New Tax Credits, by Paul Treloar

Benefits, number 33, volume 10, issue 1, February 2002, pages 49-52.

This is a useful discussion of the nature and likely effects of the new Child Tax Credit announced in the 2000 budget. For the government’s proposals see Opportunity for All: Making Progress, published by the Department for Work and Pensions in September 2001, Cm 5260, £22: “From 2003 we will introduce an integrated child credit, which will bring together all existing income-related benefits and tax credit support for children into a single source of income, providing financial support to families both in and out of work. This will build on the foundation of the universal Child Benefit, along with extra help for families on low incomes.” A description of the move to tax credits and of the international context is followed by a discussion of the contradiction between our individual-based income tax system and the family-based Working Tax Credit (which will soon replace the Working Families Tax Credit and the Disabled Person’s Tax Credit) and CTC (Child Tax Credit: the new name for the integrated child credit). A welcome proposal is that no upper capital limit will apply to receipt of CTC: instead, actual investment income will be taken into account. This will make tax credits more like the rest of the income tax system. Similarly, there will be no work test for CTC, with assessment being made purely on the basis of family income.

Like Child Benefit, CTC will be paid in full to recipients of Income Support or income-based Job Seeker’s Allowance; and because it will be received by low earners it will provide a new level of income security during employment-pattern transitions. This is one of CTC’s most attractive features.

The article bemoans a continuing lack of detail relating to tapers and levels of CTC, pointing out that it is the detail which will determine whether CTC will reduce poverty and make work pay.