TaxPersonal TaxWhitehall denies WFTC U-turn

Whitehall denies WFTC U-turn

The Treasury has denied it is planning a U-turn on the new Working Families Tax Credit, which is set to be replaced in 2003 by a new Employment Tax Credit.

The WFTC, a flagship of the Labour government’s reform of the welfare system, was introduced by chancellor Gordon Brown in his March 1998 Budget and took effect last October.

Now the credit, which observers had viewed as a way-point in an evolutionary reform of the welfare system, will be replaced by the employment tax credit and an Integrated Children’s Credit.

But the Treasury said the move was an expansion of the benefit, not its abolition. A spokesman said it was ‘ridiculous’ to suggest WFTC was being scrapped.

Employers started to operate the scheme through the PAYE process a few days ago. Previously claimants had received the credits directly from government.

WFTC benefits around one million families, giving them about £20 a week in relief from income tax.

It has attracted criticism from women because it means money often goes to the father’s pocket rather than the mother’s purse, unlike previous child benefits.

And a Institute of Fiscal Studies report earlier this month claimed the scheme only encouraged a few thousand people into work at an enormous cost to the taxpayer.

The credit is also unpopular with employers who claim it forces them into the role of unpaid tax officials and impose the bureaucratic burden of ensuring the correct sums are paid on them.

Inland Revenue WFTC tables

Comment: Sir Peter Kemp

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