Why Osborne’s "granny tax" makes sense

It is right for older people to contribute to deficit reduction.

Today's newspapers are full of predictable criticism for George Osborne's only Budget surprise - removing the higher tax allowances enjoyed by people aged 65 and over. The Chancellor has bungled this announcement, slipping it into the budget statement as a 'simplification' when it is clearly a tax rise of around £200 a year for millions of pensioners. But is it really such as a bad idea?

Older people have been relatively protected from the spending cuts imposed by the coalition. The young have taken the brunt of the pain, seeing an end to their educational maintenance allowances and the scrapping of the Future Jobs Fund. Youth unemployment has topped 1 million, the highest since records began. Working families have already seen their budgets stretched as tax credits for low earners are frozen and support for childcare reduced. Many older people enjoyed windfall gains from the house price boom that has priced many younger families out of the market.

This is not a crude argument that pits young against old. But as the population continues to age, putting extra pressure on public services, parties on all sides will have to make tough choices about tax and spend. Asking older people to contribute to tackling the deficit and shoring up the country's tax base in the long-term is not unreasonable. This is particularly true if we bear in mind that only a fifth of pensioners are poor - retirement no longer means the life of poverty that it might have a hundred years ago when the higher allowances were introduced.

"Granny tax": which pensioners lose out?

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Removing the age-related allowances also makes sense because, on average, it takes much more from better off pensioners. It is true that the wealthiest fifth of pensioners do not lose much. They are not entitled to the higher allowances, which are reduced as income rises above £24,000. But IPPR analysis shows that the poorest fifth also lose very little. Most have incomes below the allowance so will not be affected by the freeze. The chart above shows that the biggest losses will be felt by the second richest fifth of pensioner households (those in the 4th income quintile). They are more likely to have two pensioners with incomes above the allowance but below the income limit.

Osborne's pleas of simplification have not played well, but he is right that age-related allowances add huge complexity to the tax system. This is important because it means that many pensioners do not even claim the higher allowance they are entitled to. An official report in 2009 estimated that 3.2 million older people failed to claim the extra allowance they were entitled to, which is over half of all older taxpayers. There are simpler and better targeted ways of supporting pensioners struggling on low incomes, that do not rely on people claiming complex allowances.

Kayte Lawton is a Senior Research Fellow at IPPR

Kayte Lawton is senior research fellow at IPPR.

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PMQs review: Jeremy Corbyn turns "the nasty party" back on Theresa May

The Labour leader exploited Conservative splits over disability benefits.

It didn't take long for Theresa May to herald the Conservatives' Copeland by-election victory at PMQs (and one couldn't blame her). But Jeremy Corbyn swiftly brought her down to earth. The Labour leader denounced the government for "sneaking out" its decision to overrule a court judgement calling for Personal Independence Payments (PIPs) to be extended to those with severe mental health problems.

Rather than merely expressing his own outrage, Corbyn drew on that of others. He smartly quoted Tory backbencher Heidi Allen, one of the tax credit rebels, who has called on May to "think agan" and "honour" the court's rulings. The Prime Minister protested that the government was merely returning PIPs to their "original intention" and was already spending more than ever on those with mental health conditions. But Corbyn had more ammunition, denouncing Conservative policy chair George Freeman for his suggestion that those "taking pills" for anxiety aren't "really disabled". After May branded Labour "the nasty party" in her conference speech, Corbyn suggested that the Tories were once again worthy of her epithet.

May emphasised that Freeman had apologised and, as so often, warned that the "extra support" promised by Labour would be impossible without the "strong economy" guaranteed by the Conservatives. "The one thing we know about Labour is that they would bankrupt Britain," she declared. Unlike on previous occasions, Corbyn had a ready riposte, reminding the Tories that they had increased the national debt by more than every previous Labour government.

But May saved her jibe of choice for the end, recalling shadow cabinet minister Cat Smith's assertion that the Copeland result was an "incredible achivement" for her party. "I think that word actually sums up the Right Honourable Gentleman's leadership. In-cred-ible," May concluded, with a rather surreal Thatcher-esque flourish.

Yet many economists and EU experts say the same of her Brexit plan. Having repeatedly hailed the UK's "strong economy" (which has so far proved resilient), May had better hope that single market withdrawal does not wreck it. But on Brexit, as on disability benefits, it is Conservative rebels, not Corbyn, who will determine her fate.

George Eaton is political editor of the New Statesman.