Thursday, 29 March 2012

Of fairness and taxed grannies

All the commentary I have seen in favour of the Granny Tax seems to argue either that (i) reducing the over 65 tax allowance is ‘fair’ because younger people have been hit harder by the economy and austerity, or (ii) that  an age allowance is an unfair concept anyhow.  Alternately some say the tax increase is  ‘unfair’ because (i) many privately funded pensioners have already been severely hit by Brown’s tax grab (ii) pension savings have been reduced by poor growth and global recession or (iii) annuities have been deliberately reduced by a policy of Quantitative Easing and artificially low interest rates..

To try and establish ‘fairness’ between generations could fill a book, and neither is it the point of this meander.  Anyone who has been a parent will have recited this mantra frequently when the children were young – “No dear, it may not be fair but life isn’t fair”.  Even so the unfairness in question was usually something caused by external circumstances and beyond our control. Fairness is in fact something we all understand perfectly well, and we quite correctly strive for it in most things, it’s a cornerstone of civilised society. The grossest unfairness occurs when one person, group or subset of people enjoy benefits, or suffer losses, as compared to others in similar circumstances.

So firstly let me try and clarify my personal feelings about age related benefits, from tax allowances to bus passes etc, and my view on ‘fairness’. In society there are dozens of rules and regulations that are age triggered.  16 year olds can only marry with parental approval, but even if they do and have a child they still cannot vote until age 18? Is that ‘fair’? Under 16s cannot be held criminally responsible? Under18s cannot drive a car and over 70s have to renew driving licences at shorter intervals? These things are not considered as ‘unfair’ because they apply to everyone, and (God willing) everyone will live through an average lifespan. In time everyone will get their fair share of all such social obligations, and entitlements during their life. So an age related tax benefit is not unfair, just so long as everyone has an equal chance to claim it in their turn it’s entirely fair.

However, fairness doesn’t mean something is justified, justified is a different concept. Personally (and I speak as someone who will be adversely affected) I find it very hard to justify a higher tax allowance triggered simply on age, it seems an odd anomaly to me so I have no problem with the principle of it being withdrawn.

The big problem that I have with George Osbourne’s move is for me that he has arranged it with such utter contempt and disregard of any concept of fairness. Anyone retiring this year will keep their nice extra tax allowance but anyone unfortunate enough to be retiring in the next tax year – and that could mean just a day younger – loses it. That subdivides a group of people, all of similar age, background and income into a group of haves and have-nots. Some couples, if both retire in 2013, will get hit by a sudden and unexpected £600 tax grab on the basis of their birthday. 

That is unfairness in action! Contrast it with the way Osbourne’s child allowance grab on higher earners was quickly backtracked to make it ‘fairer’ on single earner high income households – pensioners clearly do not deserve equivalent fair treatment to the well off even though this expressly disadvantages pensioners where both parties have a small pension.

To add to Osbourne’s demonstrable lack of empathy one needs to look more carefully at exactly who is affected. There are some very well set up pensioners in this country. There are many who have worked on good salaries and have excellent contractual benefit pension schemes, backed by government or big business able to compensate for Brown's pension fund snatch.  Many of these people did not get the extra allowance anyhow as it was already clawed back on higher pensions, so have not been affected.

There are many poor pensioners, those who have no assets, have never bought a house, have never saved towards a pension. They will claim and be baled out by benefits. We can argue it may be their own fault in some cases, but this group will not be affected.

In between is what is fast becoming the ‘squeezed middle’ of pensioners. These are the couples who have been responsible and self reliant spending their lives working in average or lower paid jobs without contractual pension schemes. Many will own their own house and will have been paying into some kind of private pension scheme much of their working lives. I understand the average private pension pot is approximately £100,000. So these people, if they are lucky, will retire on a basic state pension and an annuity of about £6000 pa. Guess what? Just enough to disqualify them from benefits and just enough to get caught by Osbourne’s granny tax grab. Far from simplifying the tax system Osbourne has drawn the most squeezed and disadvantaged of the responsible less well off retirees into it and penalised them for their self-reliance.

If the Conservatives want the ‘Nasty Party’ epithet and feel the need to demonstrate how out of touch they are this is the way to do it. Take the worst off group of responsible and self reliant people and subject some of them, chosen by birthdate, to a random tax grab.

1 comment:

  1. I really like to read.Hope to learn a lot

    and have a nice experience here! my best

    regards guys!