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Budget
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:
The WFTC will also be better than the present Family Credit in the following ways:
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
