1. ITV Report

Osborne defends Budget from IFS criticism

Chancellor George Osborne Photo: REUTERS/Suzanne Plunkett

The Chancellor George Osbourne was today forced to defend his Budget after the Institute of Fiscal tudies (IFS) - a leading think tank - concluded that changes do amount to a tax on pensioners and that it may not be as neutral is he claims.

Osborne faced a barrage of criticism in today's press, accusing him of generating money for tax breaks by creating a "granny tax". By freezing pensioners' allowances, some argue, pensioners will be worse off as inflation rises.

What we now know about the Budget is that it is giving tax cuts to millionaires of £40,000 each and every year and it is finding a way of funding that by hitting pensioners who have worked hard all their lives.

– Ed Miliband, Labour Leader

ITV News Political Editor Tom Bradby reports:

The IFS echoed some of that criticism saying that it was wrong of the Government to portray the reforms as a "simplification" of the pension system and to deny that they amount to a tax increase for pensioners.

No pensioner loses cash...they will be better off because the state pension is going up in a couple of weeks' time by over £5 per week...so actually pensioners will see a bigger state pension [and] they're going to see a simpler pension system.

– George Osborne, Chancellor, speaking to ITV DAYBREAK
The Chancellor on ITV Daybreak Credit: ITV News

Although the IFS took exception to the Government's presentation of the changes, and the fact that pensioners had been given no warning, it also called the changes "modest".

It pointed out that pensioners have been less affected by the tax increases and benefits cuts borne by the working age population.

The other surprise in Wednesday's Budget was the changes to tax bands, which mean that 325,000 basic rate taxpayers will be bumped up into the 40p tax bracket.

ITV News' Economics Editor Richard Edgar said the changes mean that 15 percent of taxpayers will end up paying the higher rate, up from just five percent 20 years ago.

As the threshold for the second highest rate is lowered, some of the 24 million [basic rate taxpayers] will join 3.75 million people paying 40p in the pound.

– Richard Edgar, ITV NEWS ECONOMICS EDITOR
Osborne is hoping the Budget will be "neutral" and won't affect the UK's projected growth rates or debt repayment schedule Credit: ITV News

A final note of warning from the IFS suggested that Osborne's Budget may not be as neutral as he claimed - in other words, the proposed changes may not balance the books.

Paul Johnson, IFS Director, warned that we can be reasonably sure that the increase in the personal allowance will cost about £3.5 billion in 2014-15.

But we do not know how much revenue the money-making measures - such as caps on tax reliefs and stamp duty changes - will generate.

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