Jeff Salway: George Osborne fails to keep system simple

Published on 25/03/2012 00:00

HOW generous and thoughtful of that nice Mr Osborne to make the tax system more simple for pensioners.

It’s just a shame he had to short-change them to do it, with a cut in the age-related personal allowance that leaves some 4.4 million pensioners worse off.

In his Budget speech, George Osborne disingenuously pitched the move as necessary in removing complexity from the tax system. One valid point he did make was that many pensioners fail to use their extra allowance, due to low awareness. Fair to say that will no longer be the case.

But a chancellor so concerned about simplifying tax has a strange way of demonstrating it.

Take the reworking of the government’s child benefit proposals, for example. To recap, instead of removing the benefit next year from all households with at least one higher rate taxpayer, it will now be withdrawn on a sliding scale from those where at least one partner earns over £50,000, with the payment taken away at £60,000.

But what was a simple benefit with almost universal take-up will now become complex, because those eligible for it will have to complete self-assessment forms every year so HMRC can work out how much of the benefit they’re entitled to.

That will force another half a million people into a self-assessment system in which there are steep fines for those not filing returns on time, irrespective of whether any money is owed.

The (possibly intended) consequence is many will be deterred from claiming it.

And that in a Budget touted by its architects as one that would make the tax system simpler and fairer. Back to the drawing board, George.

Pensions pain

IT’S the biggest single change affecting public sector pensions, yet confirmation of it this week went largely unnoticed. The inflation measure used in the annual rise in pension payments for state workers was switched to the lower Consumer Prices Index (CPI) last April, in a government gambit that unions claim could wipe out up to a quarter of the average public sector employee’s pension.

Unions lost their High Court bid to overturn the change last year, and last week were told by appeal judges that the ruling would stay. The decision saves billions of pounds for the government, which has made the same move on state benefits and tax credits, at the direct expense of millions of workers who will get thousands less in their pensions.

Last year’s switch resulted in retired public sector employees, including teachers and NHS workers, getting an increase in their pension payments in line with CPI at 3.1 per cent, rather than the 4.6 per cent uprating they would have received under the Retail Prices Index (RPI) measure. And with the gap between the two inflation figures forecast to widen from 1.2 to 1.4 percentage points a year, for millions of people the difference will become painfully clear over the coming years.

The controversy over Lord Hutton’s recommendations for public sector pensions has largely surrounded people having to work longer and contribute more. Arguably, however, the inflation switch is the most significant change of the lot.

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