Budget 2012: The granny tax is fair, says Treasury minister

David Gauke said that pensioners were being shielded from most of the cuts the Government is making as it tries to reduce the deficit in the public finances.

He spoke as the Chancellor faced a firestorm of protest over his cut in tax allowances for those over 64, which will leave up to 5 million middle-class pensioners worse off.

The Institute for Fiscal Studies yesterday said that those worst-hit by the policy would lose up to £323.

The respected think tank criticised the Chancellor for trying to mislead voters by “dressing up what is clearly a tax increase as merely a simplification”. The Treasury’s own advisers on tax simplification were also said to be “concerned” at the way the Chancellor presented the change.

David Cameron led a fightback over the controversial decision yesterday, arguing that the overall effect of Coalition policies would leave many pensioners better off.

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George Faces The Fire

MORNING BRIEFING – By Benedict Brogan (Daily Telegraph)

I’m away this week – today’s email is edited by Daniel Knowles

BREAKING – Theresa May on the Today Programme, discussing minimum alcohol pricing (further details below):

On why this is necessary, Theresa May said: “The evidence is… that if you need to deal with the problems that are caused by the excessive consumption of alcohol then you have to address the price of it.”

“What it is going to affect is the cheap end of the alcohol market” she said, arguing that people who go out and “pre-load” and cause “carnage” in town centres will be affected by an increase in the cheapest drinks. “ We’ve based our assumptions on a unit price of 40p” she said, but suggested that a higher price could be possible – “obviously we are consulting on it”.

On supermarket discounting she said that “deep discounting” in supermarkets is also a problem. “One of the things that we will be looking at, if it we think it is right to ban these [discounts]… obviously it would be possible for the Government to legislate on this”. She dismissed worries other ministers have raised that these sorts of bans would be illegal.

Asked about whether the radical cleric Abu Qatada will be deported, Mrs May said that we are “looking at these issues in more detail” but refused to say that Britain would send back Qatada regardless of what the ECHR says. She said she is working to get “assurances” from Jordan which the ECHR would accept.

DAVE NEEDS A DRINK

Perhaps it’s unsurprising, given all this Budget pain, that David Cameron feels it necessary to stop people turning to drink: the Prime Minister is announcing his anti-alcohol strategy this morning, and the idea is, as ever, to raise the cost of drink.

We’ve got a trail of the proposals here . The PM intends to introduce a minimum price of 40p per unit of alcohol, which would bring up the minimum price of a bottle of wine to around £3.60. More strikingly, the price of a cheap bottle of cider would double to around £7. There will also be a ban on supermarkets offering bulk discount deals, though it is not clear how that would work in practice.

Appropriately, given the country’s drinking habits, the PM is speaking in Scotland to announce the policy. He will say that: “When beer is cheaper than water, it’s just too easy for people to get drunk on cheap alcohol at home before they even set foot in a pub… So we are going to introduce a new minimum unit price – so for the first time it will be illegal for shops to sell alcohol for less than this set price per unit.”

I wonder what Andrew Lansley thinks of this. As the Guardian notes, the Health Secretary was fiercely opposed to a minimum pricing, which he thinks distorts the free market and is unnecessary.

Mr Lansley possibly has good reason: outside of Scotland, alcohol consumption in the UK has actually been falling since 2005. This policy is also fiercely regressive – poor drunks struggle, while rich ones won’t be affected at all. Will Labour point that out I wonder?

BUDGET AFTERMATH DAY II

Meanwhile, the Budget aftermath continues on many of the front pages today. Our main Budget story is on the Chancellor’s tax rise for people in their sixties. As was notable from George Osborne’s Today interview yesterday, the Government is not too keen to defend the policy – at least not in public.

One exception was David Gauke, the Treasury minister, who was ‘brave’ enough (as Sir Humphrey would put it) to stand up for Government policy. As he said, “it is clear that [pensioners] are a group that is relatively well-protected on the steps that are necessary to reduce the deficit”.

The Institute for Fiscal Studies agreed, arguing that this is a “relatively modest tax increase on a group hitherto well sheltered”, though they did add that Chancellor was wrong for “dressing up what is clearly a tax increase as merely a simplification”.

As the IFS briefing yesterday made clear, some 700,000 people turning 65 next year will lose up to £323 annually while a total of 5 million pensioners will be made worse off.

Today, we’ve got a column from Ros Altmann, the director of Saga, who says that this tax increase is a “slap in the face for decent people”. In our leader column , we agree with Altmann – the “doubly iniquitous” tax increase ought to be reversed: what pensioners crave “is the certainty and stability that will let them enjoy the fruits of decades of productive (and tax-paying) labour”, which George Osborne is taking away.

Others disagree. The Times (£) says that “the elderly have been largely insulated from the financial pain that many of the young are suffering”. The FT meanwhile says that it is right for pensioners to make a contribution – but they ask why George Osborne chose to hit pensioners on relatively ordinary incomes, rather than the wealthiest.

The irony for George Osborne is that this was actually a Lib Dem-inspired tax. As James Kirkup reports , the Lib Dems have been in favour of withdrawing age-related allowances since at least 1998.

Either way, it’s a classic example of what Damian McBride calls a non-starter. His blog post, on how budgets were constructed in Gordon Brown’s day, ought to be essential reading for anyone interested in how politically toxic ideas like this can sneak into the Chancellor’s statement.

TAXING TIMES

The ‘granny tax’ is not the only policy on the front pages either. The Times (£) has splashed on the news from the IFS that the Chancellor’s reduction in the higher-rate income tax threshold will drag 1.3 million more people into the 40p rate of tax by 2014 – not something that will please many Tory MPs.

They also report that the IFS has questioned the Government’s assumption that cutting the 50p rate to 45p will only cost £100 million, while the increase in stamp duty was condemned as stamp duty is a “poorly designed and distorting tax” .

Yesterday, a running side story was whether or not Dave and George would personally benefit from the cut in the rate. On the Today Programme, George Osborne said he wasn’t a 50p taxpayer, which led a few to wonder exactly why not, given his large private income. As Chris Hope reports , David Cameron is the only member of the Cabinet known to definitely pay the 50p rate, and he wanted to keep it at 50p.

Fraser Nelson will hope that isn’t restricting the Cabinet’s ambitions. In his column today, Fraser praises the steps the Chancellor took, but he reckons Mr Osborne needs to go much further: “With each Budget, Osborne is growing bolder – but still not bold enough. This was best symbolised by his decision to scrap the 50p rate, which is a brave and necessary step, but 45p remains pointlessly high.”

The Times’s (£) resident Blairite, Philip Collins, will disagree there – he reckons that “Mr Osborne is trapping himself in a series of errors of his own”. Apparently “the evidence-free and anecdote-rich idea that an income tax cut from 50p to 45p is a stimulus package is absurd.”

RUNNING FOR POP

Meanwhile, Nick Watt has an essential report on Wednesday’s 1922 Committee meeting, where George Osborne and David Cameron defended their proposals to Tory MPs. As he reports, George wanted to cut the 50p rate all the way down to 40p, but Dave ruled out Nick Clegg’s demand of a mansion tax in exchange.

But the details on how George and Dave faced MPs are just as fascinating. One MP tells Nick: “They were like two public school boys joshing with each other. It was slightly distasteful. It was as if they were competing in a jokey way to be elected to Pop”.

Apparently, there were also many jokes at the expense of Andrew Selous, the Christian MP, who Osborne referred to as “Brother Selous” when dismissing concerns over the relaxation of Sunday trading laws.

‘COULDN’T GIVE A FRIAR TUCK’

Though most MPs have returned to their constituencies, the Budget debate continues in the Commons today, as Ed Balls and George Osborne continue to trade insults. Somehow, I doubt it will be as entertaining as yesterday’s – Ed Balls produced some very good lines, including these:

“The Liberal Democrats call this a Robin Hood Budget, but they have got it the wrong way around. Robin Hood took from the rich to give to the poor, but the Budget takes from lower and middle-income families to give to the rich.”

“Do they not see? The Chancellor is not Robin Hood; he is the Sheriff of Nottingham. And as for jobs and growth, he could not give a Friar Tuck. As for Maid Marian—trapped in the castle, desperate to escape—we all feel sorry for the Business Secretary”

As Dan Hodges reported on his blog yesterday (do check it out – if only for the photoshop of ‘Kamikaze Osborne’), the Eds have been getting their jokes from Ayesha Hazarika, Harriet Harman’s adviser and a former stand-up comic, who has been ‘nationalised’. It’s working.

POLL WATCH

YouGov/The Sun results: Conservatives 34%, Labour 42%, Liberal Democrats 9%

TWEETS AND TWITS

Andrew Percy, Conservative MP for Brigg and Goole, getting home: “Nooo there are no taxis!!…Sod it! I’m walking to my village. I’m fat and need the exercise. I may be some time”

TOP COMMENT

In The Telegraph

Fraser Nelson: George Osborne gets bolder with each Budget – but it’s still not enough

Azriel Bermant: William Hague could learn from Operation Babylon

Ros Altmann: A slap in the face for decent people

Leader: Osborne’s ‘granny tax’ is doubly iniquitous

Best of the rest

Janan Ganesh on The Economist’s blog: The political post-mortem

Allister Heath in City AM: Osborne’s middle class tax bombshell

Philip Collins in The Times (£): Those hard Tory heads and hearts are back

Tim Leunig in the FT (£): No bleating. Osborne’s ‘granny tax’ does not go far enough

THE AGENDA

Today: The Government publishes its anti-alcohol strategy which may include proposals for alcohol pricing

Today: The Scottish Conservative Party conference opens in Troon, Ayrshire – David Cameron addresses the conference at 9.30am

9.30am: Transport minister Norman Baker to give an oral statement on bus funding in the House of Commons

9.30am: The House of Commons continues the Budget debate

11.45: Vince Cable speaks at the Federation of Small Businesses annual conference

3.30pm: Ed Balls speaks at the Federal of Small Businesses annual conference

 

Quantitative easing: Pensioners are paying the price for Sir Mervyn’s ‘funny money’

Let’s try a thought experiment. Imagine that George Osborne were to stand up in the House of Commons and declare that, in order to avoid a new economic crisis, he had decided to raid our pension funds. The Treasury, he would say, had reluctantly concluded that it had no choice but to confiscate about £74 billion from what we’ve all been saving for our retirement. Furthermore, VAT would have to rise by another 2 per cent. The cash would be used to reduce the interest rates paid by Britain’s borrowers (his Government chief among them). And yes, he would add, it probably seems grossly unfair to transfer wealth from the thrifty to the profligate, but this is an emergency. The alternative is another banking crisis, or a new Great Depression.

If Mr Osborne did say all that, there would be uproar. The Chancellor would face unflattering comparisons with Robert Maxwell. Pensioners would be protesting outside Westminster, asking what right the Government had to steal their savings. The Institute for Fiscal Studies would publish graphs showing the “unfairness” of a VAT rise, since it would hit the poorest hardest.

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