Osborne’s simple Granny tax alibi gets complicated

Good story in this morning’s Telegraph about the Office of Tax Simplification not really providing an alibi for the so-called “granny tax”.

I did my own digging around this today, and things don’t improve on closer inspection.

The Office of Tax Simplicity (OTS), created with some fanfare in the first weeks of the Coalition, has actually looked specifically in to the issue of Age Related Allowances, in a review of Pensioners’ taxes that reported just a fortnight ago. You can read the report here.

If simplification was the motive, then the OTS on pages 13-17 of that report go through no less than 12 options from abolishing the taper, abolishing two different rates for the over-65s and over-75s, turning it into a tax credit etc…
Abolition was one option, but the OTS clearly wanted more time to study its implications.

The one immediate recommendation made was for HMRC to investigate its data to see how many older taxpayers were not claiming the allowance.

The money quote is on page 62: “OTS has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations,” it concludes, whilst recognising the case for reform of some sort.

Now compare that with what the Chancellor said in his Budget speech under the headline “Tax Transparency”: “We should also simplify the age related allowances – which the Office of Tax Simplification have recently highlighted as a particularly complicated feature of the tax system,” whilst pointing to 150,000 pensioners who have to fill in forms.

The biggest mistake made by the Chancellor at the Budget about the so-called “granny tax” was the attempt to dress it up in his speech as a measure for tax simplification to help confused pensioners. (Gordon Brown tried something similar when he pronounced the abolition of the 10p rate, when it would have been more accurate to say that the 10p rate had doubled).

This, in particular, seemed to enrage campaigners, for a move which the IFS referred to as “a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes”.

The Chancellor should, of course, be praised, for the transparency emerging from having created the OTS. The document above is worth a look for clues to future policy.

It actively recommends the abolition of the Blind Person’s allowance. It doesn’t seem too hot on the remnants of the Married Couples Allowance either.

What is clear though, is that the Office of Tax Simplification does not offer much of an alibi for the change announced on Wednesday.

As former Bank of England MPC member Andrew Sentance tweeted at me today: “Chancellors can get into trouble giving wrong reason for sensible tax change. Lamont lost job after mishandling VAT on energy”.