A Labour peer took issue last week with a statement that under the government’s proposed cuts to tax credits from April 2016, “a family with children who are in receipt of child tax credits would receive those tax credits elements at the same rate of payment as currently applies in respect of those children”.
Lord McKenzie suggested this was not a “true and fair view”, and added: “What is paid in terms of tax credits reflects not only the various elements – the building blocks – but the net effect of applying the income threshold and the taper. The former has been dramatically lowered and the taper accelerated.”
Responding, Lord Ashton said Lord McKenzie was referring to “a television programme with David Dimbleby”.
(This was the BBC Question Time Election Leaders Special in which Dimbleby asked David Cameron about “child benefit”, “child credit” and “tax credits”. Full Fact examined in July that interview and others, and whether there was a pre-election pledge not to cut child tax credit.)
Back to last week’s short debate. Lord Ashton added: “The award has not changed. It is £2,780 and it was before.”
And at PMQs two weeks ago the prime minister said: “What I said at the election was that the basic level of child tax credits would stay the same, and, at £2,780 per child, it has stayed exactly the same.”
Regulations fix the “maximum rate” of child tax credit. This maximum rate includes an individual element for each child, which is normally £2,780. But the rules fixing the actual rate of child tax credit apply (with some exceptions) a deduction based on the claimant’s income (joint income in the case of a couple). For this purpose an income threshold and the rate of taper are also set out in regulations.
The amending regulations rejected by the Lords last month would have reduced the income threshold, and increased the rate of taper, from April 2016. The impact of those changes would have been to hit some claimants and their families hard, as illustrated by the Institute for Fiscal Studies, the Resolution Foundation and others including the CIOT’s Low Incomes Tax Reform Group. (I work for LITRG and have contributed to recent briefings including this one for MPs on the tax credits reforms.)
The table below illustrates how Ben, in LITRG’s example 1, would have seen his tax credits award reduced by £42 a week under the summer budget proposals . Ben is married with one child. He works full time and he and his wife have a joint income of £20,000.
|Working tax credit||£||£|
|Child tax credit|
|Tax credit award||2,537||353|
Clearly, the £2,780 figure is only part of the story.
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