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Adam Aiken, Editor
Wednesday, March 21, 2012
Pensioners look to be among the biggest losers from this year’s budget, with retired people set to be worse off by more than £1bn a year by 2015.
Chancellor George Osborne was at pains in his speech to promote the idea of tax-simplification, saying an easier-to-understand system would be welcomed by taxpayers.
But while he may have hoped the headlines would focus on the rise in the overall income tax allowance to £9,205, he quickly came under fire for the backdoor tax grab on retired people – or the “granny tax”, as it has already been dubbed.
The move also overshadowed the £5.30-a-week rise in the state pension, which is linked to inflation.
Campaigners condemned the move that effectively sees pensioners subsidising much of the shortfall created by income tax giveaways to working people.
Age UK said it could leave some pensioners up to £259-a-year worse off, with little chance to change their retirement plans.
People aged over 65 have traditionally been given higher income-tax allowances. For example, from next month, the first £10,500 of income for people aged 65 to 74 will be free of income tax, and people over 75 will have an annual allowance of £10,660.
But from next April, these higher allowances will be frozen until everyone else’s allowances have caught up, and people born after April 1948 will never enjoy them.
Although Mr Osborne insisted no one would lose out in cash terms – in other words, no people will receive less money than they do today – the government’s own briefing notes showed that pensioners will be receiving £360m less in 2012-13 than they might have expected under the current system, £670m less in 2013-14, £1bn in 2014-15 and £1.2bn in 2016-17.
Treasury sources pointed to a report by the Office for Tax Simplification which claimed many pensioners did not understand the allowances, and found the existing claims process “burdensome”.
Mr Osborne said: “The National Audit Office points out that many pensioners don’t understand [their allowances].
“These allowances require about 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.”
However, Labour leader Ed Miliband said it was a “hidden tax” rise on millions of people, and pensioners’ groups also viewed the move in a negative light.
“The decision to freeze the age-related personal tax allowances effectively means about five million pensioner taxpayers will no longer get additional reductions in their tax over the coming years – while those on the top rate of tax will see their bills reduced,” said National Pensioners Convention general secretary Dot Gibson.
“Many older people will feel they are being asked to forego their reduction in tax to help out the super rich. There’s no fairness in that.”
Michelle Mitchell, charity director-general of Age UK, said: “Older taxpayers will be disappointed that the government has decided to scrap the age-related tax allowance.
“This will affect those with modest pensions and savings for their retirement. Someone with an income as low as £10,500 who reaches 65 from April 2013 could be £259 a year worse than under the current system, with very little time to adjust their financial retirement plans.”