ANALYSIS:WITHIN MINUTES of George Osborne sitting down in the House of Commons, a measure buried in page 35 of his Budget Red Book that will freeze tax allowances for pensioners had already been nicknamed "the granny tax".
Such moments are potentially the kiss of death for any politician, particularly one who in the same speech cut the top rate of tax imposed on those earning more than £150,000 a year from 50p to 45p.
Currently, pensioner tax allowances are £2,400 higher than those enjoyed by everyone else. Osborne now plans to freeze the OAP rate from April 2013 until they come into line, a process that could take several years. The measure is not trifling. It will affect 4.5 million people, possibly more. It will cost the average pensioner £80. People soon to become pensioners will be £190 worse off than they would be if Osborne had not acted. Leading lobby group Age UK warned it could cost a pensioner living on £10,000, £259 a year.
By 2016/17, it will have saved the treasury £3 billion, fuelling Labour leader Ed Miliband’s charge that Osborne had come up with “a millionaire’s budget”, despite Osborne’s decision to increase the old age pension by over £5 a week.
Justifying his decision to end the 50p rate, which was left behind by Labour as a hand grenade on the treasury’s books, the chancellor said it was not raising money, even though the analysis is based on just one year’s figures.
Even those figures exist on weak foundations, as acknowledged by the Office for Budget Responsibility, since high earners moved £16 billion into the 2009/10 tax year to avoid its introduction in 2010/11. The change cost just £100 million.
Witheringly, Labour’s Ed Balls said Osborne was gambling that pensioners do not understand tax allowances. The real bill will be a £3 billion tax saving for 300,000 high earners next year, while the £100 million only becomes accurate if tax exiles come back to pay £2.9 billion.
Insisting that the 45p rate will be self-financing, since it will produce extra VAT receipts, the treasury argued later that a string of higher property taxes on homes worth more than £2 million – to clamp down on stamp duty-avoiding “super-rich” – will produce £500 million a year.
Osborne pointed out in the face of Labour jeers that he has cut the amount minimum wage earners pay in tax by half since he came into office.
Tax-free allowances will rise in April 2013 to £9,025, which will allow the Liberal Democrats – who need something to boast about – that one of their central objectives, the £10,000 allowance, is now within touching distance.
Adopting Churchillian tones, Osborne said: “No people will strive as the British will strive. No country will adapt as the British will adapt.”
He must hope that those who actually do remember Churchill will not retaliate.
UK budget: Main points
* Top rate of tax cut from 50 per cent to 45 per cent for those earning above £150,000. Corporation tax is cut to 24 per cent and to 22 per cent by 2014.
* Film tax credit extended to video games, animation and high-end television shows.
* Owners of homes worth more than £2 million will have to pay a 7 per cent stamp duty.
* Personal allowance rises to £9,205 from April 2013.
* Pensioners’ personal allowance frozen until in line with others’ allowance.
* State pension age to rise automatically with longevity.
* Duty on tobacco up 5 per cent.
* Public service pay freeze possible in regions where it outstrips private sector levels.
