"Granny tax" is hard sell for Conservatives

LONDON Thu Mar 22, 2012 2:07pm GMT

A video grab image shows Chancellor of the Exchequer, George Osborne, delivering the annual budget to the House of Commons in central London March 21, 2012. REUTERS/Parbul TV via Reuters TV

A video grab image shows Chancellor of the Exchequer, George Osborne, delivering the annual budget to the House of Commons in central London March 21, 2012.

Credit: Reuters/Parbul TV via Reuters TV

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LONDON (Reuters) - The 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 economic growth.

Chancellor George Osborne, in announcing a freeze on tax allowances for pensioners in Wednesday's budget, said any losses 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' long years of opposition wilderness, 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 were particularly controversial because they came against a backdrop of steep cuts in public spending as part of a seven-year austerity programme to cut Britain's deficit, which Osborne says is essential to keep interest rates down and help the economy recover from the deep slump of 2008-2009.

"Osborne picks the pockets of pensioners" said the Daily Mail.

The Daily Mirror had a doctored image of Osborne and Cameron in hooded tops carrying a baseball bat under the headline "Mugged!"

With even the firmly pro-Conservative Daily Telegraph slamming the Granny tax, the coverage was damaging for a party that desperately needs to appeal to a broad range of voters if it is to escape from coalition and rule alone once more.

In the 2010 election that brought Cameron to power, 44 percent in the 65+ age group voted Conservative and 31 pct Labour, according to an analysis by pollsters Ipsos MORI.

The Conservatives failed to win a parliamentary majority in 2010 and had to form a government with the Liberal Democrats. Osborne, the Conservatives' top political strategist, is firmly focused on the goal of an outright Conservative win in 2015.

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.

"MILLIONAIRE'S BUDGET"

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 much larger numbers 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.

He mounted a passionate defence of his decision to lower the rate during back-to-back TV interviews on Thursday morning.

"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.

Osborne insisted that the wealthiest people would not be better off despite the tax cut 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.

He also denied that he was taking money from pensioners, saying that none of them would lose any cash and they were about to benefit from a substantial rise in the basic state pension.

Osborne emphasised a faster-than-expected rise in the tax-free allowance that he said would leave 23 million workers better off, as well as a deeper-than-expected cut in corporation tax that he said would stimulate growth and jobs creation.

But 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 image as a party protecting the interests of the rich 'hunting and fishing' set to the detriment of the poor.

"PYRRHIC VICTORY"

Cameron has succeeded in softening their 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.

Both Cameron and Osborne come from wealthy backgrounds, were educated at exclusive private schools and speak in the distinctive accent of the upper class, which does not help their efforts to change the party's traditional image.

Osborne faces the additional difficulty that his Liberal Democrat coalition 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 central and long-standing Lib Dem policy, while removing the 50p rate is clearly a Conservative-branded measure.

"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 MP 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 ConservativeHome.

"Lifting the poorest out of income tax altogether is a Liberal Democrat policy. What do the Conservatives have to offer as an alternative? They need to come up with one or two flagship policies that help the poor," he said.

(Additional reporting by Tim Castle; editing by Ralph Boulton)

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