Budget’s Granny tax means you can kiss your pension goodbye

‘I HAVEN’T been on a Granny demo,” says 76-year-old Mary Scott. “Yet.” The retired teacher, who worked until she was 69, is enjoying a Friday morning stroll in Glasgow city centre with her 78-year-old husband John, a former NHS employee.

John has already done the maths following George Osborne’s Budget statement last week – in which the Chancellor controversially froze pensioners’ tax allowances. And while Mary confesses to not knowing the exact detail of Osborne’s plans, she feels peeved nonetheless. “My attitude is, nothing gets better. They always hit the old folk. They always want to get rid of what we get.”

The couple are good-humoured and stoic, but it begins to wear thin when it comes to the issue of fairness. John asks why it is that the less well off are being hit when the bankers who caused such a mess continue to get enormous bonuses. Mary also has a bone to pick with today’s benefits culture. “We worked all our lives. We never took days off.” And now it’s the pensioners that have to take a hit? “It grates on us,” she says.

That grating sound sends shivers up politicians’ spines. Never take on the Grannies is received wisdom at Westminster and Holyrood. Along with the Queen and the Armed Forces, the elderly are off limits. Mess around there at your peril. George Osborne discovered it last week, a few minutes after his hour-long Budget speech finished. The cut in the 50p tax rate and increase in income tax thresholds had been the highlights. Consequently, a “simplification” on the tax allowances given to retired people had gone largely unnoticed. But then, with journalists poring over the “Red Book” containing all the figures, the questions soon arose on why this apparently innocuous point had some rather large numbers attached to it. In a large huddle next to the Commons Chamber, Osborne’s aides sought to explain. “It’s a Granny tax,” joked one of the TV journalists in attendance. The Budget was thus doomed.

British patience with benefit claimants is wearing thin, polls suggest, with most people now of the view they would prefer lower taxes to greater support for the unemployed or single parents. But not for older people – according to YouGov, only 9 per cent think we should cut support for OAPs in order to decrease taxes. The Chancellor toured radio and TV studios afterwards to insist no pensioner would actually be losing money; his decision meant only they would not be getting quite as much cash in their pockets as they might have expected. No matter; the day had been lost.

Headlines come and headlines go. Indeed, 24 hours after the Budget, the Chancellor won a slight reprieve as the respected Institute for Fiscal Studies (IFS) declared that, in fact, the over-65s were doing pretty well, sheltered from moves such as the Child Benefit cut, and gaining from the new “Triple Lock” guarantee on rising pensioner incomes. But, in some ways, this only makes things more terrifying for the Treasury as it surveys the battered remains of the Budget.

There is little doubt that Osborne’s relatively tame crackdown on pensioner income is just the first of many assaults on the cost of Britain’s greying population in the coming years. If such a stink can be raised over this one small reform, what might happen once the going really gets tough?

Buried in the myriad of Treasury papers released with the Budget was analysis which shows the problems are not going to go away, even if the boom times return. Peering up ahead to 2017, HM Treasury sees further cuts ahead for all government spending – including the Scottish Government block grant. The reason is that spending on welfare keeps going up. And the prime reason for that, says the Office for Budget Responsibility (OBR), is the growing cost of “age-related spending” on health, social care and pensions. With the working population unable to keep pace with the rising ranks of those in their 70s and 80s, an inexorable economic logic takes hold.

The OBR calculates that, such is the demographic change, a government in 2060 pursuing the same policies as Osborne would have to find an extra £80 billion a year to pay for them – nearly three times the Scottish Government’s annual block grant. Writing in Prospect magazine, Paul Johnson, head of the IFS, added: “Arguably, more realistic assumptions about the future path for health spending could double the size of that challenge.” That is the medium-term challenge. In the short-term, the Treasury papers are blunt. Prior to a new spending review before the 2015 General Election, the government “will be examining the cost drivers for all areas of public spending and identifying the further reforms needed to deliver a sustainable welfare system and public services”. The axe is being sharpened again. But where will it fall? This fresh reform process will be much harder than last time. Many benefits have already been capped. Meanwhile, hard-hit departments such as the Ministry of Defence may be deemed off-limits next time round. So Osborne hinted heavily last week that welfare would have to be trimmed again. And, in that case, he – and the Scottish Government in Edinburgh – may have to go back into battle with the Grannies.

First in the Treasury’s sights is the retirement age. Last week, Osborne said future increases in the state pension age would be automatically linked to increases in longevity. The pension age is already due to rise to 67 by 2028 for both sexes. If his proposal comes to fruition it will then keep on increasing after that.

John Lawson, head of pension policy at Standard Life, observed: “We could expect that someone who is currently 37 won’t be able to start drawing their state pension until they are 70 and someone who is 21 won’t receive it until they are 75. This means that children born in 2012 are unlikely to get their state pension until they are 80 if life expectancy at retirement rises in line with the last 30 years.”

Ministers may also be forced to examine the array of pensioner benefits on offer, such as free TV licences, bus passes or the winter fuel allowance. In Scotland, responsibility for these perks is split between London and Edinburgh. The political backlash may be awful, but there is a groundswell of backing for some of these generous perks to be removed, especially for well-off pensioners, and those – in the case of the 60-65s – who have not even retired. Bob Black, Scotland’s retiring Auditor-General recently slammed the free bus passes given to everyone over 60. Scottish taxpayers were paying £34 million, he noted, just to get people to work. “I do not think that anyone who is in employment should feel that they are entitled to travel free to work,” he told MSPs.

Another public sector leader in Scotland, who confesses to earning more than £100,000, notes that when she turns 60 in a few months, she will receive a winter fuel allowance, a free bus pass and – at Christmas – “I will get a £20 present from my local council.” She adds: “How can we say we are running out of money and we can’t look after the elderly when we are squandering money in this way?”

A political battle is there to be won on this front. But the savings available from “freebies” is minuscule compared with the bigger challenge. On top of all that, a radical overhaul of the way the state deals with the elderly and with health in general is needed, say public sector leaders and politicians. The problem is not necessarily people getting older; it is more people being ill for longer – a big difference.

There are two main approaches necessary, they argue. First of all, the country needs to do more to stop people being so ill for so much of the time. The crackdown on alcohol abuse is one obvious example. Secondly, when people do get old, the state needs to care for them in a smarter way than simply dumping them in A&E wards whenever they feel under the weather. Colin Mair, director of the Improvement Service, which advises councils on better public services, said: “There needs to be a broad prevention approach across the whole of life. You can’t do it just when people are older. Then, the elderly need supported in a more integrated and intelligent way in the community.”

He points to reforms ongoing in Scotland and the wider UK to bring the NHS and social care together. Such moves may see, for example, community-based wardens on call to help older people if and when they require support in their own homes. It may involve spending more money on better-equipped housing that helps to reduce the number of broken hips. The flipside, however, is that politicians then need to make the case to spend more money on this, and less on the costly hospitals so beloved of their constituents.

That points to the political challenge. So far, it has not been grasped. The roasting handed to Osborne last week provides the answer as to why. But the matter needs urgent attention if the country is to prosper over the coming decades. Johnson notes: “Genuinely big decisions need to be taken about how much revenue we raise, how much we spend and how we allocate it. Given demographic pressures, there is no way to escape either increasing tax, or cutting spending on the elderly – or cutting spending elsewhere.” At some point, you feel, the Grannies must be tackled.

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