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Budget 2012: Ministers under fire over tax allowances for pensioners Budget 2012: Ministers under fire over tax allowances for pensioners
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The government has defended plans in the Budget to change tax allowances for pensioners, amid claims they amount to a "raid" on their incomes. The government has defended Budget plans to end age-related tax allowances for pensioners, amid claims they amount to a "raid" on their incomes.
George Osborne is to freeze age-related allowances - the amount of income over-65s can earn tax-free - for existing pensioners, and scrap the relief for those retiring after next April. It will lead to 4.4m pensioners being an average £83 a year worse off than they would have been, the HMRC says.
The chancellor says no-one will receive less cash than they do at the moment. 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.
But Labour said it was a hidden tax rise which would affect millions.But Labour said it was a hidden tax rise which would affect millions.
Mr Osborne announced the move at the same time as revising the threshold below which under-65s pay no tax on their income. The change to pensioners' tax allowances dominates the newspaper coverage of Wednesday Budget speech - being widely described as a "granny tax".
That threshold has increased by £1,100 to £9,205 - leaving millions of working people more than £200 better off. Mr Osborne told BBC Breakfast that his job in the Budget was not to write the next day's newspaper headlines, but to do what was best for the country.
He denied that pensioners were being hit to pay for a tax cut for the very rich.
The 50p tax rate for earnings over £150,000 was cut to 45p in the Budget, but Mr Osborne said other measures introduced would raise five times as much from those top earners.
'Complicated''Complicated'
Mr Osborne announced the pension move at the same time as revising the threshold below which under-65s pay no tax on their income.
That threshold has increased by £1,100 to £9,205 - leaving millions of working people more than £200 better off.
Tax allowances are currently more generous for the over-65s - worth £10,500 up to age 74 and £10,660 after that.Tax allowances are currently more generous for the over-65s - worth £10,500 up to age 74 and £10,660 after that.
But, in a surprise move, the chancellor announced these would not be increased in line with inflation as expected but frozen at 2012-2013 levels from 5 April 2013.But, in a surprise move, the chancellor announced these would not be increased in line with inflation as expected but frozen at 2012-2013 levels from 5 April 2013.
In addition, anyone turning 65 after that date will no longer qualify for the relief. The move will save £1bn a year by 2015.In addition, anyone turning 65 after that date will no longer qualify for the relief. The move will save £1bn a year by 2015.
Announcing the measures, immediately dubbed a "granny tax" by critics, Mr Osborne said the existing system was "particularly complicated" and should be simplified. Mr Osborne said the existing system was "particularly complicated" and should be simplified with a single tax free allowance for all.
He told MPs that the change would save money and "no pensioner will lose in cash terms" as existing levels of allowance would be protected. 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.
But Labour say, 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, the party added. Shadow chancellor Ed Balls told BBC Radio 4's Today: "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.
'Wrong priority' "I think in the country people will say: How can that be the priority how can that be fair how can than be right?"
Shadow business secretary Chuka Umunna told the BBC the move was evidence that the coalition had the "wrong priorities" when it came to taxation.
"Why on earth do this to pensioners and families in this country?" he said.
"At the end of the day, they are people who have contributed into the system during their working lives and will say, 'Hang on a minute, I have worked hard, played by the rules, brought up a family and now you are taking this money away from me.'"
TUC general secretary Brendan Barber said the move would "come back to haunt" the government while groups representing pensioners said the measure was not fair.TUC general secretary Brendan Barber said the move would "come back to haunt" the government while groups representing pensioners said the measure was not fair.
"Because in this economy many younger people borrowed far too much and the banks got into trouble, the government seems to believe it is right and fair to take money away from those who did do something to look after themselves, and use it bail out younger borrowers and banks," said Ros Altmann, director general of Saga."Because in this economy many younger people borrowed far too much and the banks got into trouble, the government seems to believe it is right and fair to take money away from those who did do something to look after themselves, and use it bail out younger borrowers and banks," said Ros Altmann, director general of Saga.
Pension risePension rise
Conservative MP Matthew Hancock, an adviser to Mr Osborne, said many people did not claim the allowance at the moment because the process was so complicated.Conservative MP Matthew Hancock, an adviser to Mr Osborne, said many people did not claim the allowance at the moment because the process was so complicated.
Budget calculator: How are you affected overall? You will be about £0 better off in 2012/13 Budget calculator: How are you affected overall? You will be about £0 better off in 2012/13
He said the government was committed to supporting people in old age and had pledged to raise the state pension in line with either earnings, inflation or by 2.5% whichever was highest - meaning a £5.30 a week rise this year.He said the government was committed to supporting people in old age and had pledged to raise the state pension in line with either earnings, inflation or by 2.5% whichever was highest - meaning a £5.30 a week rise this year.
"This and the other measures for pensioners outweigh, in the next couple of years, this change which is to hold steady the threshold so there are no cash losers," he said."This and the other measures for pensioners outweigh, in the next couple of years, this change which is to hold steady the threshold so there are no cash losers," he said.
"It is very important point for pensioners that nobody will pay more tax than they do at the moment.""It is very important point for pensioners that nobody will pay more tax than they do at the moment."
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.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.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.
Other key measures outlined by Mr Osborne in his third Budget were:Other key measures outlined by Mr Osborne in his third Budget were:
Treasury Secretary Danny Alexander told BBC Two's Newsnight that all these measures were designed to "support the economy through difficult times".Treasury Secretary Danny Alexander told BBC Two's Newsnight that all these measures were designed to "support the economy through difficult times".
He said he believed the proposed new 45p top rate of tax - to come in next year - was "sustainable" but would not commit to it remaining in place until the next election scheduled for 2015.He said he believed the proposed new 45p top rate of tax - to come in next year - was "sustainable" but would not commit to it remaining in place until the next election scheduled for 2015.
Labour said cutting the top rate of tax was wrong and they would have reduced employers' national insurance and VAT instead of cutting corporation tax.Labour said cutting the top rate of tax was wrong and they would have reduced employers' national insurance and VAT instead of cutting corporation tax.