The Chancellor was accused of an “outrageous assault” on the over-65s after he used his Budget to announce that he would end a century-old tax break introduced by Winston Churchill. The “age-related allowance”, which means pensioners start paying tax at a higher income level than workers, is to be phased out, Osborne said.
The move will mean prudent savers retiring in future will miss out on a tax break worth, on average, £285 a year, despite the Chancellor’s claims that the move would not leave pensioners poorer “in cash terms”. The move, instantly labelled a “granny tax”, will hit up to five million older people who will pay an extra £3.3billion in income tax over the next four years, according to Treasury figures. Those who have already retired will see their tax-free allowance frozen at £10,500, or £10,650 for the over-75s, while workers retiring in future will only benefit from the same tax-free allowance as everyone else.
Osborne described the removal of the tax break as a “simplification” that would be welcomed by pensioners who would not have to fill out tax forms. Many pensioners do not claim the extra relief. The tax-free allowance is to increase for all taxpayers next year to £9,205, and ministers were thought to have concluded that an additional allowance for pensioners was no longer justifiable. Treasury aides admitted, however, that the decision was “controversial”.
The tax changes for pensioners will be followed by a “simplification” in the state pension system. This will see every pensioner receiving a flat-rate payment of about £140 a week. Although this is higher than the current basic state pension, better-off pensioners could lose their second state pension, leaving them hundreds of pounds a year worse off.
Ros Altmann, the director-general of Saga, said: “This is an outrageous assault on decent middle-class pensioners. This Budget contains an enormous stealth tax for older people. There is nothing in this Budget for savers, there is nothing to improve the annuity market, nothing to appease the damage of quantitative easing and nothing to support ISA changes and shelter older people’s cash. This Budget is terrible news for pensioners.”
The elderly have previously emerged relatively unscathed from the Government’s austerity drive. The Chancellor is understood to have decided that now was the time to remove some tax breaks from better-off pensioners, to help fund a give-away for “working families”.
The Telegraph (amended)