Osborne Defends 'Granny Tax' After Backlash

David Cameron and George Osborne have defended their Budget from fierce attacks over an unexpected "granny tax" that will leave 4.5m pensioners worse off.

In a Budget that was widely leaked or pre-announced, the tax grab on pensioners took MPs and pensioners' groups by surprise.

The Prime Minister said the measures were "fair" during a trip to West Yorkshire.

"Every granny in Bradford West, as around the country, is going to be benefiting from the biggest ever increase in the pension that comes in in April - an extra £5.30 a week," he said.

The Chancellor earlier told Sky News: "I've frozen the allowances for pensioners, I haven't cut them."

Live on air, the editor of social network Gransnet , Geraldine Bedell, told Mr Osborne there was little incentives to save if you become a "sitting target" for the Treasury once you retire.

He denied this was the case and said a single personal allowance would make the tax system simpler.

Treasury officials admit the measure will raise around £1bn a year and £3.3bn over three years.

"This is a Budget that rewards work, that supports business in creating jobs," Mr Osborne said.

Asked about negative press coverage of his proposals, he said it was his job to get the economy moving, not to write newspaper headlines.

The pensions move will bring tax allowances for retired people - currently more generous than those for working people - into line with those who are working.

The current system has been in place since 1925, when Winston Churchill introduced a "retired tax relief" to help older people.

The Treasury admits Mr Osborne 's move will leave pensioners £80 a year worse off on average.

Labour and pensioners' organisations claim some people about to retire will be around £300 a year worse off.

The backlash over pensioners' tax bills overshadowed widely predicted Budget moves to axe the 50p top rate of tax and increase tax allowances for the lower paid.

When the Budget debate resumed in the Commons, Labour MPs launched an assault on the "granny tax", accusing the Chancellor of using it to fund a tax cut for millionaires, with the axing of the 50p rate and raising of income tax allowances for people on low and middle incomes.

MP Chris Leslie also called for a "budget leaks inquiry in view of the accurate preporting" of several proposals.

Shadow Chancellor Ed Balls told Sky News the Chancellor had his priorities wrong.

"There's no way he can talk his way out of it," he said, continuing: "It is a tax rise on pensioners when he's cutting taxes for people on £150,000."

While Mr Osborne argues it is not a cut in "cash terms" it amounts to a reduction due to the rising cost of living and inflation, Mr Balls added.

He later told the Commons it had not been a Robin Hood budget, as the Liberal Democrats suggested.

"Robin Hood took from the rich to give to the poor and this budget takes from lower and middle income families to give to the rich.

"Don't they see the chancellor is not Robin Hood he's the Sheriff of Nottingham, and as for jobs and growth he couldn't give a Friar Tuck," he added.

Mr Osborne says he is simplifying the allowance because many pensioners do not understand the "complicated" current system, which requires around 150,000 pensioners to fill in self-assessment forms.

He is proposing that for people aged 65-74 their income tax allowances will be frozen at £10,500. For those aged 75 and over it will be frozen at £10,660.

And from April 2013, those turning 65 will have a tax-free allowance of £9,205, bringing them into line with the working population.

Treasury officials admit that 4.5 million pensioners will be affected, losing about £80 a year on average, though those people about to retire will lose £197. But those figures are challenged by opponents.

Pensioners' groups condemned the change and warned of an angry backlash from older people.

Saga director-general Ros Altmann said: "This is an outrageous assault on decent middle-class pensioners. This Budget contains an enormous stealth tax for older people."

And Ms Bedell, editor of Gransnet , said: "The biggest tax rise on pensioners in recent memory is already being dubbed by some as 'the granny poll tax'.

"The changes are set to cost over 350,000 pensioners £285 a year. People who have worked hard all their lives are now being targeted while at the same time seeing headlines of tax cuts for millionaires. 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 forego their reduction in tax to help out the super-rich. There's no fairness in that."

Mr Osborne is also facing an inquiry into Budget leaks by the Treasury Select Committee of MPs, who plan to challenge him when he appears before them next week.

Committee chairman Andrew Tyrie said: "In its report on the Budget 2011, the Treasury Committee said 'We deprecate both leaks, and any advance briefing. Such activities are corrosive of good government'.

"The Committee will examine this year's Budget in light of our earlier conclusions on pre-Budget press coverage."