Integrated Child Credit

Summary

1. The new tax credits will successfully reduce child poverty only if they are clear and simple and so encourage full take-up. Much of the innate complexity of the Working Families Tax Credit (WFTC) stems from its not having been integrated with the tax system, so that, despite having been re-named a tax credit, it essentially remains a benefit. By contrast the Children’s Tax Credit (CTC) is essentially a tax credit. Merging them as they stand with other income related benefits in what purports to be a seamless web in order to form the new tax credits is likely to be a recipe for confusion, low take-up, fraud and error. On any basis it appears that the computer systems to support a fully integrated system will not be available until 2006, three years later than the new tax credits are due to be introduced.
2. The additional take-up of WFTC over those drawing Family Credit is less than half the estimated increase. The cause of the shortfall is likely largely to be the complexity of the scheme. Some of our proposals for simplifying it for the selfemployed have at last been accepted. But there remain large areas where differences between WFTC and income tax remain, leading to confusion for claimants and a greater risk of fraud and error. This is compounded by outdated and inaccessible legislation. The underlying law for the new tax credits should be drafted from scratch, in accordance with modern drafting techniques, so that it is accessible for claimants’ advisers.
3. The CTC is also very complex for what is essentially a simple mechanism and its interaction with the WFTC has not been worked through or explained. One reason stems from the failure of the Inland Revenue to consult the professional bodies. Such consultation is essential if the new tax credits are to be effective. The Revenue may also have failed to reach all those potentially entitled to the CTC by failing to consult benefit records. Effective joining up between the Inland Revenue and ONE is essential if the new tax credits are to deliver the Government’s policy objectives.
4. Both the WFTC and the CTC muddle up the family and the individual in the basis of assessment. There must be a consistent basis for the new tax credits – probably the family should be the unit.
5. Disability issues have so far been given a poor second place in the development of the tax credits and take-up of the Disabled Person’s Tax Credit (DPTC) has been very disappointing. The needs of the disabled must be given priority in the work on the new tax credits.
6. So far, Housing Benefit (HB) (and Council Tax Benefit (CTB)) and tax credits have been considered in isolation from each other, leading to confusion in both policy and administration. Changes to HB and CTB must be tied in with the development of the new tax credits along the lines recommended by the Social Security Committee in its Sixth Report. The aim of making work pay and of providing employment opportunities for all will be furthered only if action is systematically taken looking across all the income related benefits and tax credits.

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LITRG response

(12-01-2004)