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Tax Credits

Volume 492: debated on Tuesday 19 May 2009

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 improving work incentives.

The Government remain committed to the current responsive system of tax credits, which provide additional financial support to families experiencing a fall in income. In the current economic climate, this support is benefiting an even larger number of households. Figures published at the Budget show that around 355,000 households living on a lower income are receiving on average £35 more per week in tax credits.

The statistics published by HM Revenue and Customs (HMRC) today show that in 2007-08 the child and working tax credits were benefiting around 6 million families and 10 million children.

The figures also show that efforts to reduce overpayments of tax credits continue to be effective. The level of overpayments is now £1 billion, less than half the level in 2003-04 and five per cent of finalised entitlement paid by HMRC. The average size of overpayments is £705, which has fallen by nearly a third since 2003-04. This is against a backdrop of increasing entitlement with total awards increasing again, by six per cent compared to 2006-07.

The number of families entitled to end of year top-ups has increased as we anticipated last May to 1.29 million (£798 million). This is a result of one of the components of the package of measures announced in the Pre Budget Report 2005 to reduce overpayments.

The statistics also show that in 2007-08:

families received more support from tax credits with the average tax credit award increasing by £200 to £3611 compared with 2006-07. This does not take into account further increases in the child element of £390 and in the basic element of the working tax credit of £160 from 2007-08 to 2009-10;

more working people on low incomes without children received tax credits, with 336,000 receiving support through the working tax credit, up by 10 per cent on 2006-07;

414,000 families benefited from the childcare element of the working tax credit, an eight per cent increase compared with 2006-07, thereby making childcare more affordable and giving parents more choice in how they balance work and family life; and

108,000 families benefited from extra help for workers with a disability-increase of nine per cent compared to 2006-07, helping these individuals overcome the labour market disadvantage they face.

The take-up of tax credits is a significant success. Other recent published statistics have shown that in 2006-07 take-up of the Child Tax Credit is 81 per cent, with 88 per cent of the money available being claimed. Take-up among those on incomes below £10,000 is 92 per cent; and take-up among lone parents is 95 per cent. This is higher than for any previous system of income-related financial support for in-work families.