Shadow Chief Secretary to the Treasury Rachel Reeves explains just how regressive George Osborne’s ‘granny tax’ is.
Rachel Reeves MP (Labour, Leeds West) is the Shadow Chief Secretary to the Treasury
Today in Parliament, Labour’s Treasury team led a debate on the government’s so-called “granny tax”. This year’s finance bill includes a clause that freezes age-related personal allowances for those currently entitled to them while abolishing them completely for those approaching retirement.
As announced in George Osborne’s March budget (pdf), this measure is designed to raise an extra £83 a year from 4.4 million older people on modest incomes, and an average £285 from 360,000 people reaching 65 next year.
We have been firm in our opposition to this measure because adding to the financial pressure felt by older people on modest incomes is unfair and unnecessary when the government is using the proceeds to fund an irresponsible tax giveaway for millionaires.
Moreover, the way the measure has been introduced adds insult to injury, breaking a promise made just a year ago by the chancellor, and using the language of tax “simplification” to cover up what is actually a simple tax grab.
There has been some mythmaking in the media about how older people in this country have been having it easy, and how only well off pensioners will be hit by this measure. This is far from true.
We need to remember the situation most pensioners face, which is that they don’t have ways of making up for a loss of income by going out and finding work. As a result they are particularly vulnerable to rises in the cost of living and unanticipated changes to their financial circumstances. Indeed, this is why old age relief was introduced by Winston Churchill in 1925.
Moreover, pensioners have already been hard hit by this government.
The Winter Fuel Allowance has been cut; pensions have been indexed to a lower measure of inflation; the increase in the state pension age for women has been brought forward; and last year’s VAT rise added £275 to the costs faced by an average pensioner couple.
Analysis by the Institute for Fiscal Studies confirms that as a result of tax and benefit changes implemented by this government, pensioner households have seen their incomes fall by 1.4 per cent. Most have little prospect or opportunity to make up that loss.
Cuts to vital services like the NHS, social care and local transport also hit older people harder. Distributional analysis of the 2010 Spending Review showed that, on average, pensioner couples were set to be hit by cuts to services they use amounting to £1,275 a year, or 6 per cent of their household income, while single pensioners stood to lose services worth £1,305 a year, or 11 per cent of their income.
And as we heard from the Treasury select committee this week, many pensioners are also paying a price for the government’s failure to get the economy moving, because it means government is relying on the Bank of England to undertake more Quantitative Easing to prevent the economy sinking deeper into recession, which means annuity rates and returns on pensioners’ savings are lower.
And it adds insult to injury for the prime minister and other members of this government to tell pensioners they should be grateful for a rise in the basic state pension that merely matches the rate of inflation. That’s not a rise, it just keeps things level at a time when the cost of food is going up, the cost of fuel is going up, and it is getting harder and harder to make ends meet.
It’s also misleading to suggest only well off pensioners will be affected by this measure.
As Left Food Forward reported this morning, analysis we have commissioned from the House of Commons Library shows the vast majority of people losing out from this measure will on below average incomes, and that a small personal or occupational pension of just £67 a week, or little more than £3,000 a year, would be enough to put them in the firing line.
Meanwhile, the richest ten per cent of pensioners will not be affected.
These are not a privileged few living a life of luxury in retirement, but millions of people who have worked in ordinary jobs and who have managed to set aside just enough to give them a small pension that relieves them of reliance on means-tested benefits, and allows them to have some security in retirement.
Pensioners with modest savings are also losing in other ways. Savings credit is being reduced and restricted, and has now been targeted for abolition under the chancellor’s latest plans, costing more than 100,000 new pensioners as much as £897 a year.
So the idea pensioners have been protected from the squeeze on living standards is simply untrue. It’s divisive and distorts reality, concealing the fact many older people are under real pressure, and are especially vulnerable to the impact of cuts and the current economic conditions. We should be doing what we can to help them, not seeing them as a soft target for stealth taxes.
In fact, the only people insulated from the impact of this government’s unfair choices and economic failures are the wealthiest. For the prime beneficiaries of this, the biggest revenue raiser in the budget, won’t be poorer pensioners, or families with children, or young people looking for work. Nor is the money being used to reduce government borrowing.
Instead the money is being spent on a £3 billion tax give-away for the richest one per cent of our society – another measure Labour sought to stop in Parliament this week. The fact the government were said to be surprised by the anger this has aroused shows just how out of touch they are with the tough reality faced by most people today, and how far they have strayed from the values and priorities of the British people.
Times are tough for most people right now, and dealing with the deficit means tough choices on tax, spending and pay. But that makes it even more important to be fair. That’s why Labour MPs voted against this measure today. Unfortunately, however, Conservative and Liberal Democrat MPs chose to vote it through.
But it’s not too late to stop this unfair tax rise which takes effect next April; this is not the end of our campaign, but the beginning.