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Dispute over pensioner tax allowances

Pensioners will be better off in this Budget, Chancellor George Osborne has maintained, despite ending age-related tax allowances.

The tax allowance for pensioners aged 65-74 is currently £10,500, which rises to £10,660 after this age. Osborne announced that this will be frozen from April 5, 2013, to save £3.25bn over the next four years.

However, the HMRC has suggested that this will lead to 4.4 million pensioners being worse off than they would have been, by an average of £83 per year. Opponents have labelled the move a ‘granny tax’.

Osborne asserted that state pensions – the Coalition has guaranteed increases in line with average earnings, prices or 2.5%, whichever is the greater – would leave pensioners ultimately better off.

The move will only affect over-65s earning more than £10,500. Those earning up to £25,400 currently receive the full age-related allowance but it is reduced in stages on earnings up to £100,000.

The Chancellor said: “We were rapidly increasing the tax allowances and they were going to overtake the age-related allowances so it allowed me to subsume them into one and simplify the system. It creates a much simpler system for everyone. I'm not embarrassed to say that pensioners are going to get the largest increase in the state pension from next month.

“The net changes made by this government, including introducing this triple lock, mean that pensioners are better off.”

But shadow chancellor Ed Balls told the BBC: “What [George Osborne] is doing is not putting the personal allowance up in line with inflation, so pensioners will actually pay more tax and people who are about to be pensioners are going to lose that allowance. Pensioners are worse off as a result of this Budget, it’s a huge surprise.”

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