TaxAdministrationTax credits ‘to cost billions’

Tax credits 'to cost billions'

The government's new employment tax credit for low-wage workers and the integrated child credit for families with children could cost around Pounds 2.1bn a year to introduce if they are not to make any poor families worse off, according to new research from the Institute for Fiscal Studies.

The credits are due to be introduced in 2003. The integrated child credit will bring together existing support for children, but the employment tax credit will offer entirely new support to low-paid workers without children.

The new credits have so far been excluded from the Treasury’s public finance projections. And the IFS says the cost could rise to Pounds 2.8bn a year – about the yield of an extra penny on the basic rate of income tax – to ensure that no dual-earner families who currently receive the children’s tax credit lose out.

Around 5.7m families with children could receive the integrated child credit. And in order to preserve the safety net and concentrate money on the poorest families, the government will ask claimants to report some changes in circumstances to the Inland Revenue.

The IFS warns that this could make the system more complex and less certain for many families. Mike Brewer, one of the authors of the report, said: ‘Whether the reforms achieve simplification depends on how many claimants will have to deal with the Inland Revenue within the tax year, as well as at the start and end. As yet, the government has provided no indication of how many people will be in this position’.

Around 400,000 families will be entitled to receive an average payment of around £16 a week under the employment tax credit for workers without children, the IFS says.

Links

Credit where it’s due ? the full report

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