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IFS: young families, not pensioners, bear the brunt of coalition cuts

The influential Institute for Fiscal Studies seeks to put the row over the 'Granny Tax' in context saying households with children are in fact the biggest losers of the coalition's Budget changes.

 
IFS: young families, not pensioners, bear the brunt of coalition cuts

Families with children, not pensioners, will be the worst hit by coalition government's tax changes and welfare cuts, according to the Institute of Fiscal Studies.

The influential institute says households with children will lose 3.5% of their net income in April this year, increasing to 4.7% by April 2014, as a result of budget cuts brought in by the coalition government. 

Despite the controversy over the 'Granny Tax' the IFS says pensioner households stand to lose the least. They face a reduction of 0.95% in their net income, while households without children will lose 2.05% of their net income by April 2012.

Paul Johnson, director for the IFS, said one reason for the surprise at the chancellor's freezing of age-related allowances was that the government had previously 'comprehensively protected pensioners' from benefit cuts and tax increases.

He said: 'Our analysis shows that they have lost considerably less from recent tax and benefit changes than any other demographic group. And over the past decade and more pensioner incomes have risen faster than those of the working age population.'

Impact of changes taking effect by April 2012: Click to enlarge

U-turn on child benefit

One of the biggest changes announced by the chancellor in his Budget statement was the u-turn on the government’s plans to axe child benefit for families where one partner has an income of over £42,475 from January 2013.

The benefit stands at £20.30 per week for the first child, and £13.40 a week for each subsequent child.

Rather than cutting off child benefit for families above the threshold, the government aims to reduce the ‘cliff-edge’ by phasing the benefits out.

Under the new plans, in families where one partner earns more than £50,000 a year, benefits will be reduced by 1% per every £100 over the threshold. 

However, one measure that was not reversed was the means by which a family’s income is calculated. Rather than measure a family’s combined income to determine the cut-off point threshold, the figure is being calculated based on one partner’s income. 

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47 comments so far. Why not have your say?

ajay

Mar 22, 2012 at 18:31

What rubbish. Many pensioners rely on savings made from lifetime earnings for a good part of their income. I reckon between inflation, worsened by QE, and rock bottom interest rates We have lost a net 60k in the last three years, and still losing.

Who do you think is funding the low mortgage interest rates the young families are enjoying right now?

And before you say how well we did from the housing boom, we were paying interest rates of up to 15%and never less than 8% over 30yrs!!

And what can you do with a house but live in it? It doesn't put petrol in the car or food on the table.

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James B. Johnson

Mar 22, 2012 at 18:53

THE IFS (AND OTHER ALLEGED EXPERTS) HAVE GOT IT WRONG!!

The attack on Pensioners didn't start yesterday.

In the first so-called Emergency Budget, in Autumn 2010, all standard rate taxpayers received an increase in the Personal Allowance, all except Pensioners that is.

In the 2011 Budget the same thing happened. Everyone again got an increase in their Personal Allowance except Pensioners.

Shortly afterwards Cameron bragged about the 'triple lock' for Pensioners although the floor of 2.5% had been introduced by Labour two years before, the link with earnings was merely putting back something that the Thatcher government had broken and CPI replaced RPI costing Pensioners nearly £1 per week in the first year with cumulative amounts each and every year.

Also In the 2011 budget, Pensioners Fuel Allowance was reduced by £25 per person, although the Chancellor didn't have the balls to say so in his speech. It was discovered in the small print afterwards.

Remember this:

Pensioners can't change jobs to make more money. Pensioners can't get promotion. Pensioners can't work longer hours to make more money. Pensioners don't get bonuses.

Pensioners are, in fact 'sitting ducks', an easy target for unscrupulous politicians.

THINK AGAIN MR. OSBOURNE. PENSIONERS ALSO VOTE AND HAVE VERY LOUD VOICES.

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Ivormo

Mar 22, 2012 at 18:53

Since it will only affect those with incomes between £10,000 and £20,000, anyone who has lifetime of savings with an income of £5,000 to £15,000 over and above the state pension that is not wrapped in an ISA has clearly been poorly advised in their investments

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Robin Crisp

Mar 22, 2012 at 18:58

ajay,

You, in common with a substantial numer of pensioners, need to downsize.

Move nearer to town, reduce your fuel costs and get into a lower council tax band. The answer lies in your hands.

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ben hall

Mar 22, 2012 at 19:01

You're right, Ayjay...my savings don't give a damn. I have just enough to ensure that I qualify for no benefits whatsover. Worked since I was 15. never claimed anything. I saved. I was pretty stupid. Should have lived on benefits all my life

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Robin Crisp

Mar 22, 2012 at 19:02

Ivormo,,

for pensioners, that income above the state pension has come from company pension schemes. ISA and other savings are irrelevant for the majority of pensioners. Their savings are wrapped-up in the house

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Ted York

Mar 22, 2012 at 19:26

That's it! Ignore the effects of the change from RPI to CPI which affects public service, some private and state pensioners. Though not part of the budget it is another assault that was instituted this year, the effects of which need to be taken into account if wanting to assess the changes in financial lot of pensioners as a whole. I also notice the increase in alcohol duty is tied to RPI. Silly me. I was thinking that CPI better represented inflation according to our "esteeemed" government.

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Keith Snell

Mar 22, 2012 at 19:32

Personaly I believe we have become a nation of whingers, there is far too much expected of the state, and the public sector, by and large governments are too large, overmanned, wasteful and badly managed,.The sooner Scotland Wales & Northern Ireland go it alone and England regenerates itself as a productive nation free of too much government the better. We can then get down to

re -building a country where there is less greed and lack of effort and far more genuine concern for our neighbours. We will never achieve this this as state dominated by an out of control public sector and with satellite countries continualy whinging at Westminter.

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Tony Peterson

Mar 22, 2012 at 20:05

While the IFS might point out that there can be some dispute over who are the biggest losers, there isn't the tiniest bit of doubt as to who are stunningly huge winners.

The government's buddies. Those with stratospheric incomes who will enjoy thousands, tens of thousands, hundreds of thousands more in their after tax income.

It makes me puke.

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David Meyer

Mar 22, 2012 at 20:20

Speaking as a pensioner, I am less exercised about the abolition of the age allowance.

I can't see the case for giving 65+ year olds an extra personal allowance. If two people have the same taxable income, then why should one pay less tax by virtue of being over 65?

The fault lies with the reckless QE policy, which not only suppresses yields on retirement funds but is inherently inflationary - the mother of all "double whammies".

As for the flat rate state pension..... that's a different kettle of fish altogether. Could be daylight robbery.

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P Williams

Mar 22, 2012 at 20:33

ajay and ben hall - well said.

I would add those who have worked all their lives in the private sector with spells in and out of work have seen their pension savings devastated by:

1. Equitable life going bust, 2. Gordon Brown's successive raids on peoples' hard earned savings 3. QE and rock bottom annunity rates and NOW Osbornes' raid.

It's a National disgrace that self respecting people who have tried to be independent of the state throughout their working lives should exist in fear of being robbed of their independence and forced to join ALL the spongers,

and wasters who have done nothing other than spend their lives on benefits.

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smoking gun

Mar 22, 2012 at 20:38

Just heard Osborne say on TV that the MASSIVE increase in state pensions will more than offset the fixing and future poss of additional tax benefit. Does he think all pensioners suffer from dementia? No Mr Osborne you are no stranger to the truth just an an irrefutable liar.

1. Was it not your own measures which changed the rate of pension increase to a different measure of inflation.

2. The pension increase pensioners will get in April is already 6th months behind as it is based on the inflation rate in September 2011, not April 2011 or 2012.

3. The April 2012 state pension increase is only going to make up for the loss of buying power since last year as many pensioners are already struggling to make ends meet.

Just went shopping to local supermarket and noticed that most items are now 13% to 50% dearer than they were a few weeks before Christmas. I even saw one item marked at 94p but you can buy two for £3. Tesco at it again.

But we will all sit back and take it as usual.

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Neil Murphy

Mar 22, 2012 at 21:08

@smoking gun: you really have to be careful int the supermarket I have noticed numerous cases recently where buying a bulk order is more expensive than buying individual smaller items.

Quality has gone down in all the majors. It was the case a few years ago that the premium fresh fruits were better than the 'value' versions, but the value versions weren't too bad. Now the premium brands are kept on the shelves too long and the quality has gone down. I am generally finding the small local fruiterers to be better. Meat quality in the supermarkets is poor to mediocre, even for their premium organic meats. Again local butchers or better. local farmers are much better.

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Neil Murphy

Mar 22, 2012 at 21:09

@keih snel: well said, far too many think they are owed a living by the state, as f the state had any money. It has none except what it takes from the rest of us.

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Franco

Mar 22, 2012 at 21:10

Why all this concern about couples with children and old age pensioners, when those earning over £150, 000 pa will pay 5% less? Work harder and join the top 1% . What?

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Robin Crisp

Mar 22, 2012 at 21:24

To those pensioner whingers - downsize, move nearer to town.

You will save fuel, heating costs lower, lower council tax band.

Its in your hands, not the government's

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S M

Mar 22, 2012 at 21:36

What happened to cutting expenditure? It still seems to be going up

Not enough done by half.

The recent public sector pension announcement was a travesty, the taxpayer cannot afford it.

Get on with it Coalition. Taxing is the easy part, ask Labour

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ajay

Mar 22, 2012 at 22:23

Another smart alec eh Ivormo?

So how much interest have ISAs been paying?

Need cash to buy things with?

Didn't know ISAs were immune from inflation!

And you don't know how much I have in ISAs do you?

Always someone thinks they know it all.

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Dave H

Mar 23, 2012 at 08:31

[i]So how much interest have ISAs been paying? [/i]

Mine - none, but they are paying a very nice income equivalent to ~5.6% of the sum invested (and incresing).

[i]Didn't know ISAs were immune from inflation![/i]

Mines has beaten inflation over the last 10 years with decent rises in both the capital value and the income - no gaurantees for the future of course. There are more than cash ISAs you know.

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Tony Peterson

Mar 23, 2012 at 09:07

Point well made, Dave. Ajay's sneering is rather distasteful.

Our self-select shares ISAs are the jewel in our holdings.

I cannot for the life of me understand why anyone holds cash in bank deposits, premium bonds, cash ISAs, or under the mattress, at a time when cash is losing value at its present rate (which is much faster than the fiddled CPI measures it as).

Since the Bank of England began its corrupt attack on the nation's savings, I have consistently argued on this site that everyone should get out of cash and into high quality defensive equities (I named a few candidates a few years back, took my own advice, and have done extremely well on the back of it).

And even at its new levels FTSE still hasn't recovered from twelve years ago. It has a long, and very profitable, way to go. That's how I read it.

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red_dragon

Mar 23, 2012 at 09:29

Pensioners who have substantial cash on deposit earning miserly rates of interest have themself's to blame, you should not be so risk adverse, why not invest in bond funds and wide range of dividend paying shares with a conservative level of profit to meet divi payments?

It seems that most of you are too scared to lose even slight ammounts and plump for cash or annuity, both are guaratneed to make your poor slowly.

You need to take the longer term view!

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P Williams

Mar 23, 2012 at 09:56

red dragon - pensioners and a longer term view are often incompatable in case you don't realise.

When red dragon reaches his late 70's I hope he still has the weatheral to use the computer technology needed and the mind to analysis, buy and sell his equities and bonds that give him his income.

If not then his longer term future will be bleak indeed

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David Icke

Mar 23, 2012 at 10:02

I assume, Robin Crisp, that you are just a brainless troll and hope you are not an adviser of any sort. Your suggestion that pensioners should downsize and presumably use the capital that might bring to subsidise their income is crass and best and undoubtedly intended to offend.

Retired people across the nation are suffering because the savings they worked their whole life to amass do not provide them with adequate income and it is no laughing matter. The policy of keeping interest rates low is a ticking timebomb for young families as well of course as they have been using these as a way of subsidising income for several years now. When rates do rise, as they will, I think we will see a major crisis at the younger end of the scale!

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ajay

Mar 23, 2012 at 10:09

That's all very well DAVE H, but you are talking about stocks and shares ISAs.

I didn't mention that, I was talking about savings. When you are retired you won't want all your capita at risk in the markets.

You may remember from the happy days of examinations the cardinal rule to READ THE QUESTION!!!

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Dave H

Mar 23, 2012 at 10:23

Exactly ajay - and perhaps thats the problem you're not willing to take the risk to gain a decent return. I don't consider the risk to be a problem and my SAVINGS are in a ss stocks and shares ISA earning an income more than inflation and increasing the capital. I've also started saving well before I want to retire. I started saving in high yield shares in 2000 and my portfolio, on a total return basis, has shown an IRR of 6.3% pa over that period.

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ajay

Mar 23, 2012 at 10:27

Robin Crisp, you are making the assumption that I am poor and struggling. I don't believe I said that. I can quite happily afford to carry on my present lifestyle, as you would appreciate if you worked out the implications of what I originally said.

My point is that you should understand that we savers who have been prudent and provided for ourselves have been taking a big hit from the measures, low interest rates and high inflation/QE, that have been required to keep over-borrowed governments and profligate workers living beyond their means, out of the financial shit!

And that's on top of contributing to the bloated welfare state, keeping work-shy people with over-large families or dubious disabilities in a lifestyle they couldn't possibly afford in the unlikely event they could persuade someone to employ them.

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Tony Peterson

Mar 23, 2012 at 10:37

I puzzled over P Williams post, wondering what the hell he meant by "weatherall".

I hope when he reaches retirement age he has the wherewithal to use the language properly. It's a bit rich these sneering posts about the intellectual capabilities of the elderly from those who cannot distinguish when to use the noun "analysis" and its related verb "analyse" (or analyze - take your pick).

I'm approaching my late seventies, P, old son, and I don't have any difficulty sorting through financial data to monitor my investments. You clearly have difficulties with the language, even at your tender age.

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ajay

Mar 23, 2012 at 10:39

Dave H, you are more interested in blowing your own trumpet than listening to others.

I have been in stocks and shares since the early 1980s with varying success as always. If you had experienced the 1987 crash and the High Tech bubble of 1999/2000 and you were a lot older and partly reliant on your savings income, then your cavalier attitude to risk may be somewhat moderated, or should be.

I repeat again, listen carefully; I was talking about savings, not investments.

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Anonymous 1 needed this 'off the record'

Mar 23, 2012 at 11:41

Any family or person having more than one child should pay a heavy extra tax for this child the same as in China, the country is broke and cannot afford to subsidize children, especially benefit children.

As for the Pensioners having to tighten their belts, they are lucky to get anything from the Government, they can thank Labour for this, basically wrecking the economy, if those people had got into power again, UK would be the same as Greece.

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David Lewis

Mar 23, 2012 at 12:21

If this cut were the only one then IFS might have a case. In my own case it started when GB robbed my pension fund. Then the government's long standing advice to put my money into a company pension scheme turned out to be a bad move, so i have little pension other than the basic state pension. Then the cuts on care, so that I had to pay for my parents care.

Like most of my generation I have paid into the NI regieme all my life on the express understanding that i would be provided for wehn sick and/or old. Now I am both and what to I get - complaints that i exist. I have already paid for my pension and my care and now they want to take that away from me. If this were a company the directors would be in gaol by now, but because they are ministers they get away with it.

We need to go right back to the founding of the NHS and see what promises were made. My contributions were in some part redirected by the NHS to pay for people who had joined when the fund started, half way through their life. That is good and right. Now, having paid for my own care into the system, i am told i can't have the care and have to pay for it again.

If we older peope are really not wanted - a simple solution: Free beer, fags, spirits and McDonalds for everybody over 60. We will soon die off and save you soo much money. I am fed up with living in this country.

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P Williams

Mar 23, 2012 at 13:26

Tony Peterson

You are so clever 'young man' in critising detail that you cannot see the wood for the trees - I am your senior and used to be able to spell - You are so clever you'll know what happened next .

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James B. Johnson

Mar 23, 2012 at 13:41

Setting families with children against pensioners and standard rate taxpayers serves no useful purpose.

The real truth is that unless you earn over £150,000 per annum, the Tories are out to screw you.

The rich have the ear of Cameron. If you got £1000 to spare, you can have lunch with him and bend his ear. If you are a large corporation, you can employ professional lobbyists to plead your case.

If you are an ordinary Joe, all you've got is your vote, so in three years time USE IT TO GET RID OF THE TORY TWIRPS.

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Tony Peterson

Mar 23, 2012 at 16:22

P Williams

I do apologise to my elder and better over missreading your post. That really is a hearfelt grovel.

I do however think that red dragon had a point, if expressed less than politely.

When the interest rate on all forms of cash fell far below the inflation rate anyone still capable of thinking and reading and writing would have been better advised to have bought shares in defensives - water - electricity - gas - (firms that will still be billing you all the way up to clog popping time) - rather than take the miserable, derisory amounts that is all that the BoE allows the banks to offer pensioners, or the insulting annuity rates on offer from providers.

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Ted York

Mar 23, 2012 at 16:34

Tony P,

Why are these stocks "defensives"? Answer: ecause they are ex-public utilities that are not real markets, thats why. They are only "safe" because of this and because they are able to exploit everyone who uses them for the profit of a few. For many the fact that they are in this position sticks in the craw and renationalisation would be the preferred option. then we may also get a proper service and reduced costs too.

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red_dragon

Mar 23, 2012 at 19:20

P Williams - I would hope to be able to do just that, my accountant is over 70 and he still uses pen and paper to compile accounts, no computer or calc, the brain is like a muscle, stop using it at 65 and it will likely turn to mush, if however i feel unable to manage my retirement account at 80+ then i will ask one of my children to invest for me, for every probelm there is a solution!

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Robin Crisp

Mar 23, 2012 at 22:56

Pensioners, by downsizing, will also free up cash for income earning investment.

A home does not generate income.

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Robin Crisp

Mar 23, 2012 at 23:05

"And what can you do with a house but live in it? It doesn't put petrol in the car or food on the table."

As I said, downsize and generate income from the surplus.

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ajay

Mar 24, 2012 at 10:32

Robin Crisp, are you being deliberately obtuse? I already said I can quite happily live in my present style and you are not addressing the subject of the article. Many people say pensioners have benefited from a house price boom as opposed to young people. But we only bought a house to live in, not for investment as the younger generation seem to regard it. We didn't inflate the prices and the value of the house is dead capital because you can't spend it, WHILE YOU LIVE IN IT, which was the reason for buying it.

And the topic suggests pensioners are not bearing the brunt of austerity, yet one of the main weapons has been low interest rates and QE, which boosts inflation This benefits the young over-borrowed but severely punishes those who have substantial saving. A hefty transfer of capital from old to young in general.

So stop wittering on about downsizing, I don't need educating in finances. I didn't get a healthy bank balance by being stupid. Or do you equate old=stupid like so many youngsters? But stop telling me I've had a good deal in this financial mess.

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Bob via mobile

Mar 24, 2012 at 10:36

Lots of ideas being thrown around in this debate.

Attacks on working families with children seems favourite. No children equals no future workers to pay for the state pension or if you are lucky a public sector Pension- or even to support the funds for Company pensions- DB only- due to the defeceits many of these schemes are running .

You may have paid NI all your life but that has paid for the pensioners before you - there is no cash pot with your name on it!!

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Robin Crisp

Mar 24, 2012 at 14:03

ajay,

so what is your point.

"What rubbish. Many pensioners rely on savings made from lifetime earnings for a good part of their income. I reckon between inflation, worsened by QE, and rock bottom interest rates We have lost a net 60k in the last three years, and still losing.

Who do you think is funding the low mortgage interest rates the young families are enjoying right now?

And before you say how well we did from the housing boom, we were paying interest rates of up to 15%and never less than 8% over 30yrs!!

And what can you do with a house but live in it? It doesn't put petrol in the car or food on the table."

I think downsizing answers a number of your questions.

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ajay

Mar 24, 2012 at 16:54

Robert Crisp. No, I can see you are not being DELIBERATELY obtuse!! Clearly trying to have a discussion with you is a waste of effort.

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Robin Crisp

Mar 24, 2012 at 17:50

ajay,

I've said what can be done, and I'm talking in general terms and not specifically for your situation.

I can quickly think ofa number pensioners in the "short of income" category who should move and release capital but won't..

You dont seem to accept that downsizing is a possible solution.

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smoking gun

Mar 24, 2012 at 20:26

Can only make this comment to people like Dave and Robin Crisp.: You are just dammed lucky you had enough cash to put into ISA's or other savings. Stop thinking everyone has been as lucky as you have to be able to put such sums away in the past to be able to sneer at those who have been less fortunate than you. So stop being so introvert and only see what is round about you.

And remember not everyone has a house to sell to downsize. But before you do jump down my throat let me say yes I have a reasonable, not great works pension and I did manage to put a little away during my last few working years too (after family grew up) and I also have reasonable returns from my savings but I can appreciate that others, often through no fault of their own, just don't have these little luxuries. Also remember once you give someone that little bit extra, especially those who never had much in the first place, it's difficult for them to cut down again as they probably have allocated the extra to something important.

Have a heart and think of people a bit more unfortunate than yourselves.

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A C Wiltshire

Mar 25, 2012 at 00:14

Perhaps if this government and preceding governments actually got round to reducing the cost of running the government instead of forever expanding their running costs there would be enough money in the kitty so that pensioners could retire without forever wondering who is going to mug them next. Some thug on the street or a member of government.

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Robin Crisp

Mar 25, 2012 at 07:45

Smoking Gun,

You dont know my circumstances and I dont know ajay's or yours

The Government has to make cuts and those cuts will have to be borne by individuals. We all have to learn to tighten our belts.

For too long the mantra at budget time had been "whats in it for me".

For the record my current income is substantially less than the national average. I reach 65 in 2 years and not only wasn't aware of the higher personnel allowance, I cannot see the case for it.

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Bob saxton

Mar 26, 2012 at 09:47

Dear James B.Johnson, you underestimate Cameron. £1,000 is a four figure sum. If I heard correctly what is required is a six figure sum. Perhaps you missed a couple of noughts out.

A millionaire like Cameron would not share his chips with you for £1,000.

When judging rich people's tax you should take into account the donations/

bribes that they have to pay to the Conservative party. It would never do to leave Lord Ashcroft so poor that he could not finance the Conservative party's next election win would it.

Bob the electrician

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smoking gun

Mar 26, 2012 at 19:34

Robin, sorry if I offended. I wasn't trying to pry into your personal affairs, I was simply responding to the statements made mainly about downsizing which you had referred to on several occasions to point out that there are thousands of pensioners who can't downsize to release capital as they simply don't own the houses they rent. And believe me many would have been wiser to buy their (council) houses when they could have and assuming they could have obtained a mortgage as those who did often found the mortgage payment bettered the rent rises of later years. But many didn't. And you also have to remember that not all pensioners live in large six bedroom villas. I know several who currently live in small one or two bedroom flats.

But I do agree with you. I for one don't rely on the extra tax allowance (but it was a nice extra) and we all need to make sacrifices, and I for one don't rely on the extra tax allowance but what about those who can more afford to pay more e.g. well paid executives of large companies and (local) government departments) and who can afford to pay accountants to find all the loopholes.

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