Treasury on the defensive over “granny tax”

The Government has hit back in the row over the “granny tax” with a Treasury minister insisting the move is fair.

In this week’s Budget, the tax-free allowance for pensioners will be frozen at £10,500 until the personal allowance for all other income tax payers reaches the same level. The normal personal allowance is set to rise to £9,205 in April 2013. Chancellor George Osborne said the move would simplify the annual allowance rules, but it has been widely criticised as a “granny tax”.

The Financial Times reports that several Conservative MPs have privately raised concerns over the move. However, according to the Daily Telegraph,Treasury ministers have been defending what has become the most controversial announcement in the Budget.

Treasury exchequer secretary David Gauke told BBC Radio 4: “If you look at what we are doing for pensioners across the board it is clear that they are a group that is relatively well protected on the steps that are necessary to reduce the deficit.

“That is absolutely right but I think it is reasonable that we remove a complication from the tax system.”

However, the Institute for Fiscal Studies criticised the Chancellor for trying mislead voters by “dressing up what is clearly a tax increase as merely a simplification”.

Yesterday, left leaning think tank the Institute for Public Policy Research backed the Chancellor saying older people had so far been sheltered from austerity at the expense of the young. Despite that, senior research fellow Kayte Lawton said presenting the freeze as a purely a simplification was a “political own goal”.