Speaking on Radio Four’s PM programme yesterday, Carl Emmerson, Deputy Director of the Institute of Fiscal Studies said:
If you look just at yesterday’s announcements, it is clear that pensioners as a group will lose from yesterday’s announcements while other groups will win from what the Chancellor announced…But if you step back and say well actually let’s look at the overall plan to get the deficit down…overall pensioners as a group are suffering less on average than other groups. They’ve been sheltered from the brunt of the changes. So, for example, working age benefits on average have been cut but the basic state pension has on average been made more generous by this government.
* Paul Walter is a Liberal Democrat activist and member of the Liberal Democrat Voice team. He blogs at Liberal Burblings.
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15 Comments
You can read my FT op-ed on pensioners and the budget here: http://www.ft.com/cms/s/0/d49cd624-7414-11e1-bcec-00144feab49a.html#axzz1pt1OV44m (free but registration required)
Thanks Tim, there is already a “LibLink” post for your FT article scheduled for later today on LDV.
The Government has done really badly at getting the truth about how it is treating pensioners out.
The reality is that age related allowance, which was frozen by Labour from 2009-11, rose by £450 last year and is about to rise by a further £560 (for 65-74s) and £660 (for over 74s) this April. Only then will it be frozen at this record high level. That means that any pensioner with an income above the threshold will already be £200 or more a year better off before the freeze starts.
It is also worth pointing out that pensioners will not actually be losing any money. They will simply not receive as big a proportion of any rise in their income compared to what would have happened if the allowance had risen further.
I’ve been defending this against the usual Labour trolls (led by the husband of the Labour leader of Reading Borough Council and researcher for Fiona Mactaggart MP, who calls Liberal Democrats Nazi collaborators. What a nice man.)
Neil’s right – the Government has been appalling on this. Appallingly bad at selling what is a very good story to the most vulnerable pensioners and low-wage working-age people, that is.
You simply have to get the message out that all basic rate taxpayer pensioners will be between £755 and £1024 better off in 2013 than they were when Labour left office because the rises in state pension of £234pa in 2011, £530pa in 2012 and a minimum of £260pa (depending on whether inflation is higher than 2.5% or not) dwarf any amount of tax relief forgone.
Labour was the party that gave pensioners a rise of £37pa! (75p a week)
It’s all in the presentation, isn’t it? Osborne presented the media with a bonus surprise by not explaining clearly enough exactly what was going on. This tax year, the basic personal allowance is £7475; if you’re aged 65-74, it’s £9940. That’s £2465 extra for a pensioner, amounting to £493 in actual money. If you become a pensioner next year (or the year after, like me) you will not get that extra. Osborne’s presentation of this as a ‘simplification’ was disingenuous, and to say people will not be worse off ‘in cash terms’ is just silly.
I agree entirely that pensioners have done better (and will continue to do better) under the coalition, and should contribute to the economy fairly – but this message will continue to be obscured if we can’t explain ourselves better.
Tim Leunig makes a very strong and cogent point in his FT article.
” Once upon a time national insurance was an insurance plan against unemployment and a savings plan for retirement. Now it is income tax by any other name – except that it does not apply to pensioners. Recent moves – by both the previous and current government – to raise national insurance and cut income tax have increased the value to pensioners of this exemption. The IFS estimates that this loophole now costs taxpayers £7.2bn. ”
During the inflationary and economically challenging years of the 1970’s, we had basic rates of tax ranging from 30% to 35% at various times and a small weekly stamp for NI. Higher rate taxes were leveied on around 3% of total taxpayers.
As the basic rate of income tax has been lowered over the years, it has been largely been replaced with national insurance contributions. Today’s combined rate of 32% is little different from the situation in the 1970’s . Higher rate taxpayers are now 15% of the total and by 2016 we will have increased the number of higher rate taxpayers from 3 million in 2010 to 5 million in 2016. At this rate of growth, the majority of male homeowners will very soon find themselves paying higher rate taxes.
Tax and NI need to be combined into a single flat tax for all, including better-off pensioners, and we need to shift the focus of higher tax rates from relatively modest household incomes to wealth taxes as a means of sharing the tax burden fairly.
@mickft — Labour’s notorious 75p a week rise was worth exactly as much to pensioners then as next month’s £5.30 rise will be. That’s how indexation works. You might as well boast about the fact that the personal allowance is now 50 times what it was in Lloyd George’s day (or whatever the figure might be). You’re just boasting about inflation.
“Only” one in five pensioners is in poverty. And those are the ones we should address. My father was a senior public servant; retired early, draws a final salary index-linked pension; bought his house cheap and sold it expensive on the back of 70’s inflation and 80s speculation; goes on three cruises a year and is extending his latest house. Why – why – does he get extra personal allowance, free TV; free bus pass; winter fuel allowance? It’s horrific cowardice on the part of the Coalition that they don’t do more to address this subsidy of rich pensioners.
@David
If your father is doing all that, I’m guessing that his total income is in excess of £30k in which case he isn’t getting extra personal allowance: unless he has a very clever accountant.
@Joe Bourke
Yes Tim does make a strong point in his article. However just because the purpose of NI has been distorted by successive governments into making it a tax on employment income – just so that they can make claims about not raising income tax, does not mean that the differences in application of NI and Income tax is a loophole and costing taxpayers real money; such a viewpoint assumes the validity of the government (and Treasury) distorted view on their entitlement to a larger slice of our earnings.
Remember the only reason the government is having problems making ends meet and requires higher tax revenues is that it hasn’t been ‘prudent’ in its budgeting and expenditure.
@mickft
Just don’t try selling an increased state pension of £5.30 per week as one of £530 per year, if you don’t want to look ridiculous.
Roland,
an increasing reliance on NI in place of income tax not only shifts a significant burden from pension income to employment income but also away from taxes on unearned income. In addition, multiple new taxes have been invented to partially fill the gap – Insurance premium tax, airline passenger duty, landfill tax etc.
Public sector spending has rarely fallen below 40% of GDP since the war and is unlikely to do so on the basis of our settled social compact. We are relying on above average economic growth to get us back to a manageable fiscal position. Even if and when it does so, demographic changes appear to herald continuing upward pressure on ongoing health, social care and pension costs. I think this may quite likely mean a continuation of “the government (and Treasury) distorted view on their entitlement to a larger slice of our earnings.”
@Joe
“Public sector spending has rarely fallen below 40% of GDP since the war”
Using the data for 1950~2010 from http://www.ukpublicspending.co.uk/spending_chart_1950_2010UKp_11s1li111mcn_F0t
Gives an average of just under 40%. I’ve not included the immediate post war years which would of pushed the average upwards as I don’t believe that those years could really be considered as reflecting normal economic conditions. I suggest that looking at the data set with respect to periods of general prosperity it would seem that in these periods we managed to keep public spending in the 35~40% bracket. So I would hypothesize that getting and maintaining public spending in this bracket is both achievable and sustainable in the long term and would benefit our economy.
The problem with unearned income (both legitimate and illegitimate) is how to identify it and tax it. This I believe was part of the rational for the introduction of VAT, a tax on spending. I don’t believe that landfill tax and airline passenger duty were introduced as a form of VAT, although I accept that over time the government has/is using them (and other taxes) in that way in addition to their original purpose.
Roland,
thanks for the link to the chart. There does seem to be a broad political consensus that an average of 40% over the economic cycle is about the right level, or even if its not – it is what the outturn will be anyway..