Friday, March 23, 2012
Putting things into perspective
Over at the Joseph Rowntree Foundation Blog, Gordon Hector brings a little bit of perspective to the wholly misleading and distorted view of the Chancellor's decision to freeze the Age-related tax allowance. He starts by putting it into the wider context of Coalition policy:
They returned the earnings link for pensions. They introduced the ‘triple lock’ meaning it rises by earnings, prices, or 2.5%, whichever is highest. This Budget confirmed the state pension will be going up by 5.3%. Auto-enrolment is on the way. Pensioners were one of the big winners in the past 15 years – seeing a significant and sustained drop in poverty rates and despite arguments about the effect of quantitative easing, unsurprisingly, this Government doesn’t want to challenge that progress.
Second, look at the policy on its own merits. The reason it raises so much, and the reason it’s possible to describe it as a ‘multi-billion raid on pensioners’ is simply because there are huge numbers of older people - not because an entire generation is being pushed into penury. Poorer pensioners earning less than the allowance (£10,500-10,650 depending on age) won’t be affected. Nor will richer ones, who already lose the allowance if they earn more (£24-29,000). So it’s a change that hits the middle: an average of £84 this year, and £197 next (according to the Treasury). Obviously not good for them, and if you’re just over the threshold it will mean proportionally more. But hardly the apocalyptic tax that’s been described in the papers.
Third, it’s been reported as though this is a seismic shift in politicians’ treatment of older people. It isn’t. I think the reaction is overblown, and largely due to the fact it was the only Budget measure that wasn’t leaked. Changing the age-related allowance is not the slaughtering of some sacred cow.
As he says, the reaction, whilst understandable is largely hyperbole. Nobody will lose in cash terms, and in real terms any loss will be more than cancelled out by the record increase in pensions this year.
What is most interesting though is that this is not the first time the Age-related Allowance has been frozen. Despite the artificial indignation of Labour politicians the previous Labour Government froze the allowance between 2009 and 2011. What a bunch of hypocrites.
Update: I was astonished to read in the Western Mail that the Older Persons’ Commissioner has waded into the debate on the so-called ‘Granny Tax’, but more so that she has got all her facts wrong.
Contrary to Ruth Marks claim that pensioners will be ‘significantly worse off...paying £259 more in tax on an income as low as £10,500’ and that many older people face a ‘potential loss of income’, the reality is very different indeed.
The changes in the age related allowance do not start until 2013/14. The Government’s triple lock guarantee means that the state pension is currently forecast to rise by £130 more a year in 2013/14 than it would have under Labour’s uprating policy. Half of those over the age of 65 pay no income tax, and nobody will pay more tax in 2013/14 than 2012/13 as a result of these measures. There are no cash losers.
The maximum loss in 2013/14 from the Age Related Allowance freeze for current pensioners is £66. That is balanced against the £5.30 a week rise in the old age pension effective from April this year that will put another £275 into the pocket of every pensioner.
It is also curious that the Older Person Commissioner did not make similar protests when the previous Labour Government froze the allowance in exactly the same way in 2009. Why does she feel the need to do so now? Perhaps she should check her facts before wading into a debate in the future so as to avoid unduly alarming pensioners in this way.
They returned the earnings link for pensions. They introduced the ‘triple lock’ meaning it rises by earnings, prices, or 2.5%, whichever is highest. This Budget confirmed the state pension will be going up by 5.3%. Auto-enrolment is on the way. Pensioners were one of the big winners in the past 15 years – seeing a significant and sustained drop in poverty rates and despite arguments about the effect of quantitative easing, unsurprisingly, this Government doesn’t want to challenge that progress.
Second, look at the policy on its own merits. The reason it raises so much, and the reason it’s possible to describe it as a ‘multi-billion raid on pensioners’ is simply because there are huge numbers of older people - not because an entire generation is being pushed into penury. Poorer pensioners earning less than the allowance (£10,500-10,650 depending on age) won’t be affected. Nor will richer ones, who already lose the allowance if they earn more (£24-29,000). So it’s a change that hits the middle: an average of £84 this year, and £197 next (according to the Treasury). Obviously not good for them, and if you’re just over the threshold it will mean proportionally more. But hardly the apocalyptic tax that’s been described in the papers.
Third, it’s been reported as though this is a seismic shift in politicians’ treatment of older people. It isn’t. I think the reaction is overblown, and largely due to the fact it was the only Budget measure that wasn’t leaked. Changing the age-related allowance is not the slaughtering of some sacred cow.
As he says, the reaction, whilst understandable is largely hyperbole. Nobody will lose in cash terms, and in real terms any loss will be more than cancelled out by the record increase in pensions this year.
What is most interesting though is that this is not the first time the Age-related Allowance has been frozen. Despite the artificial indignation of Labour politicians the previous Labour Government froze the allowance between 2009 and 2011. What a bunch of hypocrites.
Update: I was astonished to read in the Western Mail that the Older Persons’ Commissioner has waded into the debate on the so-called ‘Granny Tax’, but more so that she has got all her facts wrong.
Contrary to Ruth Marks claim that pensioners will be ‘significantly worse off...paying £259 more in tax on an income as low as £10,500’ and that many older people face a ‘potential loss of income’, the reality is very different indeed.
The changes in the age related allowance do not start until 2013/14. The Government’s triple lock guarantee means that the state pension is currently forecast to rise by £130 more a year in 2013/14 than it would have under Labour’s uprating policy. Half of those over the age of 65 pay no income tax, and nobody will pay more tax in 2013/14 than 2012/13 as a result of these measures. There are no cash losers.
The maximum loss in 2013/14 from the Age Related Allowance freeze for current pensioners is £66. That is balanced against the £5.30 a week rise in the old age pension effective from April this year that will put another £275 into the pocket of every pensioner.
It is also curious that the Older Person Commissioner did not make similar protests when the previous Labour Government froze the allowance in exactly the same way in 2009. Why does she feel the need to do so now? Perhaps she should check her facts before wading into a debate in the future so as to avoid unduly alarming pensioners in this way.
