Back to the drawing board, George

A slap in the face is what Chancellor George Osborne has given some five million pensioners in general and this column in particular. Last month I urged him to look hard at age allowances and see how they could be improved for our generation.

Well, the answer came loud and clear in last month’s Budget. Osborne doesn’t give a damn for the elderly, who didn’t merit any mention in his speech other than the disgraceful line about the “rising costs of the ageing population and the burden this places on the future generations”.

His “saving” of some £3.25 billion (over four years) at their expense wasn’t spelt out.

What’s more, Osborne clearly hasn’t listened to the voice of his own creation, the Office of Tax Simplification (OTS). He used the OTS comment that the age allowance was particularly complicated to defend his own decision to axe this tax break.

What Osborne did not go on to say is that the OTS outlines no fewer than 12 – yes 12 – ways in which the tax system for pensioners could be simplified. It made no recommendations because its final report, with recommendations, will not be published until later this year.

What on earth is the point of setting up a body specifically to look at how the tax system could be improved for the elderly – and then pre-empting its recommendations?

The measures the OTS has put up for consideration include giving pensioners a tax reduction, disregarding a certain level of savings income for tax purposes and changing the age at which the allowance is given.

In respect of the level of age allowance, suggestions range from letting it wither on the vine until ordinary personal allowances catch up, to the one I favoured in my last column which was to raise the cut-off point for the age allowance (when it reverts to the basic allowance) to the level where higher rate taxes bite.

Osborne doesn’t give a damn for the elderly, who didn’t merit any mention in his speech

What will happen to the final report of the OTS? Bluntly, it now seems a waste of time for it to continue with its valuable work in respect of pensioner taxation. The diminution and demise of the age allowance, the extra tranche of personal allowance which benefits the mid-income 65-year-olds, has been condemned.

Of course, you would expect Dr Ros Altmann, director general of age-oriented group Saga, to label the move as a stealth tax directed at the elderly. But the Institute of Fiscal Studies (IFS), noted and respected for its objectivity, has criticised the introduction of this huge change in the taxation of the elderly. More notice should have been given, said IFS director Paul Johnson, to give those coming up to retirement more time to plan.

What would have happened if Osborne had heeded this advice and given notice that the system of age allowances would rise in line with the basic personal allowance increase in the coming tax years?

Chartered accountants Blick Rothenberg has done the sums. Instead of remaining frozen at £10,500 (the level for tax year 2012-13) the age allowance for 65 to 74-year-olds would rise to £11,925 and from £10,600 to £12,107 for the 75-plus age group. The level where the allowance starts to be extinguished until it falls to the standard personal allowance would be £26,873 rather than £25,400.

Change your mind, Chancellor, and implement these changes.

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