The pensioner lobby has been predictably and tiresomely strident about
George Osborne’s ‘granny tax’. Ros Altmann, Director-General of Saga, called the move to bring pensioners’ tax allowances into line
with everyone else’s an ‘outrageous assault on decent middle-class pensioners’. It’s nothing of the sort. In fact, it’s high time that pensioners start to contribute
to the unprecedented fiscal squeeze we’re going through — and here are the three main reasons why.
First, they’ve contributed next to nothing to the deficit reduction programme so far. Better-off pensioners are set to lose just over 1 per cent of their income from the changes planned by
2014, according to the IFS. Meanwhile, lower-income families with
children — the other main beneficiary of the state’s largesse — will see around a 6 per cent loss.
Second, when all the dust has settled, pensioners are still going to be much better off than anyone else on a similar income. On the tax side, even if the uniform personal allowance were to come
into force this April, a pensioner on £20,000 would expect to pay £2,379 in tax. But a working-age person on the same income would pay £3,868 — 63 per cent more tax —
thanks to National Insurance. Doesn’t that seem the wrong way round since most pensioners don’t have housing costs or children to pay for? Income and outgoings aside, the over-60s are
sitting on around half of all net property wealth in the UK, compared to just 15 per cent for those under 45. The contrast with working-age families could not be starker.
Third, even after this cut to the age-related allowances, policy is set fair for pensioners. The ‘triple lock’ on the basic state pension means that it will grow faster, on average,
than the prosperity created by the working-age population, taking an ever greater share of national income. And the Dilnot Commission proposals for long-term care will, rightly, involve new costs
for working-age taxpayers.
Perhaps the pensioner lobby don’t realise that times are tough, or maybe they don’t care how much is taken from working age people to protect their perks as we repair the public
finances. The National Association of Pension Funds yesterday echoed a common refrain from pensioners
that they’ve ‘paid into the tax system all their working lives’. Indeed they have, just like everyone else, but they clearly didn’t pay enough or the country’s
finances wouldn’t be in the state they are. Amid this unedifying reaction from the pensioner lobby, one is tempted to ask: what ever happened to the British stiff upper lip?
But in these times of austerity, balancing the Treasury’s books is a zero sum game. It’s time working age people realised this and began to argue back and insist that the fiscal pain be
more fairly shared. Unless we want some kind of dynastic welfare state — in which grandparents become agents of the state in distributing hand-outs for those lucky enough to be in a
well-to-do family — this Chancellor and his successors will need to look for more savings at the expense of better-off pensioners. When he does, let’s hope for a more balanced debate.
Ian Mulheirn is the Director of the Social Market Foundation.