Tax Credits

Treasury written statement – made on 20th May 2008.

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Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

National statistics published today demonstrate the substantial contribution tax credits are making to deliver guaranteed minimum incomes for working families and families with children, reducing child poverty, and helping more people into employment.

The statistics published by HM Revenue and Customs (HMRC) show that in 2006-07 the child and working tax credits were benefiting around 6 million families and 10 million children.

The statistics also show that in 2006-07:

more working people on low incomes without children received tax credits than ever before, with 305,000 receiving support through the working tax credit, up by 12 per cent. on 2005-06;

384,000 families benefited from the childcare element of the working tax credit, a 13 per cent. increase compared with 2005-06, thereby making childcare more affordable and giving parents more choice in how they balance work and family life; and

10 per cent. more families benefited from extra help for workers with a disability compared to 2005-06, helping these individuals overcome the labour market disadvantage they face.

Significantly, the figures show that efforts to reduce overpayments of tax credits have resulted in a £700 million reduction in overpayments since 2005-06. The level of overpayments is now less than half the level in 2003-04.

There has also been a corresponding decline in the numbers of overpaid awards, from 1,879 thousand in 2003-04 to 1,291 thousand in 2006-07.

The Government remain committed to the current responsive system of tax credits, which in 2006-07 provided additional support to the 720,000 families experiencing an income fall. While this progress is welcome, I recognise that there is more to do, building on the success of the measures put in place since 2005. That is why the Government are today publishing a number of proposals to continue improvements to the tax credits system, drawing on lessons learnt from the first five years of tax credits in the UK, and the experience of similar systems in Australia and New Zealand.

These proposals are set out in "Tax Credits—Improving Delivery and Choice: A Discussion Document" published today. They focus on three key areas.

First, HMRC is introducing further operational improvements aimed at tailoring support more closely to individuals' needs and making it easier for customers to claim, receive and renew tax credits, to reduce the scope for error.

Secondly, the document sets out a number of proposals that retain the ability for tax credits to provide additional, timely support to customers whose income falls or whose circumstances change, while giving customers greater certainty and more control over how they manage their tax credits affairs.

Thirdly, it sets out a range of possible options to reform the delivery of financial support for childcare through tax credits, simplifying the system as far as possible for customers.

Some of these reforms are already being introduced and are delivering improvements for tax credit customers. Others will be brought forward in the next few years; while some of the proposed reforms, particularly to the system of childcare support, are much longer term. The Government are therefore keen to seek views, in order to inform longer-term policy development.

"Tax Credits—Improving Delivery and Choice: A Discussion Document" is being deposited in the Libraries of both Houses.