There’s been of lot of guff spouted over the last few days about the so called ‘granny tax’, but what’s the truth behind the spin?
In the budget, tax allowances were increased by £1,200 per annum to £9,205 for everyone apart from people who receive the age related rates. They will get the same as now – £10,500 at 65 or £10,660 at 75. These higher rates were frozen until they fall in line with the basic tax allowance.
Now Labour tell you that this means that pensioners are worse off. Well, they aren’t. You can’t be worse off because you lost something you never had. If I had £100 in my pocket, I can’t claim to be £10 worse off than if I had £110 in my pocket. It’s not a valid argument.
However, if we set that aside then if a pensioner also got an extra £1,200 then at 20% basic rate he would have paid £240 per annum less tax.
But what has been wholesalely ignored by the media – check the BBC budget analysis and you will find no mention of it – is that the Chancellor increased the basic state pension by £5.30 per week. That works out to £275 per annum.
So maybe I’m a bit dim, but it seems to me that if you get an extra £275 then even if you take off the £240 for losing something that you never had in the first place, you are still £35 a year better off.
The reality, though, is that pensioners are actually £275 a year better off. And – while we are at it – let’s not forget that the higher age related allowance only applies if your income including the pension is less than £29,900 a year anyway whereas every pensioner will get the extra £5.30 per week.
To turn this into a loss – and a headline – we need to add in the loss of something you never had in the first place and then adjust for inflation. Ignoring, of course, that inflation effects everyone so you really ought to knock that out of the comparison as well.
So Oscar was right. There are lies, damn lies and statistics…