Low Incomes Tax Reform Group Budget comment

Published on 11 January 2004

Budget creates many winners but also some losers

The Low Incomes Tax Reform Group have found little new in the Budget for those on low incomes as many of the provisions now coming into effect have been foreshadowed for some time, for example the various tax and pension credits. And while there are undoubtedly many beneficiaries of the Chancellor's redistributive packages, we remain concerned about the losers.

Simplification needed for the low paid

The small print was characterised by many pages of "loophole-blocking" measures for the highly paid or the corporate sector. We wish that the Chancellor would devote a small fraction of the equivalent parliamentary and Revenue time to the simplification and reform of the horrendously complex tax and tax credits landscape facing those on low incomes.

There were useful changes to help those on low incomes with children (the child trust fund), for older pensioners (the increased winter fuel allowance from £200 to £300 for those over 80) and for those in the rented sector, a continuing simplification of housing benefit.

There is welcome help for foster carers in the shape of an income tax exemption on gross receipts from fostering. A simplification of the tax position for adult carers would be equally welcome. There is more information about this on TaxAid's website atwww.taxaid.org.uk.

Unambitious take-up target for pension credit

The low take-up of benefits by pensioners has been highlighted today in a report by the Public Accounts Committee of MPs. We welcome the target the Government have set themselves of ensuring that 3 million households receive Pension Credit by 2006. However, as the Committee has pointed out, this target lacks ambition, given that it represents a take-up rate (around 73%) similar to that currently achieved.

Skilled migrants to lose under new tax credits

The new tax credits are generous in comparison with the outgoing credits and the benefits that they replaced. There are, however, unfortunate "losers" flowing from the new rules, many of whom will not realise that they have lost out until they get their first pay packet at the end of April.

One such group of losers is skilled migrants who are still "subject to immigration control". In the very week that the Chancellor announces improvements to the Highly Skilled Migrants Programme, many such workers may lose up to £10 a week as a result of the introduction of the Child Tax Credit.

This is because those who pay taxes will up to now have been entitled to claim the old Children?s Tax Credit, which reduced their tax bill. But they are not entitled to claim its replacement, the new Child Tax Credit, for as long as they are "subject to immigration control".

(11-01-2004)

This information has been provided for you by the LITRG. Please address any queries to Robin Williamson on tel 0844 579 6700; fax 0844 579 6701.