Extra money to fight child poverty may fail to reach those in
need unless tax credit system overhauled
With the Government set to miss its target of halving child
poverty by 2010, Chancellor Alistair Darling has used today's
budget to increase assistance to children in the form of upping the
child tax credit in the hope of pulling 250,000 million UK children
out from under the poverty line.
The measures increase the first child rate of Child Benefit to
£20 a week from April 2009, increase the child element of the Child
Tax Credit by £50 a year above indexation and disregard Child
benefit when calculating income for Housing and Council Tax benefit
from October 2009.
The measures will come as welcome relief to thousands of
families facing a tough year with household costs, particularly
utilities, increasing, a slowing job market and salaries not
keeping pace with inflation. However, Francesca Lagerberg, head of
Grant Thornton's national tax office, is concerned that further
help to those children in need is being administered through the
problematic tax credit system.
"One of Brown's legacies to Alistair Darling is the shambolic
tax credit system. Year after year it has been criticised for being
administratively burdensome and poorly implemented, leaving many
with incorrect awards. Better to increase personal allowance limits
so the Chancellor knows the extra money is going directly to the
families that need it, than to throw good money at a bad system,"
says Lagerberg.
Lagerberg says that about 40% of people that are eligible for
tax credits simply do not make a claim because they are bamboozled
by the complications of the forms and the rules. She does not see
this situation improving after today's announcement. "What is
needed is a root and branch reform of the tax credit system so that
it works more effectively as opposed to hoping it will get right on
its own.".
She also says that further difficulty is in store for low income
earners from April this year when the increase in NICs is coupled
with the decrease in the basic rate of income tax (announced at
last year's budget) comes into force*.
"Those on low incomes between £5,876 and £15,350 will take a hit
to their bank balance of anywhere between £1 - £158 per annum when
the increase in NICs and decrease in the basic rate takes effect.
The reality for those on lower incomes is that they are now even
more reliant on tax credits to shore up their overall tax
position."
Lagerberg concedes that it is unlikely that Darling will
seriously overhaul the tax credit system while Labour's in power
because "it would be an admission that Brown's tax credits do not
work as intended."