UK: Government faces a mounting backlash over Budget’s �1million ‘granny tax’

GEORGE Osborne is today 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.

Mr 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.

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Under the Chancellor’s plans, the allowances will be withdrawn for new pensioners from April next year while existing pensioners will have their allowances frozen at �10,500 for the over-65s and �10,660 for the over-75s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 Mr 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”.

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“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.

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.”

Mr 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 Mr 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.

Mr Osborne told MPs that “Britain is going to earn its way in the world” as a result of the Budget. “Together, the British people will share in the effort and share the rewards,” he said.

“This country borrowed its way into trouble. Now we’re going to earn our way out.”

Mr 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.

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