More than four million pensioners will be worse off following changes announced by Chancellor George Osborne in his budget that have been dubbed a “granny tax”.
What the Treasury describes as “tax simplification” will mean millions of people over 65 having their personal tax allowances frozen – as the result of the biggest single revenue-raising measure in the budget.
At the moment, people over this age are not taxed on the first £10,500 of their income. This allowance will be frozen from April 2013 for existing pensioners, which means it will not be uprated in line with inflation.
It will only increase once the allowance for the working population – £9,205 from April 2013 – rises above £10,500. For those reaching 65 after April 2013, the allowance will always be in line with the working population.
Almost half of pensioners will be affected by the changes, which will raise more than £1.25bn a year for the government by 2016. The average pensioner affected will lose £83 a year.
The five million people with no source of income apart from the state pension will not lose out.
Pensioners on the gransnet.com website have reacted angrily to the change. One woman wrote: “After dismantling the NHS that so many of us will rely upon in the years to come, this government is now penalising pensioners to help them out of the mess the bankers got us into.”
Another said: “What happened with we’re all in this together? Not if you’re a pensioner. Then not only do we have to work longer, we’re being squeezed the hardest, interest rates are at an all-time low, our savings mean nothing. Why should pensioners have to pay the price for what’s happening with our economy?”
This budget contains an enormous stealth tax for older people. Dr Ros Altmann, Saga
Saga director-general Dr Ros Altmann said: “This is an outrageous assault on decent, middle-class pensioners. This budget contains an enormous stealth tax for older people.
“Over the next five years, pensioners with an income of between £10,000 and £24,000 will be paying an extra £3bn in tax, while richer pensioners are left unaffected. This budget is terrible news for pensioners.”
Currently, if a pensioner has an income above £24,000, they lose a proportion of their age-related allowance on a tapered basis – with those on over £29,000 only receiving the allowance working people are entitled to.
The change will save the Treasury £360m in 2013, £670m in 2014, more than £1bn in 2015 and £1.25bn in 2016.
The Treasury said in a statement: “We are taking a decision that the best way to help pensioners is through the triple lock, guaranteeing increases in the state pension. There is a goal of a simpler tax system and a simpler personal allowance system.”
The government uprates the state pension in line with the retail prices index measure of inflation, which is higher than the consumer prices index used for benefits.