Pensioners emerge as the big Budget 2012 losers

21 March 2012

Chancellor George Osborne has been accused of introducing a stealth "granny tax" in Wednesday's Budget.

The Chancellor announced that the age-related personal allowance - which allows pensioners to have a larger income of tax-free cash than working people – is going to be phased out.

The allowance has been frozen at £10,500 for people who are over 65, or £10,650 for the over-75s. While people turning 65 in the future will see no increase in their personal allowance.

The move is expected to cost future pensioners an average of £285 a year, according to Treasury figures. It will affect up to five million older people who will pay an extra £3.3 billion in income tax over the next four years.

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"This is an outrageous assault on decent middle-class pensioners," says Ros Altmann, director-general at Saga. "This Budget contains an enormous stealth tax for older people. There is nothing in this Budget for savers, there is nothing to improve the annuity market, nothing to appease the damage of quantitative easing and nothing to support ISA changes and shelter older people's money in cash. This Budget is terrible news for pensioners."

The tax-free personal allowance – which decrees how much we can all earn before we start paying income tax – is set to rise to £9,205 next year, and its believed that ministers felt it was no longer justifiable to give pensioners an extra allowance.

"The decision to freeze the age-related personal tax allowances effectively means around five million pensioner tax payers will no longer get additional reductions in their tax over the coming years - whilst those on the top rate of tax will see their bills reduced," says Dot Gibson, the general secretary of the National Pensioners Convention.

"Many older people will feel they are being asked to forego their reduction in tax to help out the super rich. There's no fairness in that."

The increased allowance for pensioners was originally introduced by Winston Churchill in 1925 in recognition of the fact that pensioners have lower average incomes and have paid tax all their lives.

Visit our Budget 2012: Round-up page for all the reaction to Wednesday's Budget

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