...a blog by Richard Flowers

Friday, March 23, 2012

Day 4100: The Shocking Truth – Who is Worse Off under the Granny Tax


It warms my fluffy heart to see the great and the good of the left (La Pollyanna Toytown and chums) manning the barricades on behalf of those who don't earn enough to benefit in this week's budget, who face more cuts to welfare and tax credits and who...

Sorry, what's that?

They're ACTUALLY kicking up a fuss about people who ALREADY get extra benefits being told they're getting even more on top?


From the HOWLS and CARTOONS you'd think that Gideon was PHYSICALLY removing tenners from old ladies' purses and stuffing them into the thongs of passing Fat-Cat-Monsters.

(And why GRANNIES not GRANDDADDIES, I am not alone in asking. And does this only apply if you have offspring who have offspring?)

The truth is the rather-more-nuanced: "He's not sticking an extra tenner INTO the Grannies' (etc) purses".

(Something that the Hard Labour HYPOCRITES were doing for YEARS on the sly, but when Gideon is naive enough to TELL people what he's doing, they go all SHOCKED MITTENS.)

So who IS going to have to pay MORE because of this "mugging"?

(This is the SCIENCE BIT – you can tune out for the next few paragraphs if you want.)

It's not QUITE nobody.

No one over 65, not one single person, will be worse off because of the changes to personal allowances.

In fact, better-off older people, those earning between thirty and forty thousand pounds (those people still in work or with REALLY good pensions) will be even BETTER off because they don't get the age-related bonus either (one of those iniquitous "withdrawal of personal allowance" stings that we have talked of before), so they WILL benefit from the Liberal Democrat tax cut that raises EVERYONE'S personal allowance.

HOWEVER, in an example of the World's Smallest Inter-generational IniquityTM, people who are sixty-THREE now, would have gained an extra allowance when they turn sixty-five in 2013/14 and they now WON'T get the EXTRA allowance. So if they are earning more than nine grand (and many will be relying on a retirement income that is less than that) then, because they'll be starting to pay tax at the new higher personal allowance of £9,205 instead of the age-related personal allowance of £10,500, they could be paying up to £259 of tax that they would not have had to pay.

People who are sixty-TWO now would have gained the extra allowance in 2014/15. It is a reasonable guess, in fact a near certainty, that the personal allowance will go up to £10,000 in that year (a year faster than planned thanks to Liberal Democrats negotiations over the budget). They will miss out on £500 of bonus personal allowance, so, again if they have enough income, they will pay £100 in tax more than they might have done. Current sixty-three year-olds with similar incomes will also have to pay this £100.

(There is a similar effect on people who are SEVENTY-three, who – if their income is above ten-and-a-half grand – will pay an extra £32 in each year that they would not have done if the system hadn't changed, and people who are SEVENTY-two – likewise, earning more than £10,500 – who will miss out on that £32 tax cut in the second year.)

It looks pretty likely, though, that in 2015/16 the personal allowance will go up to MORE than £10,500... in fact ideally to more than £10,660... and the advantage of the age-related allowance will cease to exist.

(And I appreciate that there is a fairly subtle difference between not getting a benefit that you've never had BUT THAT OTHER PEOPLE HAVE HAD, and not getting a benefit that no one has ever had.

So, current sixty-three-year-olds (who earn between roughly nine thousand pounds and twenty-six thousand pounds) will be worse off by £359 (or less, and most by nothing).

Current sixty-two-year-olds (earning likewise) will be worse off by £100 (or less).

Current seventy-three-year-olds (you get the bit with the earnings by now) will be worse off by £64 (or less).

And current seventy-two-year-olds (earnings blah blah blah) will be worse off by £32 (or less).

And no one else.

No one else will be worse off.

Of course they'll not be BETTER OFF either. But that's because they're BETTER OFF ALREADY, and the effect of these changes mean that everyone else is just CATCHING UP.

All of the wheezing and groaning that we hear on this issue is coming from people who already HAVE more benefits than younger people AND EXPECTED TO GET EVEN MORE ON TOP OF THAT.

The IFS study has shown that actually, pensioners have contributed LEAST to the austerity.

So maybe, just maybe, it is RIGHT to ask them to shoulder a little of the burden too by GETTING EXACTLY WHAT THEY ALREADY GET and NOT PAYING MORE.

Which is SO harsh.

The big surprise is that it was the CONSERVATORIES who put this change into the budget mix. The Liberal Democrats' preferred option – as voted at Conference – was to restrict the benefit of paying into pensions for higher rate tax-payers.

You'll not be surprised to hear that Daddy Richard actually PREFERS the Budget's option, because it means that people will pay the tax on their income WHEN THEY GET THE MONEY, rather than when they are putting it into the pension fund.

What you might NOT expect, thought is that, even though pension contributions are NOT to be included in the Tycoon Tax limit of 25% of earnings being put into legitimate tax avoidance, we're not so sure that we would mind if they were!

We've had a LOT of discussion with Count Packula (...and, er, had a chat with Mr Danny... and, er, passed the word to Cap'n Clegg...) about how much paying into a pension is LEGITIMATELY providing for an independent retirement and how much is MANIPULATING the tax system by shifting income to a time when you are in a lower tax bracket. The evidence seems to be that a LOT of people dodged the bullet of the 50p rate by dropping extra income into pensions. It's persuasive that this – like many other tax-advantageous schemes – is being used as a DODGE.

And so we've come to the conclusion that LIMITING how MUCH of your income you can defer like this – and 25% seems like a FAIR amount – is a BETTER way to stop ABUSE than asking people to pay contributions from their taxed income.

Anyway, that's neither here nor there when it comes to THIS budget.

There's still plenty to be OUTRAGED about in the budget...

...although, as with MOST of the WRETCHED COMPROMISES that we have to make in this Coalition, it's possible to feel a bit better about our bits when you've looked at the details – e.g. we may not have got a mansion tax NOW, but that doesn't mean it's off the table; the Conservatories still want to get rid of that 45p rate. Never mind what you hear in the papers about Gideon being in two minds about whether or not they should get rid of the 50p: it was the first thing the Conservatories slapped on the table and their number one red line. They were GAGGING for it! So we've got a LOT of leverage left with the 45p, which will cost more and need a more significant wealth tax to pay for it. HINT HINT.

And the tax incentives for creative industries are very much to be welcomed, as they are in line with Mr Dr Vince's leaked letter about how the Government should have an industrial strategy that supports British winners. A BIG difference between us and the Conservatories is that a Liberal government would INTERVENE to help, as opposed to Conservatory LAISSEZ-FAIRE (or Laissez-FAIL more often than not). We can and must be the Party of the VISION THING!

On the other fluffy foot, Master Gideon talked about taking another ten billion away from welfare. It might not be what he meant, but it's certainly what he SAID. Which is terrifying!

And the politics of the 50p rate remain just AWFUL. And the mathematics looks quite risky. The 50p rate may only have raised around a hundred million because the high-earners avoided the tax (through contributions to pensions and other legitimate schemes and wheezes), but that DOESN'T mean that they won't similarly duck the 45p rate, and we could end up with a substantially larger hole in the finances that Gideon predicts.

And even if he's got his sums right, the effects of the Tycoon Tax and the extra Stamp Duty don't really start to be felt until year THREE of this plan. This year the budget shows what is called a "fiscal tightening" or LESS MONEY IN of nearly two billion pounds, and next year one billion. That's a gap that's got to mean accelerated restraint on the spending side. Or FASTER, DEEPER CUTS.

So get angry, if you have to get angry, but get angry about the RIGHT THINGS.

Get angry that the Liberal Democrats fought their corner WELL and got a tax cut for MILLIONS but still couldn't stop the Conservatories giving a bung to billionaires.

Get angry that there is less for those in poverty, and remember whose FAULT that is.

Get angry about the GREED of the Labour years that RUINED the economy and that the poorest, as always, have to pay for Labour's folly.

But if you REALLY want to get angry, get angry at the FAUX outrage of MILLIONAIRE lefties cynically playing politics with Grannies, scaring them that they'll be taxed into the poorhouse when really they'll pay NOT A PENNY MORE.

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