• Lib Dems and Tories approved 20% VAT last night in Commons vote 
  

• From January, pensioners will face a £400 million VAT tax bill which they will have to start paying months before any increase in the Basic State Pension. Pensioners face paying nearly £8 billion in VAT over the parliament.

• In 2011, weekly pension increases fall behind VAT-fuelled price rises.

• In 2012, pension rises fall behind price rises again, after the Treasury quietly changed the way the so-called ‘triple lock’ up-rates pensions in practice.

• By 2013, pensioners face cuts to Disability Living Allowance benefits, which may total £350 million a year by the end of the Parliament, alongside cuts to Housing Benefit and the lower uprating of public service pensions and benefits.

“This is a betrayal of Scottish pensioners by the Tory-Liberal government. Our retired community has paid in for a life-time and is now being hit hard in the pocket.

“I wanted a plan in place to protect local pensioners from the £8 billion VAT bill but the Liberal Democrats refused to help.

“I can't believe the Tories and Liberals are trying to disguise the tax bill with a few promises which on closer inspection just don't add up. The Budget small print says pensioners keep up on getting hit every year with a host of Treasury tricks”.

Overall, pensioners will be pay nearly £8 billion in VAT over the course of this parliament – the first £422 million, paid in 2011, starts in January months before any improvements in pensions.

Extract from House of Commons Library Research:

Overall effect

At the overall level, the revenue raised from the VAT increase has been allocated between pensioner and non-pensioner households using their share of aggregate non-food spending in 2008. Pensioners account for around 15% of this spending.

Effect on individual households
The effect of the VAT increase will depend on the spending patterns of a particular person or household. The figures in this note are based on surveys of spending by different types of UK household. [The House of Commons Library] compared a household where the householder is aged 65 to 74 and one where the householder is aged 30 to 49.

It is important to point out that only just over half of spending is on goods on which VAT is paid at the full rate of 17.5%.  Around a third of spending is on items which are exempt from VAT (or out of scope) and 12% are zero-rated.  Four per cent of spending is on goods where the lower rate of 5% VAT applies.

The calculations below take 2008 data on spending patterns of households from the ONS’s Family Spending publication.  [The House of Commons Library] then allocated the categories of spending to the various rates of VAT currently in force (17.5%, 5% and 0%) and calculated the change in spending when VAT increases from 17.5% to 20%.

[The House of Commons Library] made a number of assumptions in calculating these figures.  In particular:

• The increase in the rate of VAT is passed on to the consumer in full.

• There is no change in the goods and services bought, despite the change in VAT.  In practice, one would expect households to switch away from goods whose price goes up as a result of the VAT change.  The figures given below should, therefore, be seen as the upper bound of the likely loss from the VAT increase.

In addition, pensioners may be hit by £20 million extra in insurance premium tax:

Extract from House of Commons Library Research:

“Insurance premium tax (Line 2)

The revenue raised from the IPT increase has been allocated between pensioner and non-pensioner households using their share of aggregate spending on insurance.  Pensioners account for around 18% of this spending.”

House of Commons library research shows that the VAT hike increases the pensioners’ weekly bill by £4.30 a week.

Extract from House of Commons Library Research:

“Household where householder is aged 65-74

In 2008, the typical household in this category spent £353.70 a week.  This would rise to £358.00 after the VAT increase if the same goods and services were bought.  This is an increase of £4.30 a week (1.2%) or around £220 a year.”

But research into the rise in the Basic State Pension (BSP) shows the BSP only rise by £4.10 a week from April.

The House of Commons library shows VAT-fuelled RPI at 3.2% in 2012, but the triple lock only gives a pension rise of 2.5%, because the Treasury switched to the lower rising CPI-inflation to calculate the rise in prices, used in the triple-lock calculations.

According to p.84 of the Red Book (Table C2), in 2012:

• RPI will be at 3.2%

• Average earnings growth is 2.3%

• CPI will be at 1.9%

Under the triple lock system, the pension increase will only be 2.5%. This will have fallen behind RPI.

By 2013, pensioners face cuts to Disability Living Allowance benefits, which may total £350 million a year by the end of the Parliament, alongside cuts to Housing Benefit and the lower uprating of public service pensions and other benefits, which are now linked to the lower rising CPI, rather than RPI.

Although DLA reform plans are not clear, Britain’s pensioners could face a new hit from reform of the benefit. Reform of DLA is one example of a benefit that will be cut from 2013, and may total £350 million a year in lower benefits by the end of the Parliament.

Extract from House of Commons Library Research:

“In November 2009 there were 1 million DLA recipients over pension age. This is 34% of all DLA recipients of all ages.

23 DLA: reform gateway from 2013-14

Exchequer cost (-) / yield (+) (£million)

2010/11	2011/12	2012/13	2013/14	2014/15
0	0	0	+360	+1,075

• Estimated number affected – pensioners/non-pensioners
  In November 2009 there were 1.0 million DLA recipients over pension age. This is 34% of all DLA recipients of all ages.

The average DLA benefit payment for those of pension age was £74.85 per week.  For those of working age the average DLA payment was £67.74 per week.

• Financial effect and impact on individual pensioners

  It is not clear how these proposals will be implemented in terms of pensioners, but assuming the reduction is across the board, around £350 million of the 2014/15 saving would be from pensioners.”

Local Authority	Claimants (Thousands)
Aberdeen City	36.84
Aberdeenshire	45.98
Angus	25.74
Argyll and Bute	21.42
Clackmannanshire	9.41
Dumfries and Galloway	36.94
Dundee City	28.29
East Ayrshire	24.31
East Dunbartonshire	22.99
East Lothian	20.07
East Renfrewshire	18.23
Edinburgh, City of	77.04
Eilean Siar	6.42
Falkirk	28.79
Fife	72.47
Glasgow City	92.07
Highland	47.26
Inverclyde	16.56
Midlothian	15.79
Moray	18.89
North Ayrshire	29.26
North Lanarkshire	57.59
Orkney Islands	4.48
Perth and Kinross	32.55
Renfrewshire	33.5
Scottish Borders	26.66
Shetland Islands	4.2
South Ayrshire	27.27
South Lanarkshire	60.2
Stirling	17.27
West Dunbartonshire	17.13
West Lothian	26.95

Region	Claimants (Thousands)
North East	510.72
North West	1,329.15
Yorkshire and The Humber	987.76
East Midlands	870.8
West Midlands	1,062.69
East of England	1,145.74
London	970.94
South East	1,641.60
South West	1,160.03
Wales	630.34
Scotland	1,002.57