeks time by over £5 a week," he told ITV on Thursday morning.

Osborne used his Budget to cut the 50p top rate for Britain's wealthiest earners and lift thousands of low-paid workers out of taxation altogether.


FULL BUDGET COVERAGE

But the Treasury acknowledged that 4.5 million pensioners would lose out as a result of the decision to phase out age-related allowances.

Under the Chancellor's plans, the allowances will be withdrawn for new pensioners from April next year while existing pensioners will have their allowances frozen at £10,500 for the over-65s and £10,660 for the over-75s until overall tax thresholds catch up with them.

Although Osborne insisted there would be no cash loss to pensioners, Treasury sources said existing pensioners would be, on average, £63 a year worse off while new pensioners would lose out to the tune of £197 a year.

But the Chancellor pointed to a report which claimed many pensioners did not understand the allowances and found claiming them "burdensome".

"These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is being eroded all the time," he said.

Age UK said it was "disappointed" with the move, warning it could leave some pensioners up to £259 a year worse off.

Economist Ros Altmann, director-general of the Saga Group, denounced it as an "absolutely outrageous assault" on all pensioners with incomes between £10,500 and £24,000.

"This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected," she said.
Labour shadow chief secretary to the Treasury Rachel Reeves said: "George Osborne has tried to bury his £3 billion 'Granny Tax' raid on pensioners over the next four years.

"The freeze in the personal allowance for pensioners will see 4.4 million pensioners who pay income tax losing an average of £83 per year next April. And people turning 65 next year will lose up to £322.

"And he added insult to injury by dressing up a tax grab as a 'simplification' and claiming that he was taking this money away from pensioners because they could not understand the allowances they were entitled to."

Osborne presented his statement as a "Budget that rewards work", announcing that a £1,100 rise to £9,205 in the income tax threshold will take another 840,000 of the low paid out of taxation and save 24 million people £220 a year.

But around 300,000 people will be drawn into paying income tax at 40% from 2013/14 by a reduction in the higher rate threshold to £41,450.

The 50p top rate on earnings over £150,000 introduced by Labour will be cut to 45p from April next year, after a study by HM Revenue and Customs (HMRC) found it raised "next to nothing", said Osborne.

The widely expected cut was offset by a hike in stamp duty on properties worth more than £2 million and a commitment to clamp down on "aggressive" tax avoidance.

Labour leader Ed Miliband said the Budget meant millions would pay more while millionaires paid less.

"It is a millionaires' Budget that squeezes the middle," he said.

But Deputy Prime Minister Nick Clegg hailed it as "a Budget every liberal can be proud of", pointing to the lift in the income tax threshold and increases in taxes on wealth which Liberal Democrats had demanded in negotiations with Conservative coalition partners.

Osborne also signalled that millions of existing workers will have to wait longer for their pensions, with automatic reviews of the state pension age "to ensure it keeps pace with increases in longevity".

And he also warned of new cuts to welfare payments - with the need to find additional savings of £10 billion by 2016.

However, there was action to ease the effects of his decision to end child benefit for the better off, with a phased withdrawal of payments for those on incomes between £50,000 and £60,000.

Overall, the Chancellor said his measures would raise five times more from the wealthy than the top rate introduced by Labour.

He said a study by HMRC found that the 50p rate had raised just a third of the £3 billion predicted and that cutting it to 45p would cost the Exchequer just £100 million a year - a loss which could be cancelled out by other tax revenues.

But shadow chancellor Ed Balls challenged the claim, pointing to an Office for Budget Responsibility (OBR) assessment of the HMRC evaluation as "highly uncertain".

Osborne rejected calls to relieve the pressure on motorists struggling with record petrol prices to cut fuel duty.

He also dealt a blow to smokers, saying that duty on all tobacco products would rise by 5% above inflation - slapping 37p on a packet of cigarettes.

However, drinkers escaped relatively unscathed, with no additional increases in alcohol duty - though the previously announced 5% hike in duties will go ahead, adding 5p to 10p to the price of a pint of beer in the pub.

What the papers said:

FOLLOW UK POLITICS