Friday, 23 March 2012

A "Granny Tax" or fairer tax system?

I was surprised yesterday to see that all of the headlines were about a "Granny Tax" rather than the reduction in the highest rate of tax.  

Ed Miliband didn't attack this immediately, I guess it hadn't been announced previously so all he did was allude to it in his rebuttal, however since then Labour have seized upon the indignation that seems to have been felt and gained some political points scoring.  But is this just another case of the negative sound bite being better than positive substance?

Are Pensioners going to be worse off thanks to the Government?


When most of us wake up in April to find that we have a £630 increase in our personal allowance (worth £126 per year) pensioners (over 65) will also see an increase, albeit slightly lower at £560 (worth £112) - a tax decrease.  In 2013, although there will be a freeze in the limit they will still have an allowance of £10,500 (which will make many over 65s £479 better off in 2012/13 and £259 in 2013/14 than those below the age of 65 due to the normal allowances being £8,105 then £9,205 respectively).

That is worse off I hear you say?  The fact their allowance wont increase when the rest of us will see an increase in our personal allowance and theirs wont even rise by inflation?  Well you have to also consider the income side of things.  For those who don't know, state pensions have been "triple locked" by this Government, meaning that they will rise annually by the higher of inflation, earnings or 2.5%.  As a result pensions will be rising by £5.30 per week in April (£275 per year) after a similar increase of £4.50 last April, meaning next month each pensioner who has a pension (or earns) more than £10,500 will be £63 better off.  Contrast this with 13 years of Labour indicating they would like to reintroduce this but never actually doing it - instead offering up increases in the region of 75p per week, resulting in a real devaluation of a pension's value.

Should pensioners be treated differently?

In my view, again no.  I really don't understand the argument of "that person's older so they should pay less tax".  Age should be irrelevant (just like gender, race and sexuality etc) when it comes to tax, if the Government says that they want to tax income above a certain level, why should someone have a higher level just because they are older?  

For instance two people, one earning £11,000 and another receiving a pension of £11,000 per year, how can anyone assume that the second person needs £479 more money in their pocket from that figure than the first person?  In my experience if anything pensioners tend to need less.  

Remember, the poorest pensioners who have lower than £10,500 coming in each year WONT BE AFFECTED.  

There should be no presumption that because they are older a pensioner is more deserving.  We should ensure that nobody is living in poverty, irrelevant of age, removing this BENEFIT they have been receiving will just bring them into line with everyone else.  

When considering this you also shouldn't overlook the fact that it will remove a huge complexity and administrative burden from lots of pensioners.  The way the allowance is phased out requires a lot of pensioners to complete a tax return when otherwise they wouldn't.  I'm not exactly sure any of my grandparents would be capable of it if they'd hit the thresholds.  

Political fallout?

Contentiously I think this could work out well for the Lib Dems.  I've seen it suggested that the rise in the state pension is all down to the Lib Dems and the freeze in the personal allowance is all down to the Tories.  However I think this is really bad politically for them, Mark Thompson reckons it may cost them the next election and I agree that it may have a major impact.  The over 65s and those approaching that age are a core voting group for the Conservatives, so it's very surprising to see them introducing any measure that could be spun against them for this group.

When confronted with this on doorsteps, as a Lib Dem it will be easy to rebut with the introduction of the Triple Lock, we can point to our manifesto in 2010 and say we introduced it straight away, giving much higher increases than people had been used to.  It's at this point it will be easy to show how Labour failed to do this.

Labour will undoubtedly gain, but only through hypocrisy - but that's their only ploy at the moment (when did you last see a properly thought through idea from them that wasn't just anti-whatever the other lot are up to? Even when they come up with something they have no idea where the money's coming from). 

I know we don't like to think so, but pensioners are a privileged group (which is fair enough) and this will only have result in a relatively small increase on the amount of tax they'll be paying in a few years time.  As far as I'm concerned it's a good change which may be unpopular but the Tories should take the flack - win win? 

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