Press Story

George Osborne was right to freeze pensioner tax allowances in his Budget yesterday, according to think tank IPPR.

Kayte Lawton, IPPR Senior Research Fellow, said:

"While the way that the Chancellor announced 'granny tax' in the Budget was a political own goal, the policy change is the right thing to do.

"It is time for older people to share some of the burden of deficit reduction. Older people have been relatively protected from welfare and spending cuts so far. By contrast, younger people have had to give up entitlement to EMAs, the Future Jobs Fund and have experienced the highest unemployment since comparable records began in 1992.

"IPPR analysis shows that the greatest losses will be felt by relatively better-off pensioners: pensioner households in the fourth income quintile."

For more detail, and a graphic showing IPPR's distributional analysis, contact the IPPR press office.

IPPR argues that it is time for older people to share some of the burden:

Older people have been relatively protected from welfare and spending cuts so far, while many have fallen on younger people (e.g. scrapping of EMAs and Future Jobs Fund), who are also experiencing high unemployment
Many older people also did well from the economic boom that preceded the recession - particularly from rising house prices that have priced many young people out of the housing market
An ageing population and increasing demands on public services mean that we need to make some tough choices about spending in the long-term - cutting back on tax breaks for older people is good start

IPPR analysis shows the move takes more from better off pensioners:

Freezing age-related allowances will cost pensioners around £220 by April 2016
IPPR analysis shows that the greatest losses will be felt by relatively better-off pensioners - the greatest losses are for pensioner households in the 4^th income quintile, where households will be worse off by an average £347 a year by April 2016
But the poorest fifth of pensioner households will be worse off by just £7 a year - because most will not have an income high enough to benefit from the age-related allowance
The richest fifth of pensioner households lose less than those in the 4^th quintile because the age-related allowance is only available for pensioners with income below £24,000 - so the wealthiest pensioners are not affected by changes to the allowance

IPPR also argues the personal allowances are a historical anomaly:

Multiple personal allowances in the income tax system add complexity, without a logical case to vary allowances by age: a good question to ask of any rule in the tax system is, 'if it didn't exist, would we invent it?' - the answer on age-related allowances is almost certainly 'no'.
Age-related allowances are a historical anomaly created nearly 100 years ago - the number and living standards of pensioners have changed dramatically since then.
There are better ways of helping low-income pensioners (e.g. decent basic state pension) - poor pensioners only account for a fifth of the total (most pensioners aren't poor / deprived)

Notes to Editors

More than a million (1,042,000) young people (aged 16-24) are now unemployed, and a rise of 67,600 in the last year. More than a quarter of a million, 253,000 young people (aged 16-24) have been unemployed for more than a year. An increase of 24,900 over the last year.

Before the Budget, IPPR called for a temporary 2p cut in employee national insurance, funded by a mansion tax of 2% on houses over £2 million: http://www.ippr.org/articles/56/8885/just-one-thing-cut-national-insurance

IPPR's report - '10 ways to promote growth' - is available to download from http://bit.ly/IPPR8266

It argues for extra funds for the Green Deal to be used to take the scheme to scale by subsidising charges for installing energy efficiency measures and to subsidise the guaranteed employment of young unemployed people out of work for more than 12 consecutive months, matched by an obligation to take up the offer. It also argues for an increase in infrastructure spending of £10 billion in 2012/13 and the creation of a British Investment Bank operational by April 2013.

IPPR's report - 'Deficit Reduction Averaging' - is available from http://bit.ly/dZLfRH

It argues for the deficit to be reduced at a slower and flexible pace that averages depending on the strength of the economy.

IPPR's report - Jobs for the Future: The path back to full employment in the UK - is available from http://www.ippr.org/publications/55/7938/jobs-for-the-future-the-path-back-to-full-employment-in-the-uk

Contact

Richard Darlington, 07525 481 602, r.darlington@ippr.org

Tim Finch, 07595 920899, t.finch@ippr.org