Chancellor George Osborne has claimed that pensioners "will be better off" when the state pension is introduced in a couple of weeks, during an interview with ITV's Daybreak.

Mr Osborne's measure to scrap age-related allowances - first introduced by Winston Churchill in 1925 - has been widely condemned, with Shadow Chancellor Ed Balls saying that Labour were "baffled" by the decision.

Mr Osborne's so-called "granny tax", announced in yesterday's Budget, will save £1 billion, but the Chancellor claimed that pensioners will receive an extra £5 a week.

No pensioner loses cash. No one watching this programme is a pensioner who is going to lose any cash as a result.

They're not going to lose cash, we're going to increase the benefit. At the same time they'll be better off because the basic state pension is going up in a couple of weeks time by over £5 a week.

No one loses any cash from this Budget."

The Treasury, however, yesterday acknowledged that 4.5 million pensioners would lose out as a result of the decision to phase out their allowances.

Under the plans, the allowances will be withdrawn for new pensioners from April next year, while existing pensioners will have their allowances frozen at £10,500 for the over-65s and £10,660 for the over-75s until overall tax thresholds catch up with them.

Despite Mr Osborne's claim that there would be no cash loss to pensioners, Treasury sources told news agency the Press Association, existing pensioners would be:

  • On average, £63 a year worse off.

  • While new pensioners would lose out to the tune of £197 a year.