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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Is the Great Fire of London a blueprint for how governments deal with disasters?

Visible leadership, an established authority, and a common external enemy: an enduring defence mechanism 350 years on.

In 1968, the science journal The Lancet ran a report into human behaviour. When populations are confronted with disaster, it recommended, effective “communications, coordination, and control, and the establishment of a recognised authority” are of utmost importance (advice that should have been heeded immediately after the Brexit result in June this year).

The 350th anniversary of the Great Fire of London this week seems is a good time to think about how we deal with disasters: over 13,000 homes were destroyed, 87 churches ruined and thousands of Londoners displaced.

For me, one of the most striking parts of the story of the Great Fire is not the fire itself nor the dramatic rebuilding programme that followed, but the state of flux in between.

When the fire broke out, England was at war with both the Dutch Republic and France. As soon as news reached France, the Venetian ambassador Alvise Sagredo, declared that the fire would be “worse than the plague and any other disaster, capable of making [the English] change their government and their principles”.

In England, even the London Gazette warned that England’s foes would try “to persuade the world abroad of great parties and disaffection at home against his majesties government”. Faced with unparalleled destruction and unprecedented disarray, how did the king, his advisers and civic authorities regain control of London?

With the Guildhall severely damaged and the Royal Exchange destroyed, the first step was to find a new base for civic and mercantile power. On 6 September, Charles II instructed the Lord Mayor and the city aldermen to resume governance of the city. Gresham College and buildings around Bishopsgate were taken over and efforts were immediately taken to re-establish trade. Vendors were granted permission to set up sheds in temporary markets at Bishopsgate Street, Tower Hill, Smithfield and Leadenhall Street.

“Honest and able persons” were selected to monitor the ruined city to ensure fire did not break out afresh, appeals were made across the country for charitable donations and neighbouring counties were called upon to provide sustenance. From the navy stores, ship’s biscuit was offered to the needy and canvas was provided so that the tens of thousands of homeless people stranded in the fields surrounding London could fashion tents.

The measures were not perfect. Visiting Moorfields, the diarist John Evelyn described, “the poor inhabitants . . . some under tents, some under miserable huts and hovels, many without a rag”.

Those stranded found food to be in short supply and many succumbed to the illnesses bred by a reduced condition in life, including aged playwright James Shirley, who died in October 1666.

But it wasn’t long before people started to disperse – either leaving London altogether, finding accommodation elsewhere, or returning to the locations of their former homes and shops to erect makeshift shacks above the ruins.

In the background, the trial and execution of French watchmaker Robert Hubert, who falsely claimed to have started the fire, provided a focus for any anger and rage.

With communication ruptured following the destruction of the London Gazette printing house and the General Letter Office, rumours of plots, arson and invasions had spread almost as quickly as the fire itself. Indeed, terrible violence had broken out during the fire, with mobs targeting any “strangers” or foreign-born Londoners. One French servant, for example, reported how gangs of “English women did knock down strangers for not speaking good English. Some of them armed with spits, some with bread staffs, and the captain with a broad sword.”

When the London Gazette was released the week after the fire – after only skipping one edition of its biweekly run – it provided readers with a detailed description of the catastrophe, emphasising its accidental nature and promoting the role played by Charles II and his brother and heir, James, Duke of York, in preventing the fire spreading even further.

Against protocol, the newspaper also allowed important tradespeople to advertise their new offices: the goldsmith-bankers, for example, informed readers that they had found premises along Broad Street.

By mid-September, the etcher Wenceslaus Hollar had already begun his survey of the city and plans had been submitted to the king from John Evelyn and architects Christopher Wren and Robert Hooke, to name just a few, as to how to rebuild the capital.

Writing at the time, Sir Nathaniel Hobart, believed that the “rebuilding of the Citty will not be soe difficult as the satisfying all interests, there being many proprietors”. As such, one of the most important innovations following the disaster was the establishment of a judiciary, known as the Fire Court, to untangle the complex web of formal and informal agreements between tenants and landlords. From 1667 until 1672 the Fire Court settled hundreds and hundreds of cases.

There were certainly many bumps along the way – for a while, the City of London was plundered and inhabited by gangs. Plus, anger towards foreign-born Londoners continued; owing to his Dutch background, one Johan Vandermarsh had to fight tooth and nail to keep hold of his property on Lime Street, despite helping to save many of his neighbours’ homes.

All of this considered, there was nothing like the widespread disorder that Charles II had feared and his enemies expected. On the contrary, the visibility of the king and his brother and heir – and the convenient suspicion that the fire had been started by an external enemy – worked to bind the people to their king and settle unrest. Although hard to believe at the time, there was also the promise of “a more beautiful city”.

Rebecca Rideal is a historian, factual television producer and author of 1666: Plague, War and Hellfire.

She will be speaking at London’s Burning festival on Friday 2 September – a contemporary festival of art and ideas produced at Artichoke to commemorate the 350th anniversary of the Great Fire of London. Free to the public, it runs from 30 August-4 September.