Pensioners hammered by Osborne stealth tax

The Chancellor promoted his third Budget as one for Britain's "working families", which took money from the better-off to help low and middle-income households.

"Together, the British people will share in the effort and share the rewards. This country borrowed its way into trouble; now we are going to earn our way out," Mr Osborne told MPs.

Labour fiercely attacked the scrapping of the 50p top rate of income tax and branded the set-piece economic statement a "millionaires' Budget" while the TUC said it was a "Budget for the rich by the rich".

John Swinney, the Scottish Finance Secretary, claimed it "failed the growth and fairness test", noting: "At a time when growth is very low in the economy and significant stimulus is required, the Chancellor has allocated next to no new resources and taken no major initiatives to support this effort."

However, last night what has already been dubbed a "granny tax" cast a shadow over the annual Commons ritual. The higher age-related allowances those over 65 receive are to be frozen as part of the UK Government's plan to simplify the tax system; in practical terms, millions of pensioners will, over the next few years, receive less than they expected to but in so doing will save the Coalition more than £3bn over three years.

Senior Liberal Democrat sources were swift to distance the party from the highly contentious move, telling The Herald: "This is a Tory idea."

Ros Altmann, director-general of Saga, described it as "an outrageous assault on decent middle-class pensioners".

She said: "This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,000 and £24,000 will be paying an extra £3bn in tax while richer pensioners are left unaffected."

Dot Gibson, of the National Pensioners' Convention, echoed the point, saying: "Many older people will feel they are being asked to forgo their reduction in tax to help out the super-rich. There's no fairness in that."

Geraldine Bedell, editor of social networking site Gransnet, noted: "The Chancellor is in danger of encouraging a new era of grey activism."

The Treasury explained some pensioners found the allowances hard to understand and what was being proposed was a "major simplification" of the tax system, bringing all personal allowances into a single uniform payment over the next few years. A departmental source also stressed half of pensioners did not pay tax, the state pension was having its largest increase ever and a simpler flat-rate pension of £140 a week would be introduced.

He made clear there would be "no cash losers" under the changes, yet admitted: "They would be worse off than they would have been if we had not made this change."

The source added: "It raises more than £1bn so it is a controversial decision, definitely."

Last night, Danny Alexander, Chief Secretary to the Treasury, stepped in to defend the scrapping of the age-related allowances, saying it was a "necessary simplification". He added: "Within the context of everything we are doing for older people, it is a fair change."

However, Rachel Reeves for Labour said

Mr Osborne had tried to "bury his £3bn 'granny tax' raid on pensioners", which would mean millions of pensioners who pay tax "losing an average of £83 per year next April and people turning 65 next year will lose up to £322".

She added: "He added insult to injury by dressing up a tax grab as a 'simplification' and claiming he was taking this money away from pensioners because they could not understand the allowances they were entitled to."

The Chancellor's hour-long Budget was punctuated by two well-trailed decisions: scrapping the 50p tax rate and raising still further the tax-free allowance.

The tax cut will mean the top rate will fall to 45p from April 2013; Conservatives want it to fall to 40p by 2015 but this would cost the Exchequer another £600m.

The Chancellor told MPs an official report into the 50p rate showed it raised "at most a fraction of what we were told and may raise nothing at all".

Mr Osborne insisted: "No Chancellor can justify a tax rate that damages our economy and raises next to nothing. It's as simple as that."

However, Ed Miliband branded the economic statement a "mil-lionaires' Budget" that espoused the "wrong choices, wrong priorities, wrong values". He described Nick Clegg sitting alongside David Cameron as the Prime Minister's "hapless accomplice".

Yet, when Mr Osborne touched on the Government's decision to raise the tax-free personal allowance still further, the Deputy Prime Minister raised a smile while his LibDem colleagues enthusiastically waved their order papers above their heads.

Mr Clegg later declared it was "a Budget every Liberal can be proud of".

The Chancellor made clear the central goal of his Budget was to "support working families" and the best way to do this for low-income workers was to take them out of tax altogether. Thus, from April 2013 the personal allowance that was due to rise to £8735 will now rise to £9205. This means the goal of reaching £10,000 by 2015 will now be achieved in 2014.

Mr Osborne said millions would be better off to the tune of £220, or £170 after inflation, every year. He stressed that because high-rate earners would also benefit, 24 million people earning less than £100,000 – including two million Scots – would gain.

Changes to the 40p tax band – the threshold will be reduced from £42,475 to £41,450 from 2013 – will mean 300,000 more people will be drawn into the higher rate. However, Treasury sources made clear these people would still benefit from the tax changes.

The Chancellor offset the 50p tax cut by upping stamp duty on properties worth more than £2m from 5% to 7% and made clear he was intent on targeting tax evasion and avoidance, describing it as "morally repugnant". Anyone trying to buy a £2m home through a company would face a punitive 15% stamp duty rate.

There was brighter news for business as Mr Osborne announced another 1% cut in the rate of corporation tax from next month to 24%. He said by 2014 the rate would be 22%, which was "dramatically lower" than Britain's competitors, and hinted he wanted it eventually to fall to 20%.

The Budget also contained major tax changes to boost oil and gas extraction in the North Sea, along with a new £3bn field allowance for the west of Shetland.

Enhanced capital allowances for businesses will help firms in the new Scottish enterprise zones in Dundee, Irvine and Nigg, while tax relief for the video games, animation and high-end television production sectors will also benefit com-panies in Scotland.

Given the outcry over cuts to child benefit and the fact that a single higher rate tax earner on £42,000 would lose out while a couple jointly earning £80,000 would not, Mr Osborne tweaked the measure.

The benefit will now be phased out when someone in a household has an income of more than £50,000. The "cliff-edge" will also be removed as it will fall by 1% for every £100 earned over £50,000. Only those earning more than £60,000 will lose the entirety of the benefit.

The Chancellor also warned of new cuts to welfare payments with the need to find additional savings of £10bn by 2016.

He rejected calls to cut fuel duty to relieve the pressure on motorists struggling with record petrol prices.

Mr Osborne also dealt a blow to smokers, saying duty on all tobacco products would rise by 5% above inflation – slapping 37p on a packet of cigarettes from 6pm yesterday.

Drinkers escaped relatively unscathed with no additional increases in alcohol duty, although the previously announced 5% hike in duties will go ahead, adding 5p-10p to the price of a pint of beer in the pub.

Meanwhile, the Chancellor predicted slightly better-than-expected economic growth with the Office for Budget Responsibility (OBR) expecting Britain to avoid a recession with positive growth in the first quarter of this year.

He said the OBR had reported the UK economy had "carried a little more momentum into the new year than previously anticipated", slightly revising upwards its growth forecast for the UK this year to 0.8% from 0.7%.

The independent forecaster is now predicting growth of 2% next year, 2.7% in 2014 and 3% in both 2015 and 2016.

Mr Osborne said public-sector borrowing was now set to come in at £126bn this year, falling to £120bn next year and then dropping back to £21bn by 2016/17.

l The Commons Treasury Com-mittee is to study the Budget for evidence that details were leaked before it was delivered to Parliament. It wants to establish, having previously criticised leaks and advance briefings, describing it as "corrosive of good government, whether pre-Budget presscoverage was educated guesswork or briefed by the Treasury".

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