Thoughts on politics and life from a liberal perspective

Thursday, 22 March 2012

The Conservatives have just lost the next election

"Granny Tax".

Those words could well mark the political graves of George Osborne and David Cameron. A bit like "Poll Tax" did for Margaret Thatcher.

Freezing the pensioner tax thresholds for existing pensioners and abolishing them for new pensioners is rapidly becoming the main story of yesterday's budget. Which is interesting because in advance it appeared it might have been the reduction of the top 50% rate to 45% that would generate the most headlines. Labour however quickly seem to have correctly realised that the pensioner changes are likely to have the most traction for them. It's an easy message to get over to people and cannot easily be rebutted with five fingers on Mr Cameron's left hand*.

Older people traditionally vote for the Conservatives in large numbers. They are one of the party's main constituencies. For them to be hit by the Chancellor in this way is a massive political gamble.

I actually think there is little justification for having the pensioner tax allowance way above everyone else. And as the standard threshold moves higher and higher it makes sense to try and align them. But the Chancellor did not have to go about it this way specifically announcing a freeze and abolition. It is pretty clear we are going to get to a £10K threshold for everyone, probably announced in the next budget in 2013 coming in for 2014-15. Beyond that I expect the Lib Dems and plenty of Conservatives will be agitating to go further on the threshold. Already there is talk of taking anyone on the minimum wage out of income tax which would require a threshold of £12.5K. The standard pensioner threshold is £10.5K. On the current trajectory we would reach alignment in the next few years anyway even with inflationary rises for the pensioner threshold. What the Chancellor is trying to achieve would eventually have happened anyway, without having to be explicit about it.

George Osborne is supposed to be a master political strategist. I have never really bought this argument. In some ways he is a similar politician to Gordon Brown, lots of tactics but short on overall strategy.

Maybe he thought hitting pensioners in the budget would help with his "all in this together" narrative. Maybe he thought the fact that the state pension is now rising in line with earnings for the first time in decades would mitigate the political fall-out. If so he has misjudged how political announcements are assimilated. The good stuff is quietly banked by the winners but the bad stuff will be shouted about very loudly by the opposition and pensioner groups. That is what will be remembered about this budget by the very people Osborne needs to vote Conservative if they are to get a majority in 2015.

I would be astonished if Labour don't very quickly pledge to reinstate the pensioner threshold and uprate it by inflation again. As I said it will cost them very little as the thresholds will be much closer by 2015 anyway but the political boon they will get from it will be pretty big.

A majority for the Conservatives in 2015 was already looking quite difficult to achieve. Osborne has just made it nigh on impossible.

*For the uninitiated the "five fingers" are supposed to indicate that the measures on rich people from yesterday (stamp duty rises, tycoon tax etc.) will raise five times as much as the 50p rate did.

NOTE: I am aware that I have not really mentioned the Lib Dems in the context of getting the blame for the pensioner threshold abolition. They will get some of the heat I am sure but as pensioners are traditionally much more likely to vote Conservative it is that aspect that is most relevant politically.


asquith said...

I can't see what's actually wrong with "granny tax". The worst off will be net gainers from all the pension changes, and right-wing pensioners have already escaped largely unscathed and should carry some of the load that we certainly are.

Of course it's never 100% on way or the other but lean quite heavily in favour of this budget. Ozzy has cut my taxes now, made it more likely I'll still have a job tomorrow, and raised my pension the day after tomorrow.

You're right that it was politically unpopular, but it always is, and I'm fully on board, for that matter, with cutting the 50% tax rate which was always about politics and was a rather disgusting move by Labour to create a situation like this that they could gloat over.

As for them actually making a concrete promise, they won't. They won't reinstate 50% because they've already made their point and, knowing what a shite idea it was, won't bring it back. They will keep the higher threshold. They will keep the higher state pension, because their own means-tested pension credits justly proveed an embarassment to them when it became clear what a fuck supper it actually was.

I never thought I'd be sitting here defending Ozzy Osbourne, but he's delivered the goods, in fact. I don't like a lot of government policy but this hits the spot, if not the headlines.

Anonymous said...

The Granny Tax as such penalises all older people who worked so hard for their pensions and the extra allowance was to allow them for the fact they have problems with care and the fact they are not working. The allowance is frozen until such time as it merges with the existing allowance given to all workers and non workers.

The result is this raid has paid for the tax cut to the wealth and I think the granny tax will come back to haunt this government why because old people vote and they will see this as a big betrayal. I just think some of the coalition's policies are mad. They veer between ultra Lib Dem policies not all are bad or extreme right wing policies that even Thatcher would not dare push. Good riddance to the tories. They robbed old Peter to pay Rich Paul. Shameful

Anonymous said...

One cannot cut the top rate of tax while upping the VAT which will affect the lower income groups disproportianately more,including the pensioners. It is incredible that in the UK we have people openly supporting policies that are so grossly unfair and serve to make the wealthy, wealthier at the expense of the have nots.