Pensioners Slid Down The Pecking Order In Jeremy Hunt's Spring Budget
5 min read
Economic analysts have noted that Chancellor Jeremy Hunt has taken a different path from his predecessors such as David Cameron's chancellor George Osborne, with decisions in the Spring Budget that could leave workers better off, but pensioners worse off.
On Wednesday, the Chancellor told Parliament that from 6 April, employees’ National Insurance will be cut by 2p, from 10 per cent to 8 per cent, following a previous 2p cut in the Autumn Statement. Self-employed national insurance will be cut from 8 per cent to 6 per cent.
According to analysis by the Resolution Foundation think tank, the Spring Budget prioritised “workers over pensioners”, who will see taxes rise, while workers will receive a cut.
Pensioners are already mostly exempt from paying National Insurance, therefore will not receive that cut that employees will benefit from.But pensioners are not exempt from Income Tax or tax threshold freezes.
Torsten Bell, the think tank’s chief executive said that the decisions marked a “staggering reversal” of the approach taken by previous Conservative governments, and are “undoubtedly good economics, even if the politics are a harder sell”.
James Smith, research director at the Resolution Foundation, told PoliticsHome he found the shift away from pensioners "striking" after successive Conservative governments had seemed keen to offer something directly to older age groups.
"What you’re seeing now is these giveaways focussed on employees at the expense of other groups," Smith said.
It is considered to be a particularly necessary move by Hunt when over-65s are the only age demographic left who can be relied upon to vote Conservative, whereas younger age groups say the party has little to offer them, according to multiple recent polls.
"Pensioners are the sorts of voters that the government has in the bag, as it were, what it needs to think about is other groups, and it’s trying to extend its offering there," Smith added.
Smith explained that because income tax covers all types of income, such as money generated from rental property or money made from financial assets, if Hunt had opted to cut income tax rather than National Insurance, as had been speculated ahead of the Budget, it would have benefited both workers and pensioners. The freezing of income tax thresholds means that more and more people are pulled into higher tax brackets as levels of income rise with inflation.
Paul Johnson, the director at the Institute for Fiscal Studies welcomed the decision from the Chancellor to cut National Insurance over income tax, but agreed that "pensioners will be substantial net losers” while many workers will now find themselves better off.
Johnson said that “well over 60 per cent of pensioners now pay income tax,” a marked increase over the last 15 years.
“This is rather counter to the narrative we've had over quite a long period, I think quite deliberately. And I'm not saying this is unwelcome at all," he said.
“The Chancellor really has focused the money he's got on people of working age rather than on pensioners.”
Polling figures indicate that pensioners are among the few demographics that the Conservatives are leading when it comes to voting intention ahead of the election.
Data from YouGov at the end of last month showed that 37 per cent of over 65s intended to vote Conservative, compared to 28 per cent who said they will vote Labour.
The stats were similar a week earlier, when 35 per cent of the oldest cohort backed the Conservatives, compared to just over a quarter (27 per cent), for Labour.
Onward, a Conservative-leaning think tank welcomed the arrangements in the Budget that will benefit working age people. Deputy director Adam Hawksbee told PoliticsHome: “It's clear that the Chancellor had little room for manoeuvre at the budget, and it's right that he targeted his measures at the groups who are hit hardest by the cost of living crisis: working families, and in particular young parents. It's no surprise that the part of the budget welcomed by campaigners like Martin Lewis was reform of the High Income Child Benefit Charge."
Next Gen Tories, a campaign group focussed on the party’s policies for younger people, also welcomed Hunt's tax choices.
“The triple lock has given pensioners big pay increases year on year,” Next Gen Tories managing director James Cowling told PoliticsHome. He said it was “nonsense” that the Budget was unfair to other age groups.
Analysts have suggested that despite the National Insurance cut announced yesterday, Hunt’s statement will see taxes rise overall in the coming years.
Following Hunt's announcement, Richard Hughes, the chair of the Office for Budget Responsibility told reporters that although the tax cuts announced in the Budget “help to reduce the overall tax to GDP ratio by around half a percentage point” relative to their forecasts last autumn, the figures are still set to rise in the next five years.
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