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 UK Budget 2002 - Related Government Press Releases
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April 17 2002

CLICK HERE FOR BUDGET 2006-2007

 

(See the full text of the Chancellor's speech here!)


NEW TAX CREDITS: A #2.7 BILLION BOOST FOR FAMILIES AND THE LOW PAID

Two new tax credits - the Child Tax Credit and the Working Tax Credit
- will be introduced from April 2003 providing an additional #2.7
billion to support families with children, tackle poverty and make
work pay.

Announcing the rates and thresholds for the new tax credits, the
Paymaster General, Dawn Primarolo said:

"The Child Tax Credit and Working Tax Credit modernise the existing
tax credit system to improve support for children whether or not
their parents are in jobs and to make work pay. We are determined to
build a tax system fit for the 21st century and these new credits
mark a radical step forward in our tax and benefit reforms."

- Child Tax Credit will combine all income-related support for
children and will be paid direct to the main carer, usually the
mother, creating one system of support spanning welfare and work;

- The Working Tax Credit will provide a guaranteed income from
full-time work for those aged 25 or over without children or a
disability of #183 per week for couples and #154 per week for single
people;

- The Child Tax Credit will provide a total of #13 billion in
support, benefiting around 5.75 million families;

- For the first child, universal Child Benefit and the Child Tax
Credit will provide #54.25 a week to all families with incomes less
then #13,000 while all families with incomes less than #50,000 are
guaranteed #26.50 a week;

- Child Tax Credit will be extended to some who are currently
excluded from all but Child Benefit such as students and student
nurses;

- From April 2004, the child elements of the Child Tax Credit will
be uprated at least in line with earnings rather than prices for the
rest of the Parliament.

The Child Tax Credit brings together the various strands of support
for families with children - the child elements in Income Support,
Jobseeker's Allowance, Working Families' Tax Credit (WFTC), Disabled
Person's Tax Credit (DPTC) and the Children's Tax Credit - into one
streamlined system.

The Working Tax Credit will broadly replicate the adult support in
WFTC and extend the principles of WFTC and DPTC to adults without
children to create one transparent instrument to make work pay, paid
through the wage packet. It will also include support with the costs
of childcare, building on the success of the existing childcare
component of WFTC and DPTC.

NOTES

The new tax credits will offer recipients a number of advantages over
the current systems of support. Compared to the current WFTC and
DPTC, the main advantages are:

- greater generosity - a single earner couple working full-time at
the National Minimum Wage with two children will receive around #400
a year more from the new tax credits compared to WFTC and the
existing Children's Tax Credit;

- less form filling - families will have one renewal each year,
rather than two; and

- better incentives to save - families will no longer be unfairly
penalised for having savings. The system will treat income from
savings just like any other income. For example a single earner
family earning #18,000 with #6,000 of savings (generating #300 of
interest a year) would gain over #14 a week from the new tax credits,
mainly as a result of the abolition of the capital rules.

Families receiving Income Support or income-based Jobseeker's
Allowance (IS/JSA) will automatically receive full Child Tax Credit.
For them, the main advantages are:

- greater generosity - compared to the child allowances in IS/JSA.
For example, most families with two children on IS/JSA will gain over
#9 a week from the Child Tax Credit; and

- more security on the move into work - families continue to
receive Child Tax Credit when they return to work without the need to
reapply. The Child Tax Credit will be paid at the maximum rate for
all families until income reaches #13,000 a year, delivering a secure
stream of income for families moving off welfare and into work.

Compared to the current Children's Tax Credit, the new tax credits
will offer a number of advantages:

- payment to the main carer - the Child Tax Credit will be paid
direct to the main carer, usually the mother, providing a secure and
regular stream of income; and

- a fairer system - awards will be based on the income of the
family, so one and two earner couples on the same income will be
treated the same. For example, under the Child Tax Credit a single
earner family on #40,000 will receive #545 a year, the same as a
couple where both earn #20,000 and #320 a year more than they would
have received from the Children's Tax Credit.

The Child Tax Credit

The Child Tax Credit replaces the income-related child elements of
out of work benefits (Income Support and Jobseeker's Allowance), the
Working Families' and Disabled Person's Tax Credits and the
Children's Tax Credit, building on the foundation of universal Child
Benefit. The Child Tax Credit will provide #13 billion of support,
benefiting around 5.75 million families.

The new system will offer families with children a number of benefits
over the current systems of support. The Child Tax Credit will
provide:-

- a continuous stream of income for families with children, which
does not depend on the work status of the parents, creating a stable
income bridge when families move into work;

- extended eligibility, to some who are currently excluded from all
but Child Benefit, such as students and student nurses;

- a system in which all support for children is paid direct to the
person with main responsibility for the child's care, in line with
Child Benefit;

- a more transparent system which brings together all
income-related child payments into a single payable tax credit
administered by the Inland Revenue;

- greater flexibility, enabling families to continue to access
support from one system, even as their incomes rise or circumstances
change; and

- a common framework for assessment, so that most families are part
of a single, inclusive system ending the stigma often associated with
more traditional forms of support.

Budget 2002 announces the rates and thresholds for the new tax
credits (fully detailed in the Annex). As an illustration for
families with two children, Child Tax Credit and Child Benefit will
work together to provide:

- at least #26.80 a week in support guaranteed for all families;

- #37.25 a week in support guaranteed for families with an income of
less than #50,000; and

- #92.75 a week in support guaranteed for families with an income of
less than #13,000 a year.

In advance of the introduction of the Child Tax Credit, the child
allowances in Income Support and Jobseeker's Allowance will be
brought into line with those in Working Families' Tax Credit from
October 2002, providing an increase of #3.50 a week.

The Working Tax Credit

The Working Tax Credit will make work pay for low income workers. It
replaces the Working Families' Tax Credit, Disabled Person's Tax
Credit and New Deal 50 plus Employment Credit. It improves on these
forms of support by:

- increasing the minimum income guarantee for a single disabled
person working full time from #172 a week now to #194 a week in
April 2003; and

improving the work incentives of second earners in couples with
children, for example, in a family with two children where the first
earner has an income of #14,100 (half average earnings) and the
non-working partner takes a part-time job at typical entry wages, the
gain to work will increase by over #14 a week in 2003-04 compared to
the current system.

The Working Tax Credit will also for the first time extend support to
those aged 25 or more without children or a disability where they
work at least 30 hours a week. For this group, the Working Tax Credit
means:

- a guaranteed minimum income from full-time work of #183 for couples
and #154 for single people; and

- improved gains to work - for a couple where one person moves into
full-time work, the gain to work will rise to nearly #50 a week
compared with #20 now.

Budget 2002 announces the rates and thresholds that will apply to the
Working Tax Credit from April 2003 (fully detailed in the Annex). In
advance of the introduction of the new tax credits, the basic credit
in the Working Families' Tax Credit and the couple and lone parent
credits in the Disabled Person's Tax Credit will rise by #2.50 from
June 2002. Responsive tax credits

The Working and Child Tax Credits will be based on annual income for
a tax year and will run for up to 12 months. They are designed to
combine continuity of support for those whose circumstances are
stable, with the flexibility to respond quickly for those who are
experiencing change.

At the start of the tax year or the start of a claim, the tax credits
award will be based on the current circumstances (for example, number
of children, hours worked) of the individual or couple claiming and
on their income for the last tax year. Those with income below the
first withdrawal threshold will be paid the full amount of tax
credits available for their circumstances. Those who qualify for
Income Support or income-based Jobseeker's Allowance will also be
entitled to maximum Child Tax Credit, without a further income test.

Those with income over the threshold will have their maximum tax
credit award reduced by 37p for every pound of income (before tax and
NICs) over the threshold. Claimants eligible for both the Working Tax
Credit and the Child Tax Credit will have their maximum awards
reduced in the order:

- Working Tax Credit apart from childcare;

- The childcare element of Working Tax Credit;

- Child Tax Credit apart from the family element; and finally

- the family element where income exceeds the higher threshold of
#50,000

That means that Working Tax Credit paid through employers is the
first to be withdrawn, so that for many families with children, tax
credits will be paid wholly to the person with main responsibility
for the child's care.

Once an award has been set, it can run until the end of the tax year
when entitlement will be reviewed. But if there is a change
affecting the maximum available amount of tax credit, the tax credit
award can be adjusted from the point of the change.

An award can also be adjusted if income in the current year falls in
comparison with last year. This will help people who have a fall in
income to stay in work. Awards will also be based on the income of
the current year if income rises in comparison with the previous
year. But to maintain the incentive to increase earnings, rises in
income of up to #2,500 will be ignored and only the rise in income
over #2,500 can trigger a reduction in a tax credit award.

For more details see The Child and Working Tax Credits, published by
HM Treasury today

Working Tax Credit and Child Tax Credit - Ensuring A Smooth
Transition

The Government wants to ensure that people receiving one of the
current tax credits, who will be eligible for one or both of the new
credits make a claim for the new tax credits in good time and do not
experience any gaps in support. To this end, a number of changes are
being made this year to prepare for the transition.

Claims for Working Tax Credit and Child Tax Credit

Subject to the necessary legislation being approved, later this year,
the Inland Revenue will begin writing to all those currently
receiving one of the existing tax credits inviting them either to
apply for the new tax credits on-line, or to complete and return the
paper form they will be receiving. Help will be provided both on-line
and with the form and additional support will be available by phone
or in person at local Inland Revenue offices. The Revenue wants to
ensure that all those eligible for the new tax credits claim as soon
as possible so that they will start to receive payments in April
2003.

People not currently receiving tax credits but who think they may be
eligible will be encouraged to go on-line and check their
eligibility. If they find they are entitled to tax credits, they will
be able to make their application electronically - there and then.
Otherwise, people will be able to able to ring up for a paper form,
or pick one up from Inland Revenue Enquiry Centres. An extensive
publicity campaign is planned to help ensure no-one misses out.

Special Arrangements for WFTC and DPTC recipients

To avoid people having to renew their tax credit awards for
relatively short periods in the run-up to April 2003, and help ensure
a smooth transition to the new tax credits, awards of WFTC and DPTC
will be lengthened from this summer.

From June this year, all new awards of WFTC and DPTC will run until 7
April 2003 instead of the normal 26 weeks. This will mean that
no-one will have to re-apply for WFTC or DPTC from December 2002
onwards for an award which would last for less than four months.

To ensure that all WFTC and DPTC awards end on 7 April 2003, to
coincide with the introduction of the new tax credits, awards
starting on or after 15 October 2002 will be shortened and will run
to that date.

Changes to social security benefits

Child Tax Credit will replace the child elements of Income Support,
including the Minimum Income Guarantee, and income-based Jobseeker's
Allowance and the support for children currently provided within
certain other benefits. The Child Tax Credit replaces Child
Dependency increases paid in non- means tested benefits for new
claims to Retirement Benefit, Bereavement Benefit, Incapacity Benefit
(including residual Severe Disablement Allowance) and Invalid Care
Allowance. Existing recipients will have their entitlement
transitionally protected.

For families who receive income related benefits, continuity of
payment will be of particular importance. The Government has,
therefore, decided that there will be a transition period for people
on these benefits, to minimise the risks in this area. Current plans
are for:

- families with children on the Minimum Income Guarantee to be
migrated to Child Tax Credit by October 2003, to coincide with the
planned introduction of Pension Credit; and

- families on Income Support or income-based Jobseeker's allowance to
be migrated to Child Tax Credit from April 2004.

Families will not be disadvantaged by the transition period. The
rates of the child elements within the income related benefits will
be adjusted so that families receive the same amount in respect of
their children as they would if they were receiving Child Tax Credit.
For the vast majority of families in this position, there will be no
need for them to claim Child Tax Credit until they move into work.
If they are still on benefit when the migration begins, the
Department for Work and Pensions will handle their cases
automatically.

Helping Employers

Paying WFTC and DPTC through the wage packet has been a key element
in delivering on the promise to make work pay. The Government is
committed to that principle, which is why the new Working Tax Credit
will be paid to employees through the wage packet, providing a clear
and targeted top-up to wages.

But the Government also wants to ensure the transition to Working Tax
Credit runs smoothly for employers. The system for paying Working
Tax Credit through the wage packet will build on the successful WFTC
system. But there will be some key simplifications to the system
which will together save employers #11 million annually.

To allow employers time to adjust to the new system and to smooth the
transition to the Working Tax Credit for claimants, payments of WFTC
and DPTC by employers will gradually be phased out from 27 August.
All awards of WFTC and DPTC in place before 27 August will be paid as
normal for the first 26 weeks, but the Inland Revenue will make the
remaining payments up to 7 April 2003. Awards which begin on or
after 27 August will be paid direct by the Inland Revenue throughout.

Employers should not, therefore, have to make payments of WFTC or
DPTC alongside the new Working Tax Credit. This will ensure that
payment of the Working Tax Credit through the wage packet is
introduced with minimum disruption to employers and employees.

More detail about the Working Tax Credit and the Child Tax Credit and
how the new system will work is available in a new document, The
Child and Working Tax Credits, published today by HM Treasury and the
Inland Revenue.

HM TREASURY PRESS OFFICE

Non-media enquiries: 020 7270 4558

INLAND REVENUE PRESS OFFICE

Non-media enquiries: 020 7944 3000
(office hours only)

GOVERNMENT DEPARTMENT INTERNET SITES

Further information and all published documents relating to Budget
2002 may be found on the Internet at the following addresses:

HM Treasury www.hm-treasury.gov.uk

Inland Revenue www.inlandrevenue.gov.uk




PRESS NOTICE ANNEX

Rates and thresholds

The rates and thresholds of the new tax credits are shown in the
table below.

Working Tax Credit (Note 1)             2003-04,               Weekly
                                      # per year          equivalents
                                                                  (#)

Basic element                           1,525.00                29.20

Additional couple's and                 1,500.00                28.80
lone parent element

30 hour element                           620.00                11.90

Disabled worker element                 2,040.00                39.15

Enhanced disabled adult element           865.00                16.60

50plus return to work payment,          1,045.00                20.00
16-29 hours (Note 2)

50plus return to work payment,          1,565.00                30.00
30+ hours (Note 2)

Childcare element
- maximum eligible cost                                        200.00

- maximum eligible cost for 1 child                            135.00

- percent of eligible costs covered                               70%

Notes
1. Apart from those mentioned in the footnote below, the elements for which claimants are eligible can be added together to arrive at the maximum amount of tax credit available.

2. These elements are mutually exclusive. Where an individual works enough hours to qualify for the 50plus return to work payment (30+ hours), they cannot also qualify for the 50plus return to work payment (16-29 hours).

Child Tax Credit                            2003-04,           Weekly
                                          # per year      equivalents
                                                                  (#)

Family element (Note 1)                       545.00            10.45

Family element, baby addition (Note 1)        545.00            10.45

Child element (Note 2)                      1,445.00            27.75

Disabled child                              2,155.00            41.30
additional element (Note 2)

Enhanced disabled child                       865.00            16.60
additional element (Note 2)

Notes

1. Only one family element is available per family. Families are entitled to the family element and the baby addition in the first year of a child's life.

2. As well as one family element, a family will be entitled to a child element for each child for whom it has responsibility. For each child, the child elements which are appropriate may be added together to arrive at the maximum amount available for that child.

Common features                           2003-04              Weekly
                                       # per year         equivalents
                                                                  (#)

First income threshold                   5,060.00               97.00

First withdrawal rate                         37%                   -

Second income threshold                 50,000.00              958.90

Second withdrawal rate                    1 in 15                   -

First threshold for those               13,230.00              253.76
entitled to Child Tax Credit only

 

 


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last modified: April 17, 2002