Thursday, 22 March 2012

'Granny tax' may be bad politics

Media coverage of the Budget this morning is focussing on the so-called 'Granny Tax' with some criticism coming from the right-wing press. In part this reflects the fact that it was the one part of the Budget that wasn't leaked in advance (apart from the tax on pasties and sausage rolls). It may well be good policy but bad politcs.

There isn't really a logical justfication for special allowances for the retired (they were introduced by Churchill in 1925), particularly when tax threshholds are being increased. The one argument that is put forward is that it penalises thrift.

One pensioner interviewed in a vox pop said that she didn't think they should be taxed at all. Given the services they consume this is a bit rich to say the least. Pensioners have also been relatively unscathed by austerity with a big pensions increase this April and bus passes and winter fuel allowances untouched. But it illustrates the political problem. There are a lot of retired people and they turn out and vote in numbers.

Another sting in the tail is that the threshhold for paying the higher rate of 40 per cent will actually fall next year making another million people higher rate taxpayers. Some of these people will be in the much vaunted 'squeezed middle'.

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