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A defence of the 'Granny Tax'

By Tim Montgomerie
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On his blog Bagehot (David Rennie) wrote a defence of the "granny tax" that George Osborne should have given in Wednesday's Budget (I hope he and The Economist will forgive me for a lengthy reprint):

"To help working families on low incomes, I am increasing the basic personal income tax allowance to within sniffing distance of £10,000 pounds a year. But I need to pay for that. Part of the money is going to have to come from middle-income pensioners. Now, that may feel desperately unfair—even frightening—to older people who cannot go out to work and earn more money when funds are tight, and who are already feeling the pinch as a result of low interest rates and rising prices.

But I would point out that pensioners have been expensively shielded against inflation by the so-called "triple lock", this government's guarantee that pensions would be measured against three different indicators each year, and uprated by whichever is the highest. That is why pensioners are about to see a 5% rise in the state pension, when most workers had to settle for a 2% pay rise last year. That protection has cost this government an absolute fortune.

I also know that something else makes many pensioners anxious: a sense that their children and grand-children are struggling to get ahead, or even enjoy the same standard of living as their elders. I hear all the time about pensioners struggling to help their children put down deposits on first homes, after a multi-decade property boom that has seen houses in some areas increase in value one hundredfold in just 40 years, lifting even modest family homes way out of the reach of those on ordinary incomes. I know that many grandparents fret about how the next generation seems to be falling further and further behind.

I don't imagine that every pensioner is living in clover. But at a time of great social inequality, when many 20-somethings or young families are struggling to live anywhere near where they grew up and today's workers doubt that they will ever be able to afford to retire, I believe it is no longer possible to justify giving pensioners on middle incomes a tax privilege that the working young do not enjoy. In the name of solidarity between the generations, and with that triple-lock guarantee against inflation untouched, I am asking frugal, hard-working, middle-class pensioners to do their bit for the country. I am confident that they will agree."

Beautifully written.

My only hesitation in fully endorsing those words is my concern that George Osborne is proving to be more inventive when it comes to ways of taxing us than finding ways of cutting the UK state. In his Telegraph column yesterday Fraser Nelson wrote of "slow motion spending cuts". Most people in Britain would, I suspect, think the government had cut by 5% or more already. In reality, as Fraser blogged, the cuts are only about 1% per year. Increasingly Osborne is backloading them so the pain will be felt not so much tomorrow or next year but in 2014, 2015, 2016 and 2017. This is highly dangeous. I did Any Questions? last night with Francis Maude and he got jeered for making the perfectly reasonable point that he and other ministers are taking tough decisions because the last Labour government left the country in terrible debt. Any Questions? audiences may not be typical but there is a real danger that the country will get bored with the Government's explanation for what might feel like never-ending austerity. If spending cuts were deeper we'd have less need for ganny taxes, pasty taxes and higher and higher fuel duty. We'd also have more economic growth and as Howard Flight writes on Comment today, George Osborne is moving growth policy in the right direction but far too slowly.


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