Good new - on the whole

It is now routine for the Government to announce good news twice if not three times. It gets more publicity that way. Even the annual Budget has now been split in two - a Pre-Budget Report in November and the Budget proper in March. This year's Pre-Budget Report promised a lot for older people.

Perhaps the most dramatic and unexpected move was the announcement of a free television licence for everyone aged 75 or more. The details of exactly how the free licence will work were still being worked out as this edition of Saga Magazine went to press. But the Chancellor's intention seems to be that any household which has a person aged 75 or more living in it will get a free licence. Here is what he said

"From autumn [2000]…every pensioner who is over 75 will receive their TV licence absolutely free of charge. For three million households with pensioners over 75 - a £101 saving a year."

He went on to add half the households which will benefit from this £300 million programme are among the poorest in the country. But the details will inevitably be more complex. What about households where granny has come to live but where there are two other working adults? Will they benefit from the free licence? What about people who buy their licence with savings stamps? Will they get a refund on the stamps they have already paid for? And will people get a refund if they have to renew their licence the week before the free licence starts? Answers to all these questions are promised soon. They may even have been announced before you read this. Meanwhile, anyone aged 75 or more whose licence runs out should renew it or they risk a fine.

One of the changes in the 1999 Budget which caused confusion and outrage was the Chancellor's decision to exclude interest on savings from the lower rate of income tax. The Budget cut the lower rate of tax from 20% to 10%. This lower rate applies to the first £1500 of income above your personal tax allowances. But it does not apply to savings income. It applies to income from earnings, pensions, rents but not savings. The result is that two pensioners with the same income - one mainly from savings, the other mainly from pension - would pay different amounts of tax. The person with the higher income from savings would pay up to £150 more tax than the person with the higher pension. Everyone thought this was unfair. Some people thought it was a mistake. Many got it wrong - some Saga readers were even wrongly advised by their tax office that the lower rate of tax DID apply to savings income. Now, the anomaly has been corrected. The lower rate band of tax will apply to savings income too. And the Chancellor has said that this change will be backdated to April 1999. So people who have low incomes - within £1500 of their personal tax allowance - and who have savings income as part of that, will now have the tax on up to £1500 of their savings income cut in half - from 20pc to 10pc.

But there is a catch. Banks and building societies will continue to deduct tax at the full 20 per cent from interest earned. So anyone who should only be paying ten per cent on some or all of it will have to fill in a form to get it back. So the claim by the Chancellor…

"The elderly especially will benefit from my proposal to cut the starting rate of tax on savings from 20p to 10p - 1.5 million pensioners will benefit."

…should be taken with a pinch of salt. A million and a half people will benefit only if they claim back the money they are owed. This has happened before. Banks and building societies used to deduct tax at 23 per cent but many people only had to pay tax at at 20 per cent. Millions of people never did claim back the tax they were owed and the Treasury kept hundreds of millions of pounds that was owed to taxpayers. It has still got it.

So if you think you are owed money, claim it back. You could get as much as £150 - the Treasury says the average pay out will be £65. You can get advice on how to reclaim it by ringing an Inland Revenue helpline 0845 307 5555 - calls are charged at local rates. Or you can get the form to claim a repayment R40(SP)(M) from any tax office. If you are owed £50 or more, then you can claim it back at once. If it is less than £50 then you must wait until after the end of the tax year in April 2000. And you will have to make another claim in 2000/01 and each year for as long as the new system lasts.

There was also some good news for pensioners who live on a limited income and have limited savings. The day after the Chancellor set out his plans, his colleague the Secretary of State for Social Security, Alastair Darling, went to Parliament to announce the new levels of pensions and benefits from April. The new rates will begin in the week of April 10, 2000. The rise in the basic retirement pension will be very low - just 75p a week extra. From April the basic retirement pension for someone to who has paid full contributions all their life will be £67.50 a week. The pension paid to a married woman on her husband's contributions will rise by 45p to £39.95 a week.

These low rises are being paid because prices only rose by 1.1 per cent in the 12 months to the end of September - the figure which is always used for the annual rise in pensions. This year many people are questioning how fair this system is. The September rise in prices was the lowest of the year so far and it was kept low by the fall in the cost of mortgage repayments. Most people over pension age do not have mortgages and if those costs are excluded, inflation was nearly twice as high - 2.1 per cent. If that rate of inflation had been applied the basic pension would have risen by £1.40.

But there was a sweetener for two million poorer pensioners. The means-tested benefit they get - income support - which the Government likes to call its 'Minimum Income Guarantee' will rise by much more than the basic pension. It will go up in line with average earnings which have risen by 4.6 per cent. That will increase the level of income support for a single person aged 60 or more by £3.45 to £78.45 a week and for a couple it goes up by £5.35 to £121.95. People over 75 and 80 will get slightly bigger rises. People with lower incomes than these should make a claim in April.

This generosity to poorer pensioners will extend the gap between the basic retirement pension and income support and increase the numbers eligible by around xx,000 [Pat - I will ring through this figure today - Paul]. That makes it even more important that people who are entitled to income support claim it. But even the Government accepts that more than half a million older people who could claim income support do not do so - some experts put the figure closer to a million.

Another million people will not benefit from income support anyway. The Government has admitted that 600,000 pensioners are excluded because of their savings. Anyone - or any couple - whose savings exceed £8000 cannot get income support and many of those with savings over £3000 will find they are excluded too. Those limits were fixed ten years ago and are not rising in April. Another 300,000 older people are excluded from income support because they live in a residential care or nursing home. After contributing to their fees they are allowed to keep just £14.75 a week. From April that will rise by 70p to £15.45 a week.

Of course for those who are entitled and who do claim, the news is good. And the change will also mean significant rises in housing benefit and council tax benefit.

There was better news too for people who drive. At the moment the tax on petrol goes up each year by 6 per cent above the rate of inflation (see Driving Costs Up - Saga Magazine November 1999). That so-called fuel price escalator is being stopped. Instead, the increase in tax will be considered each year - so the rise could be more or less than in the past - and the whole of the extra money will be 'ring-fenced' and spent on improving roads and public transport. But the good news - if it turns out to be that - was tempered by new plans to give local councils powers to charge people for driving into towns and to tax car parking spaces in town centres which are owned by businesses.

Charity

And there was some cheer for charities. From April, taxpayers can claim full tax relief on any gift to charity, however small. At the moment tax relief is only available on gifts of £250 or more (or £100 to charities working in certain developing countries). The details of how the new system will work will be announced soon.

January 2000

e-mail Paul Lewis on paul@paullewis.co.uk