"Granny tax" is hard sell for Conservatives
LONDON (Reuters) - The ruling Conservatives were pilloried on Thursday as a party pandering to millionaires and slapping a "Granny tax" on pensioners in a budget they defended as a spur to growth.
Chancellor George Osborne, in announcing a freeze on tax allowances for pensioners in Wednesday's budget, said this would be offset by a rise in pensions. But the Granny tax epithet played too easily to media, friend and foe alike, and to a public weary of austerity measures.
The "nasty party" label Prime Minister David Cameron fought to shed after the Conservatives' 13 years in opposition until 2010 loomed large again for sceptics who also seized on a cut in the top rate of income tax to 45 percent from 50.
Both measures stung against a backdrop of steep public spending cuts as part of a seven-year austerity drive to cut Britain's deficit, which Osborne says will keep interest rates down and help the economy recover from the slump of 2008-2009.
"Osborne picks the pockets of pensioners" said the right-leaning Daily Mail on its front page.
The left-leaning Daily Mirror tabloid had a doctored image of Osborne and Cameron in hooded tops carrying a baseball bat under the headline "Mugged!"
Osborne will be quick to point to research by the Institute for Fiscal Studies (IFS), a highly-respected independent body, which said that pensioners would lose on average only about 0.25 percent of their income in 2014 as a result of this budget.
But such points were unlikely to turn the tide of bad headlines, with even the pro-Conservative Daily Telegraph slamming the Granny tax. This is damaging for a party that desperately needs to appeal to a broad range of voters.
The Conservatives failed to win a majority in 2010 and had to form a government with the Liberal Democrats, a much smaller, left-leaning party. Osborne, the top Conservative strategist, is focused on the goal of an outright Conservative win in 2015.
Pensioners were the age group with the highest proportion of Conservative voters in the 2010 election, so he needs to keep their support but also win over younger voters.
His 2012 budget demonstrated that he believes the way to achieve that is through economic growth, and that he is prepared to take enormous political risks to stimulate that growth.
The scrapping of the 50p income tax rate is a case in point.
It pleases vociferous right-wingers in his party, who object to high taxes on principle, but risks alienating droves of low- and middle-income people whose votes are crucial.
Yet Osborne went ahead with the measure because he is convinced that the 50p rate sent out a negative message to investors that was harmful to growth, while failing to raise significant amounts of cash because of widespread avoidance.
"How can you possibly justify a tax rate that is doing enormous damage to the British economy, that the rest of the world looks at and laughs at, and yet raises no money?" he told BBC Radio 4 in one of a blizzard of Thursday morning interviews.
He also seized on an announcement early on Thursday by drugmaker GlaxoSmithKline, which confirmed plans to invest more than 500 million pounds in manufacturing in Britain in response to a government plan to cut the level of corporation tax applied to income from patents. The plan was confirmed in the budget.
GSK's investment, which will create 1,000 jobs, was expected but the timing of the statement was a boost to Osborne.
The chancellor also said his budget was not a gift to the wealthy because he had closed a series of tax loopholes and raised stamp duty on properties worth 2 million pounds or more. These measures would raise five times more money for the Treasury than the scrapped 50p rate, he said.
Osborne emphasised a deeper-than-expected cut in corporation tax that he said would stimulate growth and job creation, as well as a faster-than-expected rise in the tax-free allowance that he said would leave 23 million workers better off.
However, IFS research painted a slightly more nuanced picture on personal tax. Pensioners would lose the least from all tax and benefit changes implemented by the coalition by April 2014, the IFS said, but households with children would lose the most - hardly a crowd-pleasing prospect.
The IFS also said that an increasing number of people earning "above-average but relatively modest salaries" were being caught in the net of the 40 percent tax band. That weakens Osborne's point about the tax-free allowance because it means that for some families, what they gain in allowance will be partly lost in higher tax on the rest of their income.
Whatever the rights and wrongs, such details are hard to sell to the electorate in one catchy turn of phrase, while the opposition Labour party was quick to coin the slogan "a budget for the millionaires, not the millions".
That sort of language is particularly dangerous for Conservatives, who under Cameron's leadership have tried very hard to shed their reputation as the party of the rich.
Both Cameron and Osborne come from wealthy backgrounds and were educated at exclusive private schools, which does not help their efforts to change the party's traditional image.
Cameron has succeeded in softening that image in terms of social attitudes, notably through his support for gay marriage after decades of anti-gay stances by the party, but in economic terms the "nasty party" label still rings true to many Britons.
Conservatives face the additional difficulty that their Liberal Democrat partners tend to claim credit for anything the government does that is helpful to lower-income people.
The 2012 budget supports that interpretation because raising the tax-free allowance for workers was a long-standing Lib Dem policy, while removing the 50p rate was a Conservative plan.
"We have fought like tigers to get 3.5 billion pounds back into the pockets of the 23 million lowest earners in our country, and the Conservatives have fought very hard for a Pyrrhic victory for 300,000 rich people," Liberal Democrat member of parliament Tim Farron told Reuters after the budget.
The Liberal Democrats have seen their support collapse since they joined the coalition because they have been associated with austerity measures that many of their voters do not support.
The coalition looks solid as things stand, not least because the Liberal Democrats would face electoral disaster if they brought the government down and faced an early election. It is also in their interest to stick it out in the hope that the economy picks up and they can take some of the credit.
But there is disquiet in Conservative ranks about the Liberal Democrats casting themselves as the "humanising" partner, softening the hammer blows of Conservative austerity.
"I don't think this tactic is going to rescue the Liberal Democrats, they're too far down. But it can still damage the Conservatives," said Tim Montgomerie, editor of the influential website for activists Conservative Home.
"They need to come up with one or two flagship policies that help the poor," he said.
(Additional reporting by Tim Castle and Olesya Dmitracova, editing by Ralph Boulton and Alistair Lyon)
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