HISTORIC PRESS RELEASE : Details Announced of New Tax Credits to make Work Pay, Support Children and Tackle Poverty [November 2001]

The press release issued by HM Treasury on 29 November 2001.

Details of two new tax credits to support work, help families with children and tackle poverty were announced today by Treasury Minister Dawn Primarolo. This is the next step in the Government’s major reform of the tax and benefits system.

A Bill to introduce the new tax credits was published today, setting out the legislative framework for the Child Tax Credit, for families with children, and the Working Tax Credit for low-income working households, including those where a worker has a disability. The credits are to be introduced from 2003.

The new tax credits will provide a simpler and more streamlined system.

Announcing the details, Ms Primarolo said:

“The Government is delivering on its promise to introduce a new streamlined system of tax credits to move forward on our commitments to eradicating child poverty and making work pay. Our tax and benefits reforms have helped ensure that more low-income families keep more of what they earn, and our reforms to improve work incentives are tackling the vicious unemployment and poverty traps. The new tax credits are key elements in achieving these aims.

“We are building on the success of the Working Families’ and Disabled Person’s Tax Credits, which benefit nearly 2.5 million children in 1.25 million families already, providing around £35 more a week compared to their predecessors. The new streamlined system will provide a secure stream of income for children, whether parents are in and out of work, helping people make the move into work and removing stigma from support for children.”

In the light of responses to a consultation exercise over the summer, a number of issues about the design of new tax credits have been confirmed:

•  the Child Tax Credit will be paid directly to the main carer, in line with Child Benefit;
• the principle of in-work support will be extended to those without children through the Working Tax Credit, which if based on the levels of the current systems of support, would benefit up to 400,000 low income working people without children;
• by creating a single, seamless system of support for families with children, the Child Tax Credit will extend support to around 100,000 families currently excluded from all but Child Benefit, including groups such as students and student nurses;
• the Child Tax Credit will support children up to the September following their 16th birthday. It will also support the families of young people up to the age of 19 who are in full time education;
• couples with children will be allowed to sum their hours together to qualify for the 30 hour credit;
• there will no capital limits for the new tax credits;
• the childcare element of Working Tax Credit will be paid direct to the main carer;
• payments of child maintenance will continue to be excluded from income for tax credits purposes;
• tax credit payments should be able to adjust in response to changes in income – but there will be further discussion about how this would work.

Other points in response to the consultation exercise are set out in the attached paper. The Government will continue discussions on the detail of the system as the regulations to support the Bill are drawn up.

The Bill also provides for the transfer of responsibility for Child Benefit and Guardian’s Allowance to the Revenue. The transfer, announced by the Prime Minister in June, will bring Government support for children within a single Department.