Granny tax hits pensioners

George OsborneLewis Whyld/PA Wire/Press Association Images

George Osborne was aiming for a Budget with something to keep everyone happy. He is said to be reeling from the backlash against his Granny Tax - the freezing and then axing of the age-related tax reliefs.

So what has he done, and why are we so angry?

Age-related allowances

Osborne announced yesterday that the age-related personal tax allowances were set for the chop.

At the moment, you get an increased allowance at the age of 65, and another increase at the age of 75. It rises by roughly £1,500 at the age of 65 and another £150 at the age of 75. It means a person aged 75 can earn £10,090 before they start having to pay tax.
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Osborne has said that this year the allowance will be frozen, so there will be no inflationary increases. This is particularly pernicious because retirees have a higher rate of inflation than the rest of the population, because the proportion of their income they spend on things like food and fuel is so much higher.

Around 4.5 million pensioners are worse off due to the decision to freeze personal allowances, and it is estimated that immediately today's pensioners will be £63 a year poorer.


Cuts

Those retiring after the beginning of April 2013 have an even tougher blow to bear, because the age-related allowances will be cut for them entirely. Michelle Mitchell, Charity Director General of Age UK, said:"This will affect those with modest pensions and savings for their retirement. Someone with an income as low as £10,500 who reaches 65 from April 2013 could be £259 a year worse than under the current system with very little time to adjust their financial retirement plans."

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Osborne is arguing that no pensioner will lose any allowances they currently receive, which he says means they won't be any worse off. However, this is a case of pure semantics, it's the loss of an allowance, and everyone will be worse off than they would if the allowance had continued increasing in line with inflation.

Impact for Osborne

Charity, Anchor, says this is a clear cut case of scrimping to save cash. With our aging population, phasing out the higher income tax allowance will provide the government with £3.3 billion over the next five years - the biggest revenue generator to emerge from the Budget, but sadly at the expense of some of the country's most vulnerable people.

TUC General Secretary Brendan Barber says it's a huge political mistake:"The Chancellor's decision to raise more than a billion extra pounds in tax from pensioners by freezing age-allowances will come back to haunt him. It's already being dubbed 'the granny tax'.

But what do you think? Is this an inevitable consequence of an aging population, or a smash and grab raid on pensioners? Let us know in the comments.

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Granny tax hits pensioners

As of April 2013, the 50p rate will be reduced to 45p following a study which Osborne claims revealed it would make little or no difference to the amount of tax raised but would significantly reduce the damage to the economy. 

The much-debated cut to child benefit was confirmed, albeit through a less direct hit than was outlined in the pre-Budget report. The benefit will be removed gradually for those earning more than £50,000 – reducing by 1% for every £100 earned over the threshold, cutting off completely at the £60,00 mark. The Chancellor had planned to axe it where one parent earned over £43,000.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

A potential winner - Osborne particularly name-checked the South East in his Budget which many assume is a veiled reference to a Heathrow expansion.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.

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A new stamp duty rate of 7% (up from 5%) will be introduced on properties worth over £2 million - widely considered a sop to the Lib Dems calling for a mansion tax. 

As was widely predicted, Osborne froze the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved the average Ford Focus owner £7 on every tank of petrol.

Alcohol is on safe ground - for the moment. Duty will remain the same but do expect an announcement on alcohol pricing.

Duty will rise on all tobacco products by 5% above inflation, which will add 37p to a packet of cigarettes.

The Chancellor naming Wallace and Gromit caused quite a commotion on the Tory backbench and was possibly the most lively moment in the Chancellor's speech. The Chancellor is intent on keeping UK TV and film productions in Britain and will ramp up support to stop the exodus of British production companies abroad.

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