Get used to it, Granny!

Probably to the dismay of the Government, the media's quick takeaway from yesterday's UK budget is that pensioners are to be hit hard in order to pay for the planned reduction of the top rate of income tax from 50% to 45%.  The tabloid press are referring to a "Granny tax", when what the Chancellor is in fact proposing is to freeze one of the many benefits available only to pensioners.

Boy, are there are a lot of those benefits,  and most of them are not means-tested.  Free bus travel (and Tube travel for those in London).  Free prescription medicines.  Free TV licenses for the over-75s. Lower rates of local property tax. The "winter fuel rebate", a no-questions-asked cash payment much loved by pensioners spending their winters in Cyprus and Tenerife.  And a break on income tax: the tax-free exemption for pensioners, that is, the amount of income they can earn before paying any tax, is higher than for regular taxpayers.

It's this last one that the Government is tinkering with. It will be frozen at its current level for existing pensioners, until it comes into line with the exemption for other taxpayers, which is being gradually increased year-by-year. Those due to retire in coming years (including your humble blogger) will no longer receive a higher exemption.

These small changes will bring in a tidy sum for the Government:  well over £3 billion in the next 3-4 years.  However, the cash impact on existing pensioners is precisely nil (and in any case they are about to receive a significantly higher state pension), while for future pensioners, the only impact is that they will pay a bit more tax than they had been expecting.  Half of all pensioners pay no income tax at all.  Calling this a "granny tax" is the purest scaremongering.

Which is not to say that it's not a brave and risky step for the government to take. Older folk have the annoying habit of turning out to vote in elections, and may turn their wrath on the Tories at the next available opportunity unless the Government makes a strong case for the change.  Objectively, that shouldn't be difficult.  Older people are the fastest-growing cohort in UK society, thanks to the post-WW2 baby boom and rising life expectancy. They are also the only age group that has not become collectively poorer since the financial crisis.  They own a disproportionate share of the nation's wealth, mainly in the form of housing.

To finance its programmes, any government has to follow the Willie Sutton maxim and go "where the money is".  In the UK as inmost Western societies, that means the prosperous baby boomers.  For many years the elderly were able to plead for special treatment on the basis that "we fought to keep this country free", but there are fewer and fewer folk around who can claim that any more. While it would be unconscionable to implement tax changes that harmed poorer pensioners,  there's no good reason why richer ones shouldn't  pay their fair share.  But good luck getting that message across, Mr Osborne.