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Budget submission 2005: Improve the delivery of tax credits to fulfil their original aims
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March 05 Tax Credits have delivered substantial improvements in the levels of income delivered to lone parents, and evidence suggests that they will have helped achieve the impressive expected reduction of child poverty by a quarter by 2004/05.[1] Yet, as mentioned above, problems with the delivery of tax credits – particularly around the recovery of overpayments - threaten to frustrate these aims. Recent research by One Parent Families found that 28% of lone parents had received an overpayment, and that more than three-quarters of those making repayments experienced financial difficulties as a result of reduced tax credits awards.
We understand that the system is intended to be responsive to changes in income, and that this will at points in time mean that an overpayment is incurred. However the rate at which these can currently be recovered, with no protection of weekly income, can cause considerable hardship.
We therefore propose that limits are placed on the reductions in tax credits that can take place in any one period. - We suggest that a limit of 10% of the maximum weekly entitlement for a family in their circumstances should be placed on the amount to be recovered for those on maximum child tax credit, and for those on working tax credit, the limit is placed at 15% of full entitlement.
- We also recommend that, in light of the difficulties many claimants experienced in understanding their award notices, that the requirement in cases of official error that the claimant should have ‘reasonably believed’ their award to be correct is waived for overpayments incurred in 2003-04. We are concerned about the small number of cases where a write off of overpayment recovery in these circumstances is currently being granted.[2]
We also believe that there are changes in the entitlement rules for tax credits which could benefit those lone parents who want to look for work. The Ten Year strategy for Childcare asks for comments on these issues, and as set out in our response to that document we recommend that: - The childcare element of Working Tax Credit is extended to those working less than 16 hours a week; and
- The childcare element of Working Tax Credit is extended for a period of two months after employment ceases.
[1] Sutherland H, Piachaud D and Sefton T (2004) Poverty in Britain: the impact of government policy since 1997 Joseph Rowntree Foundation. [2] By the end of December 2004 around 78,000 claimants had asked for their overpayments to be written off on grounds of Inland Revenue error. 41,000 of these cases had been processed but only 1,600 had been written off ( Hansard 10 Jan 2005:column 130w).
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