UK budget's hit on pensioners provokes ire

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By ROBERT BARR, Associated Press

LONDON (AP) — The British government faced an angry backlash Thursday to its decision to phase out age-related allowances, a move that's been denounced as a "granny tax" to pay for tax cuts for the rich.

The morning newspapers made uncomfortable reading for George Osborne, the finance minister, who unveiled his budget a day earlier. The biggest headline-grabbing initiatives were the cut in the top income tax rate from 50 percent to 40 percent, effective next year and a reduction in the corporation tax rate for businesses, that's already encouraged drug maker GlaxoSmithKline to invest in its first new factory in England in forty years.

But, having digested the small print, many newspapers that traditionally back Osborne's Conservative Party were up in arms on the impact on retirees.

"Osborne picks the pockets of pensioners," said the Daily Mail headline, while the Daily Telegraph said Osborne had "mounted a 3 billion pounds 'stealth' raid on middle-class pensioners."

In a round of interviews Thursday morning, Osborne insisted that "no one loses any cash from this budget."

Pensioners, he said, "will be better off because the basic state pension is going up in a couple of weeks time by over 5 pounds ($8) a week."

Documents published alongside the budget indicate that the Treasury expects a windfall of around 3.3 billion pounds ($5.2 billion) through to the 2016-17 fiscal year from the changes to the tax allowances to pensioners.

"Anyone retiring in the future will face frozen personal allowances and tax rate thresholds meaning more of their income will be dragged into the tax net and more pensioners having to submit tax returns," said Angela Beech, partner at the accounting firm Blick Rothenberg.

While Osborne's budget assumes that the British economy will grow by 0.8 percent this year, there was worse than expected news Thursday on retail activity. The Office for National Statistics reported that retail sales fell by 0.8 percent in February, twice as much as expected. The January advance was also revised downward from 0.9 percent to 0.3 percent.

"The data puts a real dent in hopes that the consumer may be perking up appreciably and tempers hopes that GDP will see a relatively decent return to growth in the first quarter ," said Howard Archer, chief European economist at IHS Global Insight.

While Britain's retirees were working out how they would fare from the measures announced, businesses generally hailed the decision to cut corporation tax from 26 percent to 24 percent.

Drug maker GlaxoSmithKline was so cheered by the budget provisions that it announced Thursday it is to invest in its first new factory in England for 40 years. It said it was investing 350 million pounds ($556 million) in a new factory in northwestern England, as well as improving two other factories.

The company said the move comes in the wake of Osborne's move on taxes and well as his long-expected announcement that the government would begin phasing in a "patent box" next year, eventually reducing the tax rate on patent income to 10 percent.

"The introduction of the patent box has transformed the way in which we view the U.K. as a location for new investments, ensuring that the medicines of the future will not only be discovered, but can also continue to be made here in Britain," said Andrew Witty, GSK's chief executive.

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