Stephen McPartland, Member of Parliament for Stevenage, said, "I am grateful to the House of Commons Library for providing me with these statistics, which sadly prove that many working families will see their Child Tax Credits cut. In fact, the example below clearly demonstrates that the family will currently receive 87% of their maximum Child Tax Credit award. However, this will be cut to 51% in April, when the planned changes take effect, which is unacceptable."
This table shows the final tax credit award, Child Benefit receipt and net income of a lone parent (with two children) working 35 hrs a week and earnings £20,000 a year (gross income).The spreadsheet shows two scenarios:
- Scenario 1 assumes measures announced in the Summer Budget (including changes to the Personal Allowance and to tax credits, together with the four year freeze in working-age benefits) are implemented in full
- Scenario 2 shows a scenario in which policy inherited from the Coalition Government is continued to 2020-21 unchanged
See the footnotes to the attached table for full details. Both scenarios assume no wage change across the period in question (i.e., this earner’s gross income remains constant in cash terms at £20,000 a year).
Note that this in-work family is eligible for both Working Tax Credits (WTC) and Child Tax Credits (CTC). Specifically, this family is eligible for the:
- WTC Basic Element as they work more than 16 hours a week
- WTC Lone Parent Element as they are a lone parent with dependent children
- WTC 30 Hour Element as they work over 30 hours a week
- CTC Family Element as they are a family with dependent children
- 2 x CTC Child Element as this family includes two children
These elements equate to a maximum tax credit award of £10,885 in 2015-16, comprising of a £4,780 Working Tax Credit maximum award and a £6,105 Child Tax Credit maximum award.
Once the income threshold and taper rate have been applied, the family will receive a final tax credit award of £5,317 in 2015-16. Note that the taper rate is applied to the combined maximum tax credit award of £10,885, as opposed to each of the individual WTC and CTC components of which it is comprised.
Convention dictates that, when the taper is applied, a family’s WTC award is withdrawn before their CTC award. In the attached example this family’s WTC award has been tapered away entirely. Therefore, this family is an in-work, CTC only family.
In 2015-16 this family will receive, after the taper has been applied, 0% of their maximum WTC award and 87% of their maximum CTC award (this is the case in both scenarios 1 and 2). The family’s final tax credit award in 2015-16 is £5,317.
In 2016-17 this family will receive, once the Government’s new taper rate of 48% has been applied (scenario 1), 0% of their maximum WTC award and 51% of their maximum CTC award. The family’s final tax credit award in 2016-17 is £3,133 (under scenario 1).
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