Published 26 March 2012 | Standard notes SN06267
Benefits policy, Family benefits, Taxation, Working age benefits
Child Tax Credit and Working Tax Credit were introduced from April 2003 to “tackle child poverty and help to make work pay.” Working Tax Credit (WTC) is available to working families on low or modest incomes. To qualify for WTC, the claimant or their partner must work at least 30 hours a week, unless they are responsible for a child, are disabled or are aged 50 and over and returning to work, in which case the threshold is 16 hours a week.
From April 2012, most couples with children will need to work at least 24 hours per week between them to qualify for WTC (with at least one person working 16 hours per week). The change does not affect lone parents, for whom the 16 hour threshold for WTC will still apply.
The change was one of a number of measures announced in the June 2010 Budget and 2010 Spending Review aimed at “controlling the costs of tax credits” in order to “provide a fair and affordable platform for the introduction of the Universal Credit.” It was originally estimated that WTC changes would save around £380 million a year, but Budget 2011 revised upwards the expected savings to over £500 million a year. Currently, around 212,000 couples with children benefit from WTC and work between 16 and 24 hours. It is not clear how many will be able to increase their working hours to continue to receive WTC.
A number of welfare rights groups – together with the shop workers’ union USDAW – wrote an open letter to the Prime Minister on 5 March calling for the change in the WTC hours rule to postponed, arguing that in the current economic climate many people will be unable to increase their working hours to meet the new threshold. They believe that the change could force thousands of families into poverty and debt, and that many could be better off by giving up and claiming out of work benefits, or splitting up. Postponing the change would, they argue, smooth the transition to Universal Credit without penalising “hard-working families.”
Universal Credit is to replace WTC – along with a range of other benefits for people of working age – starting from October 2013. Unlike WTC, there will be no minimum hours threshold for in-work support under UC, which is specifically designed to “incentivise” people to undertake work even if it is only for a few hours a week.