Friday, March 23, 2012

The budget - the facts on pensions and tax

There has been much criticism of this week’s budget, especially from the Labour opposition and the press, particularly on the issue of the freezing pensioner personal allowances.

I think it is important to look at these changes in full and to take into account other measures announced by the Government in relation to pensioners.

1. We must remember that the freezing of the personal allowance has no impact on 5 million of the poorest pensioners. Of the 4.4 million pensioners above that there is absolutely no loss in cash terms to pensioners.

2. Whereas there is an average ‘real terms’ (taking into account inflation) loss of £1.60 per week as a result of the freezing, the Government has just announced that the pension will rise by £5.30 per week. This is the biggest ever rise in the state pension and comes at a time when inflation is continuing to fall. This means spending on the basic state pension is over £1.2bn higher in 12/13 than if the Government had stuck to Labour's uprating policy – equating to £120 extra a year on a full basic state pension.

3. We must also take into account that for the Government has now frozen Council Tax in many areas across the country, this has been frozen in the East Riding of Yorkshire for two years running. This tax almost doubled under Labour but our freezes mean that for the past two years Council Tax has effectively been cut in real terms. Pensioners in particular benefit from this as they are generally on fixed incomes.

4. It must also be remembered that all pensioner benefits have been protected. Winter Fuel allowance, free TV licences, bus passes etc. The Government has of course raised cold weather payments which were recently paid to local residents in our area.

5. The poorest pensioners also benefit from the triple lock in 2012/13 through the decision to uprate the Pension Credit Guarantee Credit to match the cash rise in the basic state pension; and the Warm Homes Discount means more than 600,000 of the most vulnerable pensioners will also benefit from a £120 discount to their fuel bills.

6. In terms of other pressures such as utility bills and fuel bills the Government has acted. Fuel is now between 25-30p per gallon cheaper than it would have been had the previous Government’s plans continued. The Government cut fuel duty by 4.4p per gallon when the coalition we came in to power and we scrapped Labour’s fuel duty escalator and we also delayed there inflation rise. Despite protestations by many local MPs the inflation rise will go ahead in August but there will be no above inflation rises until oil drops to below £45 per barrel. The recent rises in fuel are because of international demand and uncertainties, issues the Government has little control over. In terms of heating bills the Government made controversial changes to feed-in tariffs to avoid rises been put on to domestic bills.

There have been a number of independent assessments of the budget. One which is worth reading is the respected Institute for Fiscal Affairs who yesterday pointed out that pensioner households for the financial year of April 2012 onwards will actually see their average incomes rise above inflation to the tune of about 0.5%. Their assessment concludes that even after all the future changes are applied, pensioner households are the least affected of any income group in the country. They also confirm that the richest in our country are the ones who will see the greatest loss of income.

Much mention has also been made of the 50p tax rate. There was a reason why Labour only introduced the 50p rate for their last 36 days in power. That being that it was recognised that it could kill investment and be hard to collect. This has now been confirmed by the independent Office of Budget Responsibility who concludes that it has not brought in what was expected. The changes to the rate cost the taxpayer £100 million but the Government has off set that by increasing other taxes on the rich that will raise an additional £500 million in return. We must have a tax system that makes those at the top pay the most but that does not deter investors. Just yesterday as a result of these changes a major employer, Glaxo Smithkline, has said that they will now create 1,000 new jobs in the UK as the budget has now made the UK a place worth investing in again.

The public finances remain in a mess. This wasn’t the Conservatives doing and the Government still has to make tough decisions to bring debt under control. The changes affecting pensioners are not targeting them and hopefully you can see from reading the above the Government has done much to shelter pensioners from the worst of the cuts.


Anonymous said...

There you go again Paul - quoting truths which don't fit the media hysteria.

Adam Wilson said...

You seem to ignore the fact that Labour regularly cancelled fuel tax rises when it was expedient. The last conservative leader who ploughed on regardless of public opion with the poll tax at the time lived to regret it. Fuel prices are crippling the country and driving inflation for all. As you point out the cost of raising pensions and social secreturity must exceed the money raised. This will be a failed tax rise that will destroy jobs and not raise any real money but will lose votes.

John in Gilberdyke said...

A week is a long time in politics! Harold Wilson (labour) I believe.

Bradley Hardacre said...

Does the chancellor have a death wish for his career? The handling of the vat on cold/hot pasty's is a battle which would have been sensible not to have started.
The vat take on the cooling cooked food will be nothing by comparison with the cost to the government and the country of the fall out. Either make all food subject to vat take(if you dare) or make all take out food free of vat. You know it makes sense Rodney!
Wage cuts are the only way to true prosperity