The Chancellor delivering his Budget speechGeorge Osborne is facing a mounting backlash over his £1 billion "granny tax" raid on the incomes of millions of pensioners.

The Chancellor's move to scrap age-related allowances introduced by Winston Churchill in 1925 was condemned as "outrageous" by older people's groups.

Mr Osborne used his Budget to cut the 50p top rate for Britain's wealthiest earners and lift thousands of low-paid workers out of taxation altogether.

But the Treasury acknowledged that 4.5 million pensioners would lose out as a result of the decision to phase out age-related allowances.

Under the Chancellor's plans, the allowances will be withdrawn for new pensioners from April next year while existing pensioners will have their allowances frozen at £10,500 for the over-65s and £10,660 for the over-75s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.

Although Mr Osborne insisted there would be no cash loss to pensioners, Treasury sources said existing pensioners would be, on average, £63 a year worse off while new pensioners would lose out to the tune of £197 a year.

But the Chancellor pointed to a report which claimed many pensioners did not understand the allowances and found claiming them "burdensome", adding: "These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is being eroded all the time."

Age UK said it was "disappointed" with the move, warning it could leave some pensioners up to £259 a year worse off and economist Ros Altmann, director-general of the Saga Group, denounced it as an "absolutely outrageous assault" on all pensioners with incomes between £10,500 and £24,000.

Mr Osborne presented his statement as a "Budget that rewards work", announcing that a £1,100 rise to £9,205 in the income tax threshold will take another 840,000 of the low paid out of taxation and save 24 million people £220 a year. But around 300,000 people will be drawn into paying income tax at 40% from 2013/14 by a reduction in the higher rate threshold to £41,450.

Labour leader Ed Miliband said the Budget meant millions would pay more while millionaires paid less. But Deputy Prime Minister Nick Clegg hailed it as "a Budget every liberal can be proud of", pointing to the lift in the income tax threshold and increases in taxes on wealth which Liberal Democrats had demanded in negotiations with Conservative coalition partners.

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