Attempts to block 'granny tax' fail

Attempts to block the so-called "granny tax" have failed amid claims it was being pushed through to fund tax breaks for millionaires.

Labour appealed for Coalition backbenchers to help them derail plans to end age-related allowances, which it estimates will cost some pensioners on relatively modest incomes up to £323 a year. But the Budget measure was backed in the Commons by a 69-strong majority.

Shadow chief secretary Rachel Reeves accused Chancellor George Osborne and Chief Secretary to the Treasury Danny Alexander of seeing pensioners as a "soft touch" who were "ripe for a sneaky tax grab".

"This is yet another broken promise from the Conservatives and their Liberal Democrat friends," she told the Commons. "It is all too clear why this Chancellor didn't bother to wait for the final report (from the Office of Tax Simplification). He wasn't really interested in simplifying taxation for older people."

Age-related allowances are due to be withdrawn for new pensioners from April next year while existing pensioners will have their allowances frozen at £10,500 for the over-65s and £10,660 for the over-75s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.

Ministers insist the move simplifies the system by bringing pensioners into line with basic rate tax payers. They also point to the £5.30 weekly boost to state pensions that came into force earlier this month.

Exchequer Secretary to the Treasury David Gauke said: "The idea of having the same personal allowance whether you're 64, 65 or 75 seems to me something that is perfectly sensible.

"The changes made by this clause will help ensure that people get the allowances they are entitled to, pay the right amount of tax and make it more straightforward for Government to administer, thereby minimising costs to the taxpayer."

The "granny tax" is one of a number of measures from last month's Budget that has attracted a slew of negative headlines and criticism from campaign groups.

But the Government has managed to comfortably see off Labour challenges, including Wednesday's bid to reverse the cut in the top rate of income tax from 50p to 45p. A further move to block the imposition of VAT on hot takeaway snacks - the "pasty tax" - was also defeated despite a revolt by 14 coalition backbenchers - nine Tories and five Liberal Democrats.