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Working Tax Credit
Country of implementation
General short description of the innovation
Working Tax Credit is a state benefit made to people who work on a low income. It is part of the current system of refundable (or non-wastable) tax credits introduced in April 2003 and represents a means-tested benefit. / / To qualify for WTC, the claimant or their partner must be 16 years or over, and 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. Since April 2012, most couples with children 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 still applies. / 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.? The basic amount of Working Tax Credit is up to œ1,940 a year, depending on their income and personal circumstances. / / Universal Credit (UC) is to replace WTC ? along with a range of other benefits for people of working age. Unlike WTC, there is 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.
- general fiscal
Type of Policy
Duration of the policy
Scope of innovation
- Scope: structural
- Spatial coverage: national
General description of (intended) objectives and strategies
The main objectives are to help to make work pay and to reduce the proportion of children who live in families where no adult works.
Type of ideal-typical strategy for the innovation
Type of innovation
- new policy, practice or measure
Intended target group
Working age population
- income level (low/medium/high) (low)
- main source of income: paid work
Actors involved in policy-making/implementation and/or evaluation
- central state
Clarification of outcomes in terms of impacting resilience and labour market inclusion
Employment rates of parents considerably increased after the introduction of the scheme and there was a significant reduction of the proportion of households with children where no adult works (Brewer and Browne 2006). This is however estimated to be the result of various tax and benefit changes that affected parents at that time. This is confirmed by HM Treasury analysis suggesting that the introduction of WTC had a small positive effect on the number of people employed, with WTC estimated to have increased the employment probability of eligible people by 2.4 percentage points when low qualifications are used as a proxy for eligibility (Mulheirn and Pisani 2008). / / Originally, it was estimated that the WTC changes in 2012 would save around œ380 million a year, but this has since been revised upwards to around œ550 million a year. In March 2012, around 212,000 couples with children benefited from WTC, working between 16 and 24 hours. It is not clear how many will be able to increase their working hours to continue to receive WTC. IFS analysis (2012) showed that families with children would lose more than other groups from these changes to taxes and benefits. / Concerns have been voiced that couples unable to increase their working hours to meet the higher threshold might decide to give up work and claim out-of-work benefits instead. Under certain assumptions, a low-income family might be better off claiming out-of-work benefits than continuing to work 16 hours at the National Minimum Wage following the change in 2012. / / Sources: / Brewer, M. (2003). The new tax credits, IFS briefings notes, No. 35, Institute for Fiscal Studies, London. / Brewer, M. and Browne, J. (2006). The effect of the Working Families? Tax Credit on Labour Market Participation, IFS briefing note No. 69, Institute for Fiscal Studies, London. / IFS (2012). Households with children to lose most from tax and benefit changes in coming year, Institute for Fiscal Studies, Press Release, London. / Kennedy, S. (2012). Changes to the Working Tax Credit hours rules for couples with children from April 2012, House of Commons briefing, Standards note: SB06267. / Mulheirn, I. and Pisani, M. (2008). Working Tax Credit and labour supply: Treasury Economic Working Paper No. 3, HM Treasury, London.