Leading article: A failure of presentation rather than of policy

For all the indignation, Mr Osborne’s ‘granny tax’ is both reasonable and just

Friday 23 March 2012 01:00

The Chancellor only has himself to blame. The storm of indignation over his decision to freeze the tax-free allowance for pensioners could so easily have been avoided. The proposals are both reasonable and just, a genuine tilt towards a fairer society – albeit a small one. But thanks to spectacular mishandling by George Osborne, they have been met with a storm of opprobrium and dubbed the "granny tax", a label he will struggle to shift.

It did not have to be this way. To put the proposals in context, the older generation has, thus far, largely been shielded from the Government's spending cuts. Older people may not have escaped the financial crisis entirely unscathed: the combination of ultra-low interest rates and the £300bn-plus quantitative easing programme has dragged down annuity rates. But the Government had, until now, left untouched the various tax breaks given to pensioners of middle income and above, even as benefits to all other age groups have been cut.

The state's relative largesse is particularly stark in comparison with the situation of many young people. The education maintenance allowance and the future jobs fund have both been withdrawn; university tuition fees have, in many cases, tripled. And all this at a time when youngsters aged between 16 and 24 must contend with the bleakest employment prospects their age group has ever faced, with nearly one in four of them out of work.

The Chancellor was therefore right to attempt to redress the balance. Protecting one group in society on the basis of age alone – rather than relative need – is both economically distorting and unforgivably unfair. Even more so given the longer-term trends that mean today's young generation can expect, for the first time in history, to be less prosperous than current retirees.

From the outraged response to the Chancellor's proposals it might be imagined that those most affected will be pensioners already struggling to make ends meet. Not so. The move affects only those on middle incomes. Furthermore, the average will pay a mere £80 per year more tax. Hardly excessive given the pressure being felt elsewhere, particularly given that state pensions will continue to rise and the falling allowance will simply bring it into line with that of working people.

The failure was not one of policy, then, but one of presentation. Thanks to the Coalition, the vast majority of the substantive measures in Mr Osborne's hour-long speech were public long before he stood up in Parliament. The squeeze on pensioners was not. To make matters worse, the Chancellor chose to describe it in terms of a simplification of the tax code. What he said was not untrue, or even irrelevant. But to refer to the single largest tax-raising element of his Budget in such terms was at best mealy-mouthed, at worst evidence of an alarming failure to think things through.

The Chancellor's efforts to defend himself with claims that his job is not "to write the next day's headlines" are disingenuous. It absolutely is his job to persuade the electorate that the policies he is pursuing are the right ones. Given the obvious potential controversy of changes to pensioner benefits, the Government should have prepared the ground with a sensible debate about what it really means for us all to be "in it together".

The issue will not go away. Economists warned yesterday that the Budget may prove more expensive than the Chancellor claimed. Meanwhile, the deficit remains stubbornly high, and the costs of an ageing population leave society unable to afford much it once could. Downing Street's reluctance to take on other expensive pensioner perks, such as the winter fuel allowance, may yet have to be rethought. And Mr Osborne will have to learn to explain himself better.

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