Enter Your E-mail

The Parliamentary answer to a request for clarification about future levels of the child tax credit threshold states that its reduction will depend on a number of factors.

Background

In a press release issued on 10 July 2015, the Low Incomes Tax Reform Group (LITRG) called on the Government to resolve some confusion that had arisen about future levels of the child tax credit threshold, which had not been announced in the Summer Budget.

Parliamentary question and answer

On 20 July 2015, in answer to a question from Opposition Treasury spokesperson Catherine McKinnell (written question 6966):

"To ask Mr Chancellor of the Exchequer, what his policy is on changing the income threshold for child tax credit (a) in 2016-17 and (b) by 2020."

Damien Hinds, Exchequer Secretary to the Treasury, responded:

"The income threshold after which payments of Child Tax Credit begin to be reduced will continue to depend on a number of factors: the first income threshold (the Working Tax Credit threshold), the taper rate (the rate at which tax credits are reduced once the first income threshold has been exceeded), and the level of uprating of the individual elements of tax credits."

LITRG analysis

To put some figures to the elements of Damien Hinds’ response:

• As announced in the Summer Budget, the first income threshold (the working tax credit (WTC) threshold) has dropped from £6,420 to £3,850 with effect from April 2016. This is the point on the income scale at which working tax credit elements start to be reduced.
• The taper rate (the rate at which tax credits are reduced once the first income threshold has been exceeded) has been increased from 41p in the £ to 48p in the £ from April 2016, so all tax credit awards will be tapered away more rapidly when income exceeds the various thresholds.
• The Minister referred to the ‘level of uprating of the individual elements of tax credits’. Hitherto, the income threshold for those who are claiming child tax credit (CTC) only (because they are responsible for children but are not in work, or do not work the requisite number of hours for WTC) has been made up by adding together the basic element and the second adult element of WTC and grossing it up by the taper rate, as set out in the LITRG press release. Adding that to the reduced WTC threshold, in 2016/17 this will produce the result £12,125, as compared with the 2015/16 equivalent of £16,105. As announced in the Budget, both the basic element and the second adult element of WTC will be frozen for four years from April 2016.

Conclusion

As LITRG said in its press release, this is a further substantial cut in tax credits to those with children. For example, a married couple with two children, with one person working full time on an income of £17,900, currently receive WTC and CTC amounting to £6,178 a year. From April 2016 the amount they will receive depends in part on the CTC threshold – if it had remained at £16,105 then the couple would lose tax credits of around £935, but because the CTC threshold will fall to £12,125 then they will in fact lose just over £2,000.

Useful link

LITRG press release issued on 10 July 2015