Budget 2011 has produced few surprises for older people. But whilst the Chancellor, George Osborne MP, has set a clear direction in terms of pensions, the intergenerational implications of the changes to both the personal tax allowance and the merger of income tax and national insurance (NI) have not attracted adequate attention.
The Chancellor confirmed (again) that the DWP will shortly publish a Green Paper to consult on options for state pension reform reform, "which will include a proposal for a single tier pension, currently estimated to be worth around £140 a week". Mr Osborne also confirmed that the Government "accepted Lord Hutton's recommendations as a basis for consultation with public sector workers".
Earlier this year, the Government asked for views on how to link possible future increases in longevity with state pension age. The Chancellor announced today that "the Government will bring forward proposals to manage future changes in the State Pension Age more automatically, including the option of a regular independent review of longevity changes". This is clearly a move towards depoliticising future increases in State Pension Age.
One issue which has emerged from the Budget which has yet to be picked up by commentators relates to the Government's long term objective to raise the income tax personal allowance to £10,000. The Chancellor today made further progress towards that goal by announcing that from April 2012, the personal allowance for under 65s increases by £1,000 to £7,475. However, missing from his statement was an announcement on the personal allowance for over 65s (apparently – if it is there, we have yet to find it). Pensioners currently have much higher tax allowances than under 65s, on the basis that we should generally avoid taxing their income twice. But with working age allowances increasing, the gap between the working age and pensioner allowances is narrowing. Is this narrowing justifiable, and is the long term aim for all taxpayers to benefit from the same level of income tax allowance?
The announcement on merging tax and NI is not an unwelcome one, given the complexity of the current tax regime. But the Government immediately announced that there would be exemptions for pensioners, who currently do not pay NI. Clearly a merged NI/income tax system at 32% would need to provide an allowance so that older people's pensions do not begin to attract a higher rate tax than they currently do. But has the Chancellor missed an opportunity here? Perhaps we need a debate about whether workers over pensionable age should pay NI. The current system means that in effect, one older employee on the same salary as another younger person, has a higher take-home salary. Its not clear that this is fair. Of course we need to encourage older workers but it isn't clear that not having to pay national insurance creates a significant incentive to older people to work longer. Perhaps part of the reason that Government has ignored this issue is that charging NI to over 65s wouldn't actually bring in a lot of money. But as the number of older workers grows, it is a sum that is likely to increase.
On both the personal allowance and the implications of the merger of NI and income tax, the Government has been clear on its intentions. But in our view, it could be clearer on the implications of these changes for both older people and in terms of intergenerational fairness.
David Sinclair and Craig Berry
(Also posted at www.ilcuk.org.uk)
No comments:
Post a Comment