Budget 2012: 500,000 Scottish pensioners to lose out over granny tax

In what was quickly dubbed “the granny poll tax”, Mr Osborne announced he was to freeze the personal allowance on pensioner income and block future pensioners from receiving the better rate.

The move means pensioners will be on average £80 a year worse off, while some retiring in the next 12 months will lose as much as £322 annually.

The sting in the Budget came as the Chancellor controversially reduced the top rate of income tax for the 1 per cent earning more than £150,000 from 50p to 45p.

It led to accusations that he was turning to pensioners to fund tax cuts for the rich, but Mr Osborne claimed he would be taking five times as much from the wealthy by capping the amount they can write off for charitable donations and imposing stamp duty of 7 per cent on homes worth more than £2 million.

• Scotland on Sunday political editor Eddie Barnes hosts an online debate about the Budget from 10am

• George Osborne’s Budget speech in full

• Budget 2012: Key announcements at a glance

• Data blog: The Budget in graphics

• As it happened: Live Budget coverage on scotsman.com

• HM Treasury Budget 2012 documents (external site)

The Chancellor also described tax avoidance as “morally repugnant” and announced a new bill to close loopholes, warning he would act retrospectively if the wealthy tried to avoid paying their fair share in the future.

In what was meant to be the centrepiece of the Budget, he also raised the personal tax threshold by £1,100 for 2013-14, meaning that, from April 2013, two million people will be lifted out of tax and nobody will pay on the first £9,205 they earn, at a cost of more than £3bn a year.

“This Budget supports working families and helps those looking for work,” Mr Osborne said.

“It unashamedly backs business. And it is on the side of aspiration: those who want to do better for themselves and for their families.”

The Chancellor said this put the government “in touching distance” of reaching the personal tax threshold target of £10,000.

But the Budget contained no help for the three million in the UK too poor to pay income tax, and in a hint of more tough decisions ahead, the Chancellor warned of cuts of £10bn in the welfare bill in the next spending review in 2014.

The Budget also saw a partial U-turn on taking child benefit away from households with an earner paying higher-rate tax of 40p.

After criticism from his own Tory back-benchers on the original proposal, which was seen as an attack on stay-at-home mothers, Mr Osborne announced the benefit would only start to drop once one earner’s salary reached £50,000, falling by 1 per cent with each increase of £100 and reaching zero at an income of £60,000.

His tax grab on the elderly is understood to have hit about five million pensioners in the UK, including 500,000 in Scotland.

The Chancellor has frozen the threshold where pensions do not pay tax indefinitely until the tax threshold for people in employment catches up.

Currently, the rate for over-65s is £10,500, while for over-75s it is £10,660. Those who are retiring in the future will not be allowed to claim the higher rate and only get the new standard £9,200 from April 2013.

The measure will save the Exchequer £3.3bn in the next five years, but could continue to affect pensioners until at least the end of the decade.

A balanced Budget in terms of giveaways and clawbacks also offered help for big business with a 2 per cent reduction in corporation tax, double the previous pledge.

However, banks will not benefit from the new corporation tax rate, because the Chancellor increased the bank levy to make sure their contribution remains the same.

For Scotland, it was confirmed that Edinburgh will become a superfast broadband city, while Dundee, Nigg and Irvine will benefit from a scheme which will allow firms to claim back 100 per cent on new manufacturing equipment.

Dundee will also benefit from a £35m tax break for the video games industry, although it is £15m less than the one Mr Osborne scrapped in 2010.

But within minutes of Mr Osborne taking his seat, his “granny tax” was the highest trend on the social media network Twitter. And the move provoked a storm of criticism from pensioner groups.

Dr Ros Altmann, director-general of Saga, branded it “an outrageous assault on decent middle-class pensioners”.

Geraldine Bedell, editor of social networking site Gransnet, warned: “The Chancellor is in danger of encouraging a new era of grey activism.”

Dot Gibson, general secretary of the National Pensioners’ Convention, said: “Many older people will feel they are being asked to forgo their reduction in tax to help.”

Elspeth Orcharton, assistant tax director with the Institute of Chartered Accountants Scotland (ICAS), suggested the announcement would herald an end to age-related tax benefits, while Angela Beech, a senior tax partner at London chartered accountants Blick Rothenberg, said pensioners had been left “out in the cold”.

Joanne Segars, chief executive of the National Association of Pension Funds, added: “It is pensioners who are the biggest losers in today’s Budget.”

There was criticism from political opponents, with former Labour deputy prime minister John Prescott tweeting a new poster linking the raid on pensioner incomes with the reduction in the 50p rate in tax.

SNP work and pensions spokeswoman Eilidh Whiteford said: “The Budget truly fails the fairness test when millions of pensioners are penalised, while millionaires get a tax cut from the Tories.

“The devil is always in the detail with Treasury announcements, and the Chancellor must now say whether any assessment was made of the impact of this decision on pensioner households.”

Lib Dems began briefing that the proposal was a Tory idea, but Mr Osborne said it had come from the independent Office of Tax Simplification to end complex means-testing, which many pensioners “don’t understand”.

Lib Dem Chief Treasury Secretary Danny Alexander pointed out that the increase in the state pension of £170 is the highest cash rise ever.

He added: “Within the context of everything we are doing for older people, I think it is a fair change.”

But Labour leader Ed Miliband claimed the Budget was one not for the millions but the millionaires. In his reply to Mr Osborne, he challenged the Cabinet, many of whom are millionaires, to put up their hands if they were benefiting from the reduction in the 50p rate.

He also noted that the phrase “we are all in it together”, used as a mantra by the Chancellor before, had not appeared in his Budget statement.

The Labour leader warned Mr Osborne: “Every time in the future you try to justify an unfair decision by saying ‘times are tough’, we will remind you that you are a man who chose to spend hundreds of millions of pounds on those who need it least.”

He blasted the government for “wrong choices, wrong priorities, wrong values”, claiming it was “out of touch”, and added: “Same old Tories.”

Mr Miliband turned his fire on Deputy Prime Minister and Liberal Democrat leader Nick Clegg, branding him “the hapless accomplice”.

He added: “Only the Lib Dems could be dumb enough to think George Osborne’s Budget is a Robin Hood Budget – Calamity Clegg strikes again.”