GOVERNMENT LAUNCHES NEW DEAL FOR
WORKING FAMILIES: MAKING WORK PAY
HM TREASURY 3
17 March 1998
The Chancellor Gordon Brown today announced a major new programme
to make work pay for families. The Working Families Tax Credit
(WFTC) will mean a better and a fairer deal for 1.4 million
working families, and will provide about 5 billion pounds of help
each year.
The WFTC will make work pay for families with children. It will
improve work incentives, encouraging people without work to move
into employment, and helping people in relatively low-paid jobs
to move up the earnings ladder.
The WFTC is central to the Government's major programme of tax
and benefit reform and represents an important step towards
greater integration of the tax and benefits systems. It is
accompanied by radical changes to the National Insurance system
and a package to tackle child poverty. The Government's strategy
to help people move off welfare and into work will be supported
by the minimum wage. The new WFTC will be introduced in October
1999, and will replace Family Credit. The introduction of the
WFTC will make work pay by:
raising incomes: a working family with two young
children, earning 200 pounds a week (the average wage for
someone moving from unemployment into full-time work),
will be more than 23 pounds a week better off as a result
of this Budget;
providing a guaranteed minimum income for working
families, over and above the minimum wage;
lowering the tax burden on working families by raising
the point at which they effectively begin to pay income
tax to a level not seen since the 1960s; and
reducing the stigma associated with in-work support and
demonstrating the rewards of work.
The WFTC will also be better than the present Family Credit in
the following ways:
changes to ensure that low- and middle-income working
families can keep more of what they earn. This will
encourage those with relatively low earnings to move from
part-time to full-time work, and onwards up the earnings
ladder. This will be achieved by a higher income
threshold before the WFTC is withdrawn and withdrawing
the WFTC more slowly than now;
greater support for parents' childcare costs: a new
childcare tax credit, within the WFTC, will be worth 70
per cent of eligible childcare costs (typically,
registered childcare costs) up to a ceiling on costs of
100 pounds per week for one child and of 150 pounds for
two or more children;
enhanced support for children: an extra 2.50 pounds a
week in respect of each child under 11.
The WFTC will be administered by the Inland Revenue, and, from
April 2000, will be payable through the employee's wage packet.
The Inland Revenue will be consulting employers about the
detailed working of the credit. The self-employed will receive
the credit direct from the Inland Revenue.
The WFTC will help low- and middle-income families with children.
A disproportionate number of the lowest-earning households are
ones where the main earner is a woman. Couples will be able to
choose whether the mother or the father receives the tax credit.
The WFTC also poses no threat to independent taxation. So the
WFTC, especially in conjunction with the National Minimum Wage,
will be of particular benefit to women.
NOTES FOR EDITORS
1. A fuller paper on the Working Family Tax Credit is being
published today. It is called "The Working Families Tax Credit
and Work Incentives", and is number 3 in the "The Modernisation
of Britain's Tax and Benefit System" series of Government
publications.
2. Martin Taylor recommends the replacement of Family Credit
with a tax credit. "Work Incentives: A report by Martin Taylor",
is also being published today, as number 2 in the "The
Modernisation of Britain's Tax and Benefit System" series.
3. The Disabled Person's Tax Credit will replace Disability
Working Allowance. This, and the rest of the New Deal for
disabled people, is covered in HMT 11.
4. A factsheet giving further detail on the Working Families
Tax Credit is attached.
5. The extra cost of the WFTC over FC will be 1.4 pounds
billion a year in 2000-01.
6. Unlike the existing disregard in Family Credit, the
childcare tax credit will help those on the lowest incomes.
There will also be an improvement in the childcare help in HB and
CTB. The limit on the disregard for childcare costs in Housing
Benefit (HB) and Council Tax Benefit (CTB) will be raised to 70
pounds of eligible childcare costs for families with one child
and 105 pounds for families with two children. As a result, a
family with two children should receive at least 70 per cent of
their eligible childcare costs (up to a maximum of 150 pounds a
week) if their income is below 17,000 pounds a year. Families
on higher incomes will receive some help with childcare costs,
as a result of the lower withdrawal rate in the WFTC.
7. The child credit for under 11s will be increased by 2.50
pounds a week from November 1998, (initially in Family Credit).
This narrows the gap between the amount paid in respect of
children under 11 and of children aged 11-16 (which will simply
be indexed). The evidence suggests that the costs associated
with younger children are closer to those of older children than
the benefit scale rates imply. Similar changes will be
introduced, also from November 1998, in Income Support, Job
Seeker's Allowance, Housing Benefit, Council Tax Benefit, Family
Credit and Disability Working Allowance.
8. The withdrawal threshold will be increased from 79 pounds a
week of net income in Family Credit to 90 pounds. The rate at
which the tax credit is withdrawn will be reduced to 55 per cent
of net income (from 70 per cent in Family Credit).
9. Some families can currently be worse off earning more because
of the interaction of the 30-hour rule in Family Credit with HB
and CTB. This will no longer happen in the WFTC, thanks to a
change in the rules for the HB and CTB disregards. The change
that abolishes this disincentive to work will cost 10 million
pounds a year.
10. Child Benefit will be increased by 2.50 pounds a week for
the eldest child from April 1999 (over and above statutory
indexation). The family premium in Income Support will also be
increased (along with the family premium in HB, CTB and JSA) by
the same amount.
HM TREASURY PRESS OFFICE
Press enquiries to: 0171 270 5238
Non-media enquiries to: 0171 270 4558
If you have access to the Internet you can find this news
release at http://www.hm-treasury.gov.uk. Other Treasury
material can also be found at this address.
THE WORKING FAMILIES TAX CREDIT (WFTC)
1. The WFTC is a payable tax credit. It will replace Family
Credit from October 1999. It will provide 5 billion pounds a year
of help to 1.4 million working families from 2000-01. This
represents 1.4 billion pounds of extra resources compared to
Family Credit.
2. The essential requirement is for the family to have
children, and for at least one of the parents to work 16 or more
hours a week.
3. The WFTC contains the following elements:
(£ per week,1998-99 prices)
Basic tax credit (one per family) 48.80
Tax credits for each child aged 0-11 14.85
11-16 20.45
16-18 25.40
Extra tax credit for working 30 hours or more a week 10.80
A childcare tax credit, within the WFTC, which will be worth 70
per cent of eligible childcare costs (typically, registered
costs, up to a maximum of 100 pounds a week childcare costs for
families with one child and 150 pounds of costs for families with
two or more children).
4. The maximum amount of WFTC is the sum of basic tax credit,
the various child tax credits and (where applicable) the 30-hour
tax credit and the childcare tax credit. This amount is payable
if a family's net income (excluding the WFTC and Child Benefit)
is less than 90 pounds a week. Above this threshold, WFTC is
reduced by 55p for every extra 1 pound of net income.
5. The example overleaf illustrates how entitlement to the tax
credit will be calculated. It looks at a family with two
children under 11. Both parents work, with the father earning
200 pounds a week and the mother earning 100 pounds a week. The
family has childcare costs of 60 pounds a week.
pounds per
week
Earnings (father) 200.00
Less national insurance 13.60
and gross income tax 21.31
Earnings (mother) 100.00
Less national insurance 3.60
and gross income tax 3.86
Net family income (1) 257.63
WFTC (2) 39.10
Of which: basic tax credit 48.80
2 child tax credits (0-11) 29.70
30-hour tax credit 10.80
childcare tax credit (70% of £60) 42.00
Less 55% of excess of (1) over
withdrawal threshold of £90 -92.20
Child benefit 23.25
TOTAL INCOME (1+2+3) 319.98
Memo item: net income tax -13.93
